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For those who want to start preparing for the 2017 proxy season, our preliminary list of important considerations is set forth below:

Directors’ and Officer’s Questionnaire

Nasdaq has adopted a rule requiring disclosure of director “golden leash” compensation arrangements. Nasdaq listed issuers may wish to revise their directors’ and officers’ questionnaires to elicit relevant information, and NYSE listed issuers may wish to do so as a best practice.  A suggested modification is as follows:

Disclose below the terms of all agreements, arrangements or understandings between you and any person or entity other than the company relating to compensation or other payment in connection with your candidacy or service as a director. If there are no such agreements or arrangements, please state “None.”

The rule requires Nasdaq-listed companies to disclose this information either on or through the company’ website or in the definitive proxy or information statement for the next shareholders’ meeting at which directors are elected (or, if the company does not file proxy or information statements, in its Form 10-K or Form 20-F).

Say-on-Pay Frequency Vote

Rule 14a-21(b) requires a say-on- pay frequency vote every six years. Many issuers will have to include a frequency vote in their 2017 proxy because the initial rules became effective for an issuers first annual or other meeting of the shareholders occurring on or after January 21, 2011 (see the transition section of the adopting release).  However, 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, were not required to hold a frequency vote until the first meeting occurring on or after January 21, 2013. Thus for many smaller reporting companies the date is pushed out until the 2019 proxy season.

Issuers that formerly qualified as “emerging growth companies” (EGCs) under the JOBS Act should also remain mindful of say-on-pay requirements as such issuers lose their exemption from the requirements under Exchange Act Sections 14A(a) and (b).  Former EGCs are required to begin providing say-on-pay votes within one year of losing EGC status (or no later than three years after selling securities under an effective registration statement if an issuer was an EGC for less than two years).  Typically, such companies will also hold say-on-pay frequency votes when they hold their first say-on-pay vote as a non-EGC.

Note that as of this date, ISS’s position on the upcoming frequency vote is as yet unknown. ISS solicited information in its 2017 Global Benchmark Policy Survey released in early August.

And if you hold a frequency vote, do not forget the requirement to amend your Form 8-Ks that disclose voting results to “disclose the company’s decision in light of such vote as to how frequently the company will include a shareholder vote on the compensation of executives in its proxy materials until the next required vote on the frequency of shareholder votes on the compensation of executives.” The amendment must be made “no later than one hundred fifty calendar days after the end of the annual or other meeting of shareholders at which shareholders voted on the frequency of shareholder votes on the compensation of executives.”

Non-GAAP Financial Measures

Issuers should also be mindful of non-GAAP financial measures included in annual reports and proxy statements as a result of new and revised interpretations issued by the SEC. Key takeaways include:

  • Confirming that non-GAAP financial measure are presented with comparable GAAP measures and that the GAAP financial measure is presented with equal or greater prominence;
  • Omitting non-GAAP per share liquidity measures; and,
  • Reviewing all non-GAAP adjustments to ensure they will not be viewed as misleading and revise or eliminate adjustments, as necessary.

Pay Ratio Disclosures

The pay ratio disclosure need not be made in annual reports or proxy statements that include information for the calendar year ended December 31, 2016 (i.e., this proxy season). The disclosures must be included in annual reports and proxy statements which include information for the first fiscal year beginning on or after January 1, 2017.  The finalized rules require disclosure of:

  • the median of the annual total compensation for all employees (except a CEO);
  • the annual total compensation of the registrant’s CEO; and
  • the ratio between median annual total compensation and the CEO’s annual total compensation.

Description of Shareholder Proposals on Proxy Cards

Issuers who include shareholder proposals in their proxy statements should be mindful of recent SEC guidance on what constitutes an “appropriate” description of shareholder proposals included on proxy cards in compliance with the “clear and impartial” identification requirements of Rule 14a-4(a)(3).

Form 10-K Summary

New rules permit the inclusion of a summary in Form 10-K, which merits some advance thinking about whether one will be used or not. One factor to consider is that adopters of the voluntary rules are unlikely to achieve any appreciable workload reduction in preparing Form 10-K disclosure due to the rules’ express requirement to include cross-reference to a full-discussion provided elsewhere Form 10-K for any summary disclosures.

Inline XBRL

The SEC now permits the use of “Inline XBRL,” which also merits some advance thinking about whether it will be used or not. We recommend checking with your auditors if you are thinking about going down this path.  As this Compliance Week article (subscription required) notes, auditors are wondering if the new format requires them to audit the XBRL data tagging as well.

Audit Committee Report

Due to a reorganization of PCAOB standards, the old reference to PCAOB Auditing Standard No. 16 in audit committee reports should be changed to Auditing Standard No. 1301.

Identification of Audit Partner

Registered public accounting firms will have to file with the PCAOB a report on Form AP that identifies the audit engagement partner and information about other firms involved in the engagement. The audit firm is responsible for the filing, not the issuer, but it is a change to be aware of.  The disclosure with respect to audit partners is effective for auditors’ reports issued on or after January 31, 2017.

Resource Extraction Issuers

New rules require an issuer to disclose payments made to the U.S. federal government or a foreign government if the issuer engages in the commercial development of oil, natural gas, or minerals and is required to file annual reports with the Commission under the Securities Exchange Act. The rules become effective September 26, 2016.

Conflict Minerals

There have been no developments in the continuing conflict minerals saga after a rehearing let the original Court of Appeals ruling stand, other than an en banc rehearing was denied and the government determined not to appeal to the Supreme Court.

Pay versus Performance Disclosures

While proposed rules have been issued, final rules have not been adopted.

Compensation Clawbacks

While proposed rules have been issued, final rules have not been adopted.

Hedging Disclosures

While proposed rules have been issued, final rules have not been adopted.


Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.