Many calendar year-end companies are beginning to prepare for annual meetings and related proxy soliciting activities. As part of that preparation, companies are turning to recent SEC rules, regulations, and policy updates. This advisory provides some reminders and updates for companies as they prepare for the 2017 proxy season.
Rule 14a-21(b) first required public companies to conduct an advisory vote on the frequency of the say-on-pay vote at the first meeting of shareholders held on or after January 21, 2011, with subsequent votes on frequency no more than every six years. As a result, many public companies will include a proposal for their 2017 annual meetings asking shareholders if the say-on-pay vote should occur every one, two, or three years. However, “smaller reporting companies” as of January 21, 2011 were not required to hold their say-on-frequency vote until 2013; their next say-on-frequency vote is not needed until 2019.
The say-on-frequency vote is required even if the company is already conducting its say-on-pay vote annually. The Form 8-K reporting voting results must disclose both the results of the say-on-frequency vote and the frequency with which the company intends to conduct the say-on-pay vote in light of the say-on-frequency results (if this is unknown at the time of the filing, companies can amend their Form 8-K within 150 days after the end of the annual meeting).
Golden Leash Compensation Disclosures
As we previously blogged, NASDAQ adopted a rule requiring disclosure of directors’ “golden leash” compensation. NASDAQ-listed companies must disclose certain information relating to compensation or other arrangements with third parties to directors or director nominees either through the company’s website or proxy statement. Companies may wish to revise their directors’ and officers’ questionnaire accordingly.
Pay Ratio Disclosures
The initial disclosure regarding pay ratio is required for a company’s first full fiscal year beginning on or after January 1, 2017. Therefore, companies generally will initially be required to include pay ratio disclosure in their 2018 proxy statements. Pay ratio disclosure will be required in all filings requiring executive compensation disclosure pursuant to Item 402 of Regulation S-K. In sum, pay ratio disclosure requires public companies to disclose:
- The median of the annual total compensation of all employees other than the CEO;
- The annual total compensation of the CEO; and
- The ratio between median annual total compensation and the CEO’s annual total compensation.
Although pay ratio disclosure is not required for the 2017 proxy season, companies should start to allocate resources now to prepare for compliance with the rule. Companies should be determining the methodology they will use (the rules allow a few different methods) to calculate and report their pay ratio disclosure and coordinate their reporting systems. In addition, compensation committees may want to preview what the ratio is likely to be.
Non-GAAP Financial Measures
Companies must be attentive to the use of non-GAAP financial measures included in the proxy statement and other reports. The SEC has increased its focus on compliance with the requirements for use of non-GAAP financial measures and issued new and updated C&DIs on the subject. These new C&DIs illustrate what the SEC considers to be misleading uses of non-GAAP financial measures and unacceptable prominence of non-GAAP financial measure presentation. In response to the C&DIs, companies should:
- Confirm that all non-GAAP financial measures are presented with comparable GAAP measures and that the GAAP financial measures are presented with equal or greater prominence;
- Omit non-GAAP per share liquidity measures; and
- Review all non-GAAP adjustments to ensure they will not be viewed as misleading and revise or eliminate adjustments.
Form 10-K Summary
The SEC recently adopted new rules permitting a summary in the Form 10-K. Companies opting to provide the summary must include hyperlinks to the related, more detailed disclosure in the Form 10-K.
Other Dodd Frank Proposed Rules
While proposed rules have been issued, final rules have not yet been adopted for pay versus performance disclosures, compensation clawbacks, or hedging disclosures. We will continue to monitor the rule-making process and provide updates.
KMK Law articles and blog posts are intended to bring attention to developments in the law and are not intended as legal advice for any particular client or any particular situation. The laws/regulations and interpretations thereof are evolving and subject to change. Although we will attempt to update articles/blog posts for material changes, the article/post may not reflect changes in laws/regulations or guidance issued after the date the article/post was published. Please consult with counsel of your choice regarding any specific questions you may have.
© 2021 Keating Muething & Klekamp PLL. All Rights Reserved
As a partner in the firm’s Business Representation & Transactions Group, Allie Westfall’s insight and proven analytical skills help translate the complexities of the often-challenging securities laws. Allie’s counsel ...
Chris Brinkman practices in the firm's Business Representation & Transactions Group with a concentration in venture capital/private equity, start-ups & growth companies, securities, and mergers and acquisitions. Chris ...
Jim Kennedy practices in the Business Representation & Transactions Group. The focus of his practice is corporate, securities, and financing law, where he has extensive experience in mergers, acquisitions and ...
Mark Reuter advocates for business clients in transactions, proceedings and conflicts regulated by federal and state securities laws and stock exchange rules. A partner in the firm’s Business Representation & Transaction ...
- Securities Law
- Securities Regulation
- Tax Planning
- Corporate Law
- Corporate Tax
- Paycheck Protection Program
- Proxy Access Rules
- Securities Litigation
- FAST Act
- JOBS Act
- Private Offerings
- Cybersecurity and Privacy Law
- SEC Enforcement
- Consumer Protection Act
- Corporate Governance
- Real Estate Law
- Conflict Minerals
- Ohio LLC Act
- Emerging Growth Companies
- Intellectual Property
- Pay Ratio Disclosure
- Opportunity Zone
- Mergers & Acquisitions
- Accredited Investors
- Sales Tax
- United States Supreme Court
- Online Trading Platforms
- Registration Statement
- Executive Compensation
- Health Care Act
- Annual Reports
- Ohio Foreclosure Reform
- Family-Controlled Entities
- Gift and Estate Transfers
- Director Compensation
- Wall Street Reform
- Board of Directors
- Director Independence
- Clawback Rules
- Total Shareholder Return
- Cyber Insurance
- Data Breach
- Receivership Statute
- Regulation A
- Regulation D
- Business Process Improvement
- Employer Policies
- Employment Litigation
- Labor & Employment Law
- Labor Law
- Sixth Circuit
- Compensation Committee Certification
- CDFI Fund
- Community Development Entities
- Community Development Financial Institutions Fund
- Government Shutdown
- New Markets Tax Credit
- NMTC Financing
- Regulation Fair Disclosure
- Social Media
- Healthcare Reform
- Public Company Transition Rules
- Employment Incentives
- HIRE Act
- Social Security Tax
- Tax Credit
- Update: SEC Postpones Decision on Nasdaq's New Listing Rules to Advance Board Diversity
- SEC Charges AT&T and Three Executives with Regulation FD Violations
- Stimulus Package Reverses IRS’s Position on Deductibility of PPP Expenses and Other Loan Forgiveness Issues
- Nasdaq Proposes New Listing Rules to Advance Board Diversity: Comply or Explain
- More Disclosure Modernization: SEC Adopts Significant Amendments to Financial Disclosure Rules
- SEC Eases Limits and Rules on Private Offerings
- SEC Proposes Conditional Exemption for "Finders" Involved in Capital Raising
- Ohio Adopts Protections for Ohio Businesses from Coronavirus - Related Lawsuits
- SEC Scales Back Financial Disclosures for Business Combinations
- State of Ohio Issues Urgent Health Advisory and Partial Rescission of “Stay at Home” Order