(The following post originally appeared on ONSecurities, a top Minnesota legal blog founded by Martin Rosenbaum to address securities, governance and compensation issues facing public companies.)
Today I attended a terrific presentation by Don Nemerov and Eric Gonzaga, compensation consultants with Grant Thornton, LLP, to a meeting of the Twin Cities Chapter of the National Association of Stock Plan Professionals (NASPP). The program materials are available here. The presentation covered the new executive compensation and corporate governance requirements under the Dodd Frank Wall Street Reform and Consumer Protection Act, and what public companies should be doing to prepare.
Don and Eric spent much of their presentation talking about mandatory Say-on-Pay, the requirement under Section 951 of the Act that public companies submit their compensation to an advisory vote of the shareholders starting with the 2011 annual meeting. Slides 12 through 14 of the presentation contain charts that outline “potential drivers of ‘no’ votes" under the guidelines of the two most influential proxy advisory firms – RiskMetrics/ISS and Glass Lewis. Interestingly, the speakers described RiskMetrics as having policies that are more quantitative, while Glass Lewis takes a more principle-based qualitative approach.
The presentation included the following interesting points:
- Starting with slide 36, the presentation includes a list of action items for each compensation-related provision of the Dodd-Frank Act.
- Management and the board should do due diligence right away to determine whether the company’s pay will be considered reasonable relative to its performance. Performance will likely be evaluated by reference to total shareholder return (TSR), particularly by ISS/RiskMetrics.
- Communication will be absolutely critical, and companies should start now in determining how to communicate the reasons for the company’s pay policies and why pay is reasonable relative to performance. If shareholders should be considering performance factors other than TSR, including performance relative to peers, the company should be thinking about how best to communicate this.
- The company’s investor relations personnel are critical in this process and should be consulted early, including on ways to make the CD&A more effective in telling the pay-for-performance story.
I’m attending the NASPP Annual Conference in Chicago next week, where national speakers will be providing input on the latest developments in SEC rulemaking under Dodd-Frank. I should be able to pass along further tips on how public companies should prepare.
The SEC’s Proxy Access Rules Will Be Effective November 15, 2010
As reported in this previous post, on August 25, 2010, the SEC adopted Rule 14a-11, the shareholder access rule that was originally proposed on June 10, 2009. The Rule was finally published today (September 16, 2010). Here is the convenient Federal Register version of the Rule. Therefore, we finally know the effective date of the Rule, November 15, 2010 (60 days after today's publication).
The critical date, however, is March 15, 2010. If a company mailed its proxy materials this year before March 15, then it will not be subject to proxy access rule for the 2011 proxy statement. This is because on November 15, 2010, a shareholder of the company would not be able to provide notice that is 120 days before the first anniversary of the 2010 proxy mailing. On the other hand, any company that mailed its proxy materials on or after March 15, 2010 will be subject to proxy access for the 2011 proxy statement. As Broc Romanek said in today’s post in thecorporatecounsel.net Blog, beware “the Ides of March”.
In her blog, “The Filing Cabinet,” in Compliance Week today, Melissa Aguilar posted “Proxy Access Rules Effective Nov. 15 — Who’s Affected?”, in which I provided commentary on which companies will be affected by the rule in 2011, and on other aspects of the new rule.