New guidance from the Securities and Exchange Commission confirms that businesses participating in the Troubled Asset Relief Program—more than 400 companies at last count, including everyone who’s anyone in the financial sector—must offer shareholders an advisory vote on executive compensation starting this spring. That is far sooner than Corporate America expected, and will leave affected corporate secretaries and compliance departments scrambling to ensure their proxy statements pass muster in coming weeks.
TARP companies already knew they would need to start offering say-on-pay votes to shareholders at some point in the future, and that requirement was enshrined into law when Congress passed the American Recovery and Reinvestment Act (aka the stimulus bill) on Feb. 17. But the Recovery Act never specified precisely
when companies had to implement say-on-pay.
That confusion only grew worse Feb. 20, when Christopher Dodd, chairman of the Senate Banking Committee,
fired off a letter to the SEC stating his belief that the say-on-pay requirement applies to any preliminary or definitive proxy statements filed after the Recovery Act was signed into law—that is, any proxy statement filed after Feb. 17.
Facing a clamor of uncertainty, the SEC’s Division of Corporation Finance published new guidance on the question this week, and it specifically states that the SEC staff “is following the views expressed in Chairman Dodd’s letter.”
Meanwhile, with respect to a requirement for TARP recipient CEOs and CFOs to provide a written certification of compliance by the TARP recipient with the requirements of the EESA as amended, Dodd said that since the requirement relates to compliance with standards that have yet to be established by the Secretary of the Treasury, “It is my view that this requirement is not yet effective.”
One of the many questions that’s been raised by the say-on-pay mandate is how TARP companies should handle shareholder proposals seeking advisory votes if they’re putting the votes in as required under ARRA.
A Feb. 26 e-mail response to Compliance Week from SEC spokesman John Nester notes, “In accordance with rule 14a-8, any company that seeks to exclude a shareholder proposal would submit a no-action request to the staff that sets forth the company’s reasons why it believes it may exclude the particular shareholder proposal the company received.”
If the company’s request is filed less than 80 calendar days before the company intends to file its definitive proxy materials, Nester says the company should provide the staff detailed information regarding its planned schedule for printing and mailing proxy materials.
“To the extent possible, the staff will consider these no-action requests on an expedited basis,” the e-mail states.
Colin Diamond, a partner in the law firm White & Case, says TARP companies that received shareholder proposals seeking the adoption of say-on-pay policies should ask shareholders to withdraw the proposals now that TARP requires them to implement say-on-pay anyway.
Diamond says the SEC “would likely allow companies to exclude those proposals in any event on the basis that they have been ‘substantially implemented.’”
While he says the SEC has “made it clear” that it will work with companies that missed the 80-day advance filing requirement because of the timing of the new legislation, Diamond notes, “That still leaves open the door for other shareholder proposals on executive compensation in areas not covered by TARP.”
Compliance Week will provide readers with full coverage related to the TARP say-on-pay mandate in its March 3 issue.