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An Introduction to the Law of Corporations: Cases and Materials, Fall 2017

Say on Pay Vote [Frank-Dodd, Sec 951]

Headnote

In the wake of the Financial Crisis of 2008, Congress adopted the Frank-Dodd bill.  Section 951 of Frank-Dodd requires regular votes by shareholders to approve executive compensation. Note that the structure and effect of the vote are sensitive to the 14a-8 process and comport with what one might expect of other shareholder proposals. When approving the "say on pay" votes, Congress was sensitive to the traditional preeminance of the state corporate law.  Consequently, "say on pay" votes are precatory in nature. 

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SEC. 951. SHAREHOLDER VOTE ON EXECUTIVE COMPENSATION DISCLOSURES.

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    The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is

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amended by inserting after section 14 (15 U.S.C. 78n) the following:

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SHAREHOLDER APPROVAL OF EXECUTIVE COMPENSATION.

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    ``(a) <<NOTE: Deadlines.>>  Separate Resolution Required.--

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            ``(1) In general.--Not less frequently than once every 3

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        years, a proxy or consent or authorization for an annual or

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        other meeting of the shareholders for which the proxy

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        solicitation rules of the Commission require compensation

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        disclosure shall include a separate resolution subject to

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        shareholder vote to approve the compensation of executives, as

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        disclosed pursuant to section 229.402 of title 17, Code of

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        Federal Regulations, or any successor thereto.

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            ``(2) Frequency of vote.--Not less frequently than once

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        every 6 years, a proxy or consent or authorization for an annual

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        or other meeting of the shareholders for which the proxy

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        solicitation rules of the Commission require compensation

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        disclosure shall include a separate resolution subject to

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        shareholder vote to determine whether votes on the resolutions

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        required under paragraph (1) will occur every 1, 2, or 3 years.

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            ``(3) Effective date.--The proxy or consent or authorization

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        for the first annual or other meeting of the shareholders

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        occurring after the end of the 6-month period beginning on the

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        date of enactment of this section shall include--

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                    ``(A) the resolution described in paragraph (1); and

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                    ``(B) a separate resolution subject to shareholder

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                vote to determine whether votes on the resolutions

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                required under paragraph (1) will occur every 1, 2, or 3

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                years.

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    ``(b) Shareholder Approval of Golden Parachute Compensation.--

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            ``(1) Disclosure.-- <> In any proxy or

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        consent solicitation material (the solicitation of which is

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        subject to the rules of the Commission pursuant to subsection

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        (a)) for a meeting of the shareholders occurring after the end

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        of the 6-month period beginning on the date of enactment of this

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        section, at which shareholders are asked to approve an

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        acquisition, merger, consolidation, or proposed sale or other

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        disposition of all or substantially all the assets of an issuer,

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        the person making such solicitation shall disclose in the proxy

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        or consent solicitation material, in a clear and simple form in

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        accordance with regulations to be promulgated by the Commission,

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        any agreements or understandings that such person has with any

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        named executive officers of such issuer (or of the acquiring

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        issuer, if such issuer is not the acquiring issuer) concerning

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        any type of compensation (whether present, deferred, or

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        contingent) that is based on or otherwise relates to the

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        acquisition, merger, consolidation, sale, or other disposition

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        of all or substantially all of the assets of the issuer and the

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        aggregate total of all such compensation that may (and the

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        conditions upon which it may) be paid or become payable to or on

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        behalf of such executive officer.

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            ``(2) Shareholder approval.--Any proxy or consent or

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        authorization relating to the proxy or consent solicitation

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        material containing the disclosure required by paragraph (1)

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        shall include a separate resolution subject to shareholder vote

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        to approve such agreements or understandings and compensation as

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        disclosed, unless such agreements or understandings have been

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        subject to a shareholder vote under subsection (a).

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    ``(c) Rule of Construction.--The shareholder vote referred to in

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subsections (a) and (b) shall not be binding on the issuer or the board

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of directors of an issuer, and may not be construed--

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            ``(1) as overruling a decision by such issuer or board of

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        directors;

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            ``(2) to create or imply any change to the fiduciary duties

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        of such issuer or board of directors;

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            ``(3) to create or imply any additional fiduciary duties for

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        such issuer or board of directors; or

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            ``(4) to restrict or limit the ability of shareholders to

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        make proposals for inclusion in proxy materials related to

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        executive compensation.

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    ``(d) Disclosure of Votes.-- <> Every

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institutional investment manager subject to section 13(f) shall report

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at least annually how it voted on any shareholder vote pursuant to

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subsections (a) and (b), unless such vote is otherwise required to be

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reported publicly by rule or regulation of the Commission.

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    ``(e) Exemption.--The Commission may, by rule or order, exempt an

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issuer or class of issuers from the requirement under subsection (a) or

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(b). In determining whether to make an exemption under this subsection,

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the Commission shall take into account, among other considerations,

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whether the requirements under subsections (a) and (b)

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disproportionately burdens small issuers.''.