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SEC Staff Posts Guidance on Say-on-Pay Rule

Melissa Klein Aguilar | February 15, 2011

Public companies now have some helpful guidance on implementing the Securities and Exchange Commission's new say-on-pay, say-on-frequency and golden parachute rules courtesy of the staff of the Securities and Exchange Commission's Division of Corporation Finance.

Corp Fin staffers posted seven new Compliance and Disclosure Interpretations on Feb. 11. Three of the CDIs relate to Exchange Act Rule 14a-21 and determining eligibility for the delayed phase-in provided in the SEC adopting release for smaller reporting companies. For example, Question 169.01 clarifies that an issuer that is a smaller reporting company as of Jan. 21, 2011 (based on its public float or annual revenue as of the last business day of the second fiscal quarter of 2010), is entitled to rely on the delayed phase-in period for smaller reporting companies for compliance with Rule 14a-21, even if it hasn't indicated its status as a smaller reporting company by checking the "Smaller Reporting Company" box on a periodic report before Jan. 21, 2011 (the date provided in the SEC release for eligibility for the delayed phase-in period).

Meanwhile, Question 169.02 clarifies that, based on its $100 million public float as of the last business day of the second quarter in 2010, an issuer with a Dec. 31 fiscal year end doesn't qualify as a smaller reporting company as of Jan. 21, 2011, and therefore can't rely on the delayed phase-in period under Rule 14a-21. In the example given in Question 169.03, an issuer with $100 million public float as of Sept. 30, 2010 (the last business day of its Q2 in 2010) and a March 31 FYE that's been reporting as a smaller reporting company, but that will report under non-smaller reporting company disclosure provisions starting with its Form 10-Q for its first fiscal quarter beginning on April 1, 2011, can rely on the delayed phase-in, since it still qualifies as a smaller reporting company as of Jan. 21, 2011.

Some other interpretations address drafting issues. For instance, Question 169.04 clarifies that the vote on say-on-frequency required by Rule 14a-21(b) isn't required to be in the form of a "resolution." Question 169.05 makes clear that it's permissible for the say-on-pay vote to use a plain English equivalent in lieu of the words, "pursuant to Item 402 of Regulation S-K," and Question 169.06 says it's permissible for the say-on-frequency vote to include the words "every year, every other year, or every three years, or abstain" in lieu of "every 1, 2, or 3 years, or abstain."

Finally, Question 128B.01 addresses whether a principal executive officer must be included in a merger proxy say-on-golden-parachute vote and disclosure under Item 402(t) of Regulation S-K.