In 2012, companies should focus
on the disclosure requirements of the Compensation Discussion and Analysis
(CD&A) contained in their proxy statements, particularly with a view toward
being responsive to stockholders and minimizing the risk of say-on-pay
During 2011, stockholders voted
on an advisory basis on the executive compensation of most all public companies
(generally known as "say-on-pay"). Stockholders also voted on the
frequency of future say-on-pay votes (generally, annually or every two or three
years). In 2012, companies should focus on the disclosure requirements of the
Compensation Discussion and Analysis (CD&A) contained in their proxy
statements, particularly with a view toward being responsive to stockholders
and minimizing the risk of say-on-pay lawsuits.
Stockholders overwhelmingly approved their company's say-on-pay proposals in
Companies should now focus on the level of that approval and the
appropriate responsive actions to take. SEC rules require that a company
disclose in its proxy statement whether and how the company took into account
the say-on-pay vote in making future executive compensation decisions.
Additionally, Institutional Shareholder Services (ISS) has stated that if the
company's say-on-pay vote received less than 70% of stockholder support, ISS
will closely scrutinize the company's responsiveness to stockholder concerns,
and depending on that review potentially recommend voting against compensation
committee members and the company's next say-on-pay vote. Finally, some
companies with failed say-on-pay votes have been sued by plaintiffs that have
generally alleged that the company's proxy was misleading because,
notwithstanding the company's assertion that it pays for performance, there was
evidence to the contrary (including the fact of a failed say-on-pay vote).
CD&A Disclosure in Response to Say-On-Pay Vote
Item 402(b)(vii) of Regulation S-K requires that public companies disclose
whether and, if so, how, the company has considered the results of the most
recent say-on-pay vote (i.e., 2011 vote) in determining compensation
policies and decisions.
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