SEC Proposes 'Golden Parachute' Rules

by Glen Shapiro, LawAndTax-News.com, New York

21 October 2010

As called for by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the United States Securities and Exchange Commission (SEC) has proposed rules that would enable shareholders to cast advisory votes on executive compensation and "golden parachute" arrangements.

Last year, the SEC adopted rules requiring public companies with outstanding obligations under the Troubled Asset Relief Program to provide a shareholder vote on executive pay in their proxy solicitations. The SEC also adopted rules requiring enhanced disclosure of executive compensation by public companies in their proxy statements.

Under the proposed new rules, public companies subject to the federal proxy rules would be required to provide their shareholders with an advisory vote on executive compensation and on the desired frequency of these votes, beginning with the first annual shareholders' meeting taking place on or after January 21, 2011.

They would also be required to provide their shareholders with an advisory vote on compensation arrangements and understandings in connection with merger transactions, known as "golden parachute" arrangements, and make additional disclosures of "golden parachute" arrangements in merger proxy statements.

Furthermore, the proposed rules would require that institutional investment managers report their votes on executive compensation and "golden parachute" arrangements at least annually, unless the votes are otherwise required to be reported publicly by SEC rules. The proposal would generally apply to every institutional investment manager that manages certain equity securities having an aggregate fair market value of at least USD100m.

The SEC is seeking public comment on the proposals. The consultation period will close on November 18, 2010.

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