On July 15, 2010, the U.S. Senate approved the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Dodd-Frank Act represents one of the most significant financial reforms proposed in recent decades and presents numerous corporate governance and securities law issues that will require the attention of corporate executives. It is expected that the legislation will be signed into law by the President in the coming week. In light of its anticipated enactment, corporate executives will need to consider issues that are certain to arise under their companies' current or future executive compensation programs.
The "Say on Pay" provisions, contained in Section 951 of the Dodd-Frank Act (which inserts new Section 14A provisions into the Securities Exchange Act of 1934), require that (i) beginning with the first annual meeting of shareholders occurring six months after the Dodd-Frank Act is signed into law, and (ii) not less frequently than once every three years, a company's proxy statement for an annual meeting of shareholders now include a separate resolution, subject to a nonbinding shareholder vote, to approve executive compensation as disclosed pursuant to Item 402 of Regulation S-K.
The Dodd-Frank Act also requires that (i) beginning with the first annual meeting of shareholders occurring six months after the Dodd-Frank Act is signed into law, and (ii) not less frequently than once every six years, a company's proxy statement for an annual meeting of shareholders additionally include a separate resolution subject to a nonbinding shareholder vote to determine whether "Say on Pay" votes will occur annually, biennially or triennially.
The foregoing shareholder votes are nonbinding on the issuer or its board of directors and will not overrule a decision by the issuer or its board of directors, create or imply any change or addition to the fiduciary duties of the issuer or its board of directors, or restrict the ability of shareholders to make other proposals related to executive compensation.
Additionally, Section 957 of the Dodd-Frank Act prohibits brokers from voting on any executive compensation matters, which would presumably include the "Say on Pay" provisions, without a specific instruction from the beneficial owner of the security.
The Dodd-Frank Act does not expressly require the SEC to adopt rules that implement the "Say on Pay" provisions, but the SEC will likely provide clarification as to the following items, which are not clearly delineated in the legislation:
Although the "Say on Pay" provisions apply to all companies that are required to comply with the SEC's proxy rules, the Dodd-Frank Act's inclusion of a new Section 14A(e) to the Exchange Act affords the SEC authority to grant exemptions to the extent it determines that the requirements would disproportionately burden a small issuer. It remains unclear how this exemption will be applied by the SEC, if at all.
The "Say on Pay" requirements will become effective and applicable to the proxy statement for the first annual meeting of shareholders occurring six months after the provisions are signed into law. This would mean that if the Dodd-Frank Act is signed by the President in the coming week, as anticipated, the requirement to include a "Say on Pay" resolution would apply to annual meetings occurring after mid-January 2011.
Day Pitney Press Release
Michael Rave was quoted in an article, "Why Small Banks Are Rushing to Issue Subordinated Debt," in American Banker. Community banks are taking on more subordinated debt because interest payments are tax-deductible and the issues help bolster Tier 2 capital ratios, explains Rave in the report. Most buyers are pension funds, mutual funds and other community banks. "There's a lot of interest in them from institutional investors and investment banks are really pushing it," said Rave.
Stamford, Conn., August 24, 2015 - Day Pitney is pleased to announce that 68 attorneys have been selected for inclusion in the 2016 Best Lawyers in America. Best Lawyers ranks lawyers through peer-review surveys, and has been published annually since 1983.