Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

[Authors update:  Since this matter was posted, the primary regulatory action was the SEC adopting final rules on mine safety disclosure which are effective January 27, 2012.  Those rules impact a relatively narrow class of issuers, but Forms 10-K and 10-Q have been renumbered.  The SEC has announced a 2012 rulemaking schdule, but any final rules are not expected to impact those holding meetings early in 2012.]

Given regulatory delays, at this time there are relatively few new items to consider on our proxy statement checklist.  If that holds constant, the season’s debate will likely focus on three items.  First, shareholder proposals for “private ordering” of proxy access under Rule 14a-8 are likely to be submitted given the SEC’s decision not to challenge the invalidation of the proxy access rules.  Second, issuers who held say-on-pay votes are required by Regulation S-K Item 402(b)(1)(vii) to discuss whether, and if so how, the registrant considered the advisory vote on executive compensation in determining compensation policies and decisions and how that affected the registrant’s executive compensation decisions and policies.  Third, and perhaps most importantly, issuers should review last years say-on-pay results, changes to executive compensation packages and determine an approach to this year’s say-on-pay vote.

Here is our preliminary checklist with some commentary which follows on some of the key items.

Item Status
Proxy Statements  
1.  Say-on-pay exemption for smaller reporting companies:  Companies that qualified as “smaller reporting companies” as of January 21, 2011, including newly public companies that qualify as smaller reporting companies after January 21, 2011, are not subject to the say-on-pay rules until the first annual or other meeting of shareholders at which directors will be elected and for which the rules of the SEC require executive compensation disclosure pursuant to Item 402 of Regulation S-K occurring on or after January 21, 2013. Effective
2.  Say-on-pay advisory vote: Whether issuers are required to include a say-on-pay advisory vote depends on what frequency the Board adopted last year after giving effect to the shareholder advisory vote on frequency.  If a say-on-pay vote is included: Effective
  • Rule 14a-21(a):  Resolution for an advisory vote on compensation of named executive officers as disclosed pursuant to Item 402 of Regulation S-K
  • Item 24 of Schedule 14A:  Required disclosure that advisory votes under 14A-21 are included pursuant to Section 14A of the Exchange Act and the general effect of each such vote. 




3.  Other say-on-pay disclosures where a prior vote was held: Effective
  • S-K Item 402(b)(1)(vii):  Disclose in the CD&A the extent to which previous shareholder say-on-pay votes has been considered.
  • Item 24 of Schedule 14A:  Disclose current frequency of shareholder advisory votes on executive compensation and when the next shareholder advisory vote will occur.


4.  Say-on-pay frequency vote Effective
  • Rule 14a-21(b):  A frequency vote must be held every six calendar years.  For most issuers the next frequency vote will be for the 2017 proxy season.
  • Rule 14a-21(b): Resolution on advisory vote as to whether say-on-pay vote shall be held every one, two or three years.


  • Rule 14a-4(b)(3):  Form of proxy—must offer choice between 1, 2 or 3 years or abstain.


5.  “Private ordering” permitting shareholder proxy access proposals under Rule 14a-8 Effective
  • No additional issuer disclosures are necessary unless a proposal is received.
  • See further information below.
Awaiting SEC Action  
1.   Compensation committees, consultants and advisers  (Section 952 of the Dodd-Frank Act)

  • Independent compensation committee
  • Authority of committee to retain consultants and advisers
  • Compensation consultants conflict of interest


Proposed rules have been published; Final rules expected prior to July 1, 2012 but action by exchanges will be necessary to implement most of the final rules.
2.   Pay for performance disclosures (Section 953 of the Dodd-Frank Act)

  • Demonstrate relationship between compensation actually paid and the financial performance of the issuer
No proposed rules have been published.  Proposed rules expected prior to July 1, 2012; Final rules expected between July and December 2012.
3.   Pay disparity ratio (Section 953 of the Dodd-Frank Act)

  • Annual compensation of CEO
  • Median total compensation of all employees other than the CEO
  • Ratio of median total compensation to CEO compensation
No proposed rules have been published.  Proposed rules expected prior to July 1, 2012; Final rules expected between July and December 2012.
4.   Clawback requirements  (Section 954 of the Dodd-Frank Act)

  • Disclosure of policy on incentive-based compensation based on financial information
  • Clawback in the event of an accounting restatement
No proposed rules have been published.  Proposed rules expected prior to July 1, 2012; Final rules expected between July and December 2012.
5.   Disclosure of hedging policy (Section 955 of the Dodd-Frank Act)

  • Disclose whether directors or employees are permitted to hedge company securities
No proposed rules have been published.  Proposed rules expected prior to July 1, 2012; Final rules expected between July and December 2012.
6.   Disclosures regarding Chairman/CEO Structure (Section 972 of the Dodd-Frank Act)      –Disclose why the issuer has chosen the same or different  persons as chairman of the board or CEO (Deadline–January 11, 2011) No proposed rules have been published.  SEC has not indicated a timeline or whether current disclosures satisfy this requirement.
7.   Conflict mineral disclosure (Section 1502 of the Dodd-Frank Act) Proposed rules have been published; Final rules expected by July 1, 2012.
8.   Disclosures of payments made by resource extraction issuers (Section 1504 of the Dodd-Frank Act) Proposed rules have been published; Final rules expected by July 1, 2012.
9.   Short-Term Borrowings Disclosure (Release No. 33-9143) Proposed rules have been published.  The SEC has not given a dated for expected final rule making.
Other reminders  
1.  Disclosure regarding mine safety information (Section 1503 of the Dodd-Frank Act) Currently effective; Final rules have been published which are effective January 27, 2012.
2.  Determine effect of XBRL phase-in on periodic reports and registration statements

  • See further notes below
Currently effective.

Proxy Access and Rule 14a-8

The Court of Appeals invalidated the SECs proxy access rules.  The proxy access rules permitted shareholders to include shareholder nominees in company proxy statements under certain circumstances.  As of this date, the SEC has not taken steps to re-propose the rules.

When the SEC adopted the proxy access rules, it also adopted amendments to Rule 14a-8.  The amendments to Rule 14a-8 provide that public companies will no longer be able to rely on Rule 14a-8(i)(8) to exclude a proposal seeking to establish a procedure in a company’s governing documents for the inclusion of one or more shareholder nominees for director in a company’s proxy statement.  While the amendments to Rule 14a-8 were stayed by the SEC in connection with the proxy access litigation, the stay is no longer effective.  The revisions to Rule 14a-8 are a potent weapon for activist investors that we have long advised clients could create far more issues than the now vacated proxy access rules.

We recommend public companies monitor any developments related to Rue 14a-8 that could potentially affect the upcoming proxy season.


It is hard to explain in a concise way, exactly what XBRL, as applied to public companies, is.  To try to make a long story short, financial statements included in certain public filings must be recast and attached as exhibits to SEC filings in the XBRL format, or to use the SEC’s words, interactive data format.  According to the SEC, in this format, financial statement information could be downloaded directly into spreadsheets, analyzed in a variety of ways using commercial off-the-shelf software, and used within investment models in other software formats.

During 2011, large accelerated filers with a non-affiliated public float of less than $5 billion became subject to the XBRL rules for detailed tagging of financial statements footnotes.  In addition, all remaining smaller issuers became subject to the XBRL rules which required XBRL exhibits with certain filings and block tagging of footnotes.

During 2012, all remaining issuers will become subject to the XBRL rules which require detailed tagging of financial statement footnotes for filings which include financial statements for a period that ends on or after June 15, 2012.  For calendar year issuers this will generally the second quarter Form 10-Q.  See Regulation S-T Rule 405(f).  Issuers first subject to the detailed footnote tagging requirements can take advantage of a 30-day grace period for the first filing.

The XBRL rules also apply to registration statements.  Application of the rules depends in part on the type of registration statement filed.  Note that for registration statements filed on Form S-1, it appears both the audited financial statements and the interim financial statements will have to include detailed footnote tagging if the Form S-1 includes financial statements for a period ending after June 15, 2012 (at least where incorporation by reference is not used).  That appears to be the case even if the financial statements for Form 10-K were not required to include detailed footnote tagging.  As a result, issuers considering PIPEs should plan accordingly.  If that is a real possibility those issuers might consider detail tagging footnotes in Form 10-K to prevent doing the XBRL preparation twice.

Rule 406T of Regulation S-T includes certain relaxed liability provisions for XBRL filings which phase out.  For large accelerated filers with a non-affiliated public float of less than $5 billion, those provisions will end during 2012, specifically two years after such issuers were first required to submit XBRL filings.  For other smaller issuers the relaxed liability provisions will be available into 2013.

Check dodd-frank.comfrequently for updates on the Dodd-Frank Act and other important securities law matters.

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