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In the wake of the Financial Crisis of 2008, Congress adopted the Frank-Dodd bill. Section 951 of Frank-Dodd requires regular votes by shareholders to approve executive compensation.
Note that the structure and effect of the vote are sensitive to the 14a-8 process and comport with what one might expect of other shareholder proposals. When approving the “say on pay” votes, Congress was sensitive to the traditional preeminance of the state corporate law. Consequently, “say on pay” votes are precatory in nature.
EDIT ANNOTATED ITEM INFORMATION DELETE ANNOTATED ITEMSEC. 951. SHAREHOLDER VOTE ON EXECUTIVE COMPENSATION DISCLOSURES.
23
The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is
4amended by inserting after section 14 (15 U.S.C. 78n) the following:
56
7
SHAREHOLDER APPROVAL OF EXECUTIVE COMPENSATION.
89
``(a) <
``(1) In general.--Not less frequently than once every 3
11years, a proxy or consent or authorization for an annual or
12other meeting of the shareholders for which the proxy
13solicitation rules of the Commission require compensation
14disclosure shall include a separate resolution subject to
15shareholder vote to approve the compensation of executives, as
16disclosed pursuant to section 229.402 of title 17, Code of
17Federal Regulations, or any successor thereto.
18``(2) Frequency of vote.--Not less frequently than once
19every 6 years, a proxy or consent or authorization for an annual
20or other meeting of the shareholders for which the proxy
21solicitation rules of the Commission require compensation
22disclosure shall include a separate resolution subject to
23shareholder vote to determine whether votes on the resolutions
24required under paragraph (1) will occur every 1, 2, or 3 years.
25``(3) Effective date.--The proxy or consent or authorization
26for the first annual or other meeting of the shareholders
27occurring after the end of the 6-month period beginning on the
28date of enactment of this section shall include--
29``(A) the resolution described in paragraph (1); and
30``(B) a separate resolution subject to shareholder
31vote to determine whether votes on the resolutions
32required under paragraph (1) will occur every 1, 2, or 3
33years.
3435
``(b) Shareholder Approval of Golden Parachute Compensation.--
36 ``(1) Disclosure.-- <
consent solicitation material (the solicitation of which is
38subject to the rules of the Commission pursuant to subsection
39(a)) for a meeting of the shareholders occurring after the end
40of the 6-month period beginning on the date of enactment of this
41section, at which shareholders are asked to approve an
42acquisition, merger, consolidation, or proposed sale or other
43disposition of all or substantially all the assets of an issuer,
44the person making such solicitation shall disclose in the proxy
45or consent solicitation material, in a clear and simple form in
46accordance with regulations to be promulgated by the Commission,
47any agreements or understandings that such person has with any
48named executive officers of such issuer (or of the acquiring
49issuer, if such issuer is not the acquiring issuer) concerning
50any type of compensation (whether present, deferred, or
51contingent) that is based on or otherwise relates to the
52acquisition, merger, consolidation, sale, or other disposition
53of all or substantially all of the assets of the issuer and the
54aggregate total of all such compensation that may (and the
55conditions upon which it may) be paid or become payable to or on
56behalf of such executive officer.
57``(2) Shareholder approval.--Any proxy or consent or
58authorization relating to the proxy or consent solicitation
59material containing the disclosure required by paragraph (1)
60shall include a separate resolution subject to shareholder vote
61to approve such agreements or understandings and compensation as
62disclosed, unless such agreements or understandings have been
63subject to a shareholder vote under subsection (a).
6465
``(c) Rule of Construction.--The shareholder vote referred to in
66subsections (a) and (b) shall not be binding on the issuer or the board
67of directors of an issuer, and may not be construed--
68``(1) as overruling a decision by such issuer or board of
69directors;
70``(2) to create or imply any change to the fiduciary duties
71of such issuer or board of directors;
72``(3) to create or imply any additional fiduciary duties for
73such issuer or board of directors; or
74``(4) to restrict or limit the ability of shareholders to
75make proposals for inclusion in proxy materials related to
76executive compensation.
7778
``(d) Disclosure of Votes.-- <
institutional investment manager subject to section 13(f) shall report
80at least annually how it voted on any shareholder vote pursuant to
81subsections (a) and (b), unless such vote is otherwise required to be
82reported publicly by rule or regulation of the Commission.
8384
``(e) Exemption.--The Commission may, by rule or order, exempt an
85issuer or class of issuers from the requirement under subsection (a) or
86(b). In determining whether to make an exemption under this subsection,
87the Commission shall take into account, among other considerations,
88whether the requirements under subsections (a) and (b)
89disproportionately burdens small issuers.''.
May 22, 2017
Say on Pay Vote [Frank-Dodd, Sec 951]
Brian JM Quinn
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