Federal Register, Volume 76 Issue 22 (Wednesday, February 2, 2011)

[Federal Register Volume 76, Number 22 (Wednesday, February 2, 2011)]
[Rules and Regulations]
[Pages 6010-6047]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-1971]

[[Page 6009]]

Vol. 76

Wednesday,

No. 22

February 2, 2011

Part V

Securities and Exchange Commission

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17 CFR 229, 240, and 249

Shareholder Approval of Executive Compensation and Golden Parachute
Compensation; Final Rule

Federal Register / Vol. 76, No. 22 / Wednesday, February 2, 2011 /
Rules and Regulations

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 229, 240 and 249

[Release Nos. 33-9178; 34-63768; File No. S7-31-10]
RIN 3235-AK68

Shareholder Approval of Executive Compensation and Golden
Parachute Compensation

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: We are adopting amendments to our rules to implement the
provisions of the Dodd-Frank Wall Street Reform and Consumer Protection
Act relating to shareholder approval of executive compensation and
``golden parachute'' compensation arrangements. Section 951 of the
Dodd-Frank Act amends the Securities Exchange Act of 1934 by adding
Section 14A, which requires companies to conduct a separate shareholder
advisory vote to approve the compensation of executives, as disclosed
pursuant to Item 402 of Regulation S-K or any successor to Item 402.
Section 14A also requires companies to conduct a separate shareholder
advisory vote to determine how often an issuer will conduct a
shareholder advisory vote on executive compensation. In addition,
Section 14A requires companies soliciting votes to approve merger or
acquisition transactions to provide disclosure of certain ``golden
parachute'' compensation arrangements and, in certain circumstances, to
conduct a separate shareholder advisory vote to approve the golden
parachute compensation arrangements.

DATES: Effective Date: April 4, 2011.
Compliance Date: April 4, 2011, except that issuers must comply
with Exchange Act Section 14A(b) and Rule 14a-21(c) and the amendments
to Item 5 of Schedule 14A, Item 3 of Schedule 14C, Item 1011 of
Regulation M-A, Item 11 of Schedule TO, Item 15 of Schedule 13E-3, and
Item 8 of Schedule 14D-9 for initial preliminary proxy and information
statements, Schedules TO, 13E-3, and 14D-9 and Forms S-4 and F-4 filed
on or after April 25, 2011.
Companies that qualify as ``smaller reporting companies'' (as
defined in 17 CFR 240.12b-2) as of January 21, 2011, including newly
public companies that qualify as smaller reporting companies after
January 21, 2011, will not be subject to Exchange Act Section 14A(a)
and Rule 14a-21(a) and (b) until the first annual or other meeting of
shareholders at which directors will be elected and for which the rules
of the Commission require executive compensation disclosure pursuant to
Item 402 of Regulation S-K (17 CFR 229.402) occurring on or after
January 21, 2013.

FOR FURTHER INFORMATION CONTACT: Scott Hodgdon, Attorney-Adviser, at
(202) 551-3430, Anne Krauskopf, Senior Special Counsel, at (202) 551-
3500, or Perry Hindin, Special Counsel, at (202) 551-3440, Division of
Corporation Finance, U.S. Securities and Exchange Commission, 100 F
Street, NE., Washington, DC 20549-3628.

SUPPLEMENTARY INFORMATION: We are adopting new Rule 14a-21 and
amendments to Rules 14a-4,\1\ 14a-6,\2\ 14a-8 \3\ and a new Item 24 and
amendments to Item 5 of Schedule 14A \4\ and amendments to Item 3 of
Schedule 14C \5\ under the Securities Exchange Act of 1934 (``Exchange
Act'').\6\ We are also adopting amendments to Item 402 \7\ of
Regulation S-K,\8\ Item 1011 \9\ of Regulation M-A,\10\ Item 15 of
Schedule 13E-3,\11\ Item 8 of Schedule 14D-9,\12\ Item 11 of Schedule
TO,\13\ and amendments to Item 5.07 of Form 8-K.\14\
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\1\ 17 CFR 240.14a-4.
\2\ 17 CFR 240.14a-6.
\3\ 17 CFR 240.14a-8.
\4\ 17 CFR 240.14a-101.
\5\ 17 CFR 240.14c-101.
\6\ 15 U.S.C. 78a et seq.
\7\ 17 CFR 229.402.
\8\ 17 CFR 229.10 et seq.
\9\ 17 CFR 229.1011.
\10\ 17 CFR 229.1000 et seq.
\11\ 17 CFR 240.13e-100.
\12\ 17 CFR 240.14d-101.
\13\ 17 CFR 240.14d-100.
\14\ 17 CFR 249.308.
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Table of Contents

I. Background and Summary
II. Discussion of the Amendments
A. Shareholder Approval of Executive Compensation
1. Rule 14a-21(a)
a. Proposed Rule
b. Comments on the Proposed Rule
c. Final Rule
2. Item 24 of Schedule 14A
a. Proposed Amendments
b. Comments on the Proposed Amendments
c. Final Rule
3. Amendments to Item 402(b) of Regulation S-K
a. Proposed Amendments
b. Comments on the Proposed Amendments
c. Final Rule
B. Shareholder Approval of the Frequency of Shareholder Votes on
Executive Compensation
1. Rule 14a-21(b)
a. Proposed Rule
b. Comments on the Proposed Rule
c. Final Rule
2. Item 24 of Schedule 14A
a. Proposed Amendments
b. Comments on the Proposed Amendments
c. Final Rule
3. Amendment to Rule 14a-4
a. Proposed Amendments
b. Comments on the Proposed Amendments
c. Final Rule
4. Amendment to Rule 14a-8
a. Proposed Amendments
b. Comments on the Proposed Amendments
c. Final Rule
5. Amendment to Form 8-K
a. Proposed Amendments
b. Comments on the Proposed Amendments
c. Final Rule
6. Effect of Shareholder Vote
C. Issues Relating to Both Shareholder Votes Required by Section
14A(a)
1. Amendments to Rule 14a-6
a. Proposed Amendments
b. Comments on the Proposed Amendments
c. Final Rule
2. Broker Discretionary Voting
3. Relationship to Shareholder Votes on Executive Compensation
for TARP Companies
D. Disclosure of Golden Parachute Arrangements and Shareholder
Approval of Golden Parachute Arrangements
1. General
2. Item 402(t) of Regulation S-K
a. Proposed Amendments
b. Comments on the Proposed Amendments
i. General Comments on the Proposed Item 402(t) Table
ii. Comments on the Elements of Compensation and Presentation of
the Proposed Item 402(t) Table
iii. Comments on Individuals Subject to Item 402(t) Disclosure
iv. Comments on Item 402(t) Disclosure in Annual Meeting Proxy
Statements
c. Final Rule
i. Item 402(t) Table and Narrative Requirements
ii. Elements of Compensation and Presentation of Item 402(t)
Table
iii. Individuals Subject to Item 402(t) Disclosure
iv. Item 402(t) Disclosure in Annual Meeting Proxy Statements
3. Amendments to Schedule 14A, Schedule 14C, Schedule 14D-9,
Schedule 13E-3, Schedule TO, and Item 1011 of Regulation M-A
a. Proposed Amendments
b. Comments on the Proposed Amendments
c. Final Rule
4. Rule 14a-21(c)
a. Proposed Rule
b. Comments on the Proposed Rule
c. Final Rule
i. Scope of Rule 14a-21(c) Shareholder Advisory Vote
ii. Exceptions to Rule 14a-21(c) Shareholder Advisory Vote
E. Treatment of Smaller Reporting Companies

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F. Transition Matters
III. Paperwork Reduction Act
A. Background
B. Summary of the Final Rules
C. Summary of Comment Letters and Revisions to Proposals
D. Revisions to PRA Reporting and Cost Burden Estimates
IV. Cost-Benefit Analysis
A. Introduction
B. Comments on the Cost-Benefit Analysis
C. Benefits
D. Costs
V. Consideration of Impact on the Economy, Burden on Competition,
and Promotion of Efficiency, Competition, and Capital Formation
VI. Final Regulatory Flexibility Act Analysis
A. Reasons for, and Objectives of, the Proposed Action
B. Legal Basis
C. Significant Issues Raised by Public Comments
D. Small Entities Subject to the Final Amendments
E. Reporting, Recordkeeping, and Other Compliance Requirements
F. Duplicative, Overlapping, or Conflicting Federal Rules
G. Significant Alternatives
VII. Statutory Authority and Text of the Amendments

I. Background and Summary

On October 18, 2010, we proposed a number of amendments to our
rules relating to the shareholder approval of executive compensation
and golden parachute compensation.\15\ We proposed these rules to
implement Section 951 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the ``Act'').\16\ As discussed in detail below, we have
taken into consideration the comments received on the proposed
amendments and are adopting several amendments to our rules.\17\
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\15\ See Release No. 33-9153 (October 18, 2010) [75 FR 66590]
(the ``Proposing Release'').
\16\ Public Law 111-203 (July 21, 2010).
\17\ The public comments we received on the Proposing Release
are available on our Web site at http://www.sec.gov/comments/s7-31-10/s73110.shtml. In addition, to facilitate public input on the Act,
the Commission provided a series of e-mail links, organized by
topic, on its Web site at http://www.sec.gov/spotlight/regreformcomments.shtml. The public comments we received on Section
951 of the Act are available on our Web site at http://www.sec.gov/comments/df-title-ix/executive-compensation/executive-compensation.shtml.
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The Act amends the Exchange Act by adding new Section 14A. New
Section 14A(a)(1) requires that ``[n]ot less frequently than once every
3 years, a proxy or consent or authorization for an annual or other
meeting of the shareholders for which the proxy solicitation rules of
the Commission require compensation disclosure shall include a separate
resolution subject to shareholder vote to approve the compensation of
executives,'' \18\ as disclosed pursuant to Item 402 of Regulation S-K,
or any successor to Item 402 (a ``say-on-pay vote''). The shareholder
vote to approve executive compensation required by Section 14A(a)(1)
``shall not be binding on the issuer or the board of directors of an
issuer.'' \19\
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\18\ Exchange Act Section 14A(a)(1). Section 951 of the Act
includes the language ``or other meeting of the shareholders,''
which is similar to corresponding language in Section 111(e)(1) of
the Emergency Economic Stabilization Act of 2008, or EESA, 12 U.S.C.
5221. As noted in the Proposing Release, we have previously
considered this language in connection with companies required to
provide a separate shareholder vote on executive compensation so
long as the company has outstanding obligations under the Troubled
Asset Relief Program, or TARP. See Shareholder Approval of Executive
Compensation of TARP Recipients, Release No. 34-61335 (Jan. 12,
2010) [75 FR 2789] (hereinafter, the ``TARP Adopting Release''). We
continue to view this provision to require a separate shareholder
vote on executive compensation only with respect to an annual
meeting of shareholders for which proxies will be solicited for the
election of directors, or a special meeting in lieu of such annual
meeting. Similarly, Rules 14a-21(a) and (b) are intended to result
in issuers conducting the required advisory votes in connection with
the election of directors, the proxy materials for which are
required to include disclosure of executive compensation.
\19\ Exchange Act Section 14A(c).
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Section 951 of the Act also adds new Section 14A(a)(2) to the
Exchange Act, requiring that, ``[n]ot less frequently than once every 6
years, a proxy or consent or authorization for an annual or other
meeting of the shareholders for which the proxy solicitation rules of
the Commission require compensation disclosure shall include a separate
resolution subject to shareholder vote to determine whether [the say-
on-pay vote] will occur every 1, 2, or 3 years.'' \20\ As discussed
below, this shareholder vote ``shall not be binding on the issuer or
the board of directors of an issuer.'' \21\
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\20\ Exchange Act Section 14A(a)(2).
\21\ Exchange Act Section 14A(c).
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In addition, Section 951 of the Act amends the Exchange Act by
adding new Section 14A(b)(1), which requires that, in any proxy or
consent solicitation material for a meeting of shareholders ``at which
shareholders are asked to approve an acquisition, merger,
consolidation, or proposed sale or other disposition of all or
substantially all the assets of an issuer, the person making such
solicitation shall disclose in the proxy or consent solicitation
material, in a clear and simple form in accordance with regulations to
be promulgated by the Commission, any agreements or understandings that
such person has with any named executive officers of such issuer (or of
the acquiring issuer, if such issuer is not the acquiring issuer)
concerning any type of compensation (whether present, deferred, or
contingent) that is based on or otherwise relates to the acquisition,
merger, consolidation, sale or other disposition of all or
substantially all of the assets of the issuer[* * *].'' \22\ These
compensation arrangements are often referred to as ``golden parachute''
compensation. Such disclosure must include the aggregate total of all
such compensation that may be paid or become payable to or on behalf of
such named executive officer, and the conditions upon which it may be
paid or become payable.\23\ Under Section 14A(b)(2), ``unless such
agreements or understandings have been subject to [the periodic
shareholder vote described in Section 14A(a)(1)],'' \24\ a separate
shareholder vote to approve such agreements or understandings and
compensation as disclosed is also required.\25\ As with the say-on-pay
vote and the shareholder vote on the frequency of such votes, this
shareholder vote ``shall not be binding on the issuer or the board of
directors of an issuer.'' \26\
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\22\ Exchange Act Section 14A(b)(1).
\23\ Exchange Act Section 14A(b)(1).
\24\ Exchange Act Section 14A(b)(2).
\25\ Exchange Act Section 14A(b)(2).
\26\ Exchange Act Section 14A(c).
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In addition to their non-binding status, none of the shareholder
votes required pursuant to Section 14A is to be construed ``as
overruling a decision by such issuer or board of directors.'' \27\
These shareholder votes also do not ``create or imply any change to the
fiduciary duties of such issuer or board of directors'' \28\ nor do
they ``create or imply any additional fiduciary duties for such issuer
or board of directors.'' \29\ Further, these votes will not be
construed ``to restrict or limit the ability of shareholders to make
proposals for inclusion in proxy materials related to executive
compensation.'' \30\ Section 14A also provides that ``the Commission
may, by rule or order, exempt an issuer or class of issuers'' from the
shareholder

[[Page 6012]]

advisory votes required by Section 14A.\31\ In determining whether to
make an exemption, the Commission is directed to take into account,
among other considerations, whether the requirements of Section 14A(a)
and (b) disproportionately burden small issuers.\32\
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\27\ Exchange Act Section 14A(c)(1).
\28\ Exchange Act Section 14A(c)(2).
\29\ Exchange Act Section 14A(c)(3).
\30\ Exchange Act Section 14A(c)(4). In addition, Exchange Act
Section 14A(d) provides that every institutional manager subject to
Exchange Act Section 13(f) [15 U.S.C. 78m(f)] shall report at least
annually how it voted on any shareholder vote required by Section
951 of the Act, including the shareholder vote on executive
compensation, the shareholder vote on the frequency of shareholder
votes on executive compensation, and the golden parachute
compensation vote, unless such vote is otherwise required to be
reported publicly by rule or regulation of the Commission.
Amendments to our rules to implement this requirement were proposed
in a separate rulemaking. See Reporting of Proxy Votes on Executive
Compensation and Other Matters, Release No. 34-63123 (Oct. 18, 2010)
[75 FR 66622].
\31\ Exchange Act Section 14A(e).
\32\ Exchange Act Section 14A(e).
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Section 14A(a)(3) requires that both the initial shareholder vote
on executive compensation and the initial vote on the frequency of
votes on executive compensation be included in proxy statements ``for
the first annual or other meeting of the shareholders occurring after
the end of the 6-month period beginning on the date of enactment'' of
the Act.\33\ Thus, the statute requires separate resolutions subject to
shareholder vote to approve executive compensation and to approve the
frequency of say-on-pay votes for proxy statements relating to an
issuer's first annual or other meeting of the shareholders occurring on
or after January 21, 2011, whether or not the Commission has adopted
rules to implement Section 14A(a). Because Section 14A(a) applies to
shareholder meetings taking place on or after January 21, 2011, any
proxy statement that is required to include executive compensation
disclosure pursuant to Item 402 of Regulation S-K, whether in
preliminary or definitive form, even if filed prior to this date, for
meetings taking place on or after January 21, 2011, must include the
separate resolutions for shareholders to approve executive compensation
and the frequency of say-on-pay votes required by Section 14A(a)
without regard to whether the amendments in this release are in effect
by that time.\34\
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\33\ Exchange Act Section 14A(a)(3).
\34\ See Section II.E below for a discussion of a temporary
exemption for smaller reporting companies.
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With respect to the disclosure of golden parachute arrangements in
accordance with Commission regulations in merger proxy statements
required by Section 14A(b)(1), we note that the statute similarly
references a 6-month period beginning on the date of enactment of the
Act. However, because the statute requires such disclosure to be ``in
accordance with regulations to be promulgated by the Commission,'' \35\
the golden parachute compensation arrangements disclosure under
proposed new Item 402(t) and a separate resolution to approve golden
parachute compensation arrangements pursuant to Rule 14a-21(c) will not
be required for merger proxy statements relating to a meeting of
shareholders until the effective date of our rules implementing Section
14A(b)(1). The rule amendments we adopt today with respect to new Rule
14a-21(c) and the amendments to the disclosure requirements in Item 5
of Schedule 14A, Item 3 of Schedule 14C, Item 1011 of Regulation M-A,
Item 11 of Schedule TO, Item 15 of Schedule 13E-3, and Item 8 of
Schedule 14D-9, are effective for initial filings on or after April 25,
2011.
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\35\ Exchange Act Section 14A(b)(1).
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We received over 60 comment letters in response to the proposed
amendments. In addition, we received over a dozen letters relating to
Section 951 of the Act.\36\ These letters came from corporations,
pension funds, professional associations, trade unions, law firms,
consultants, academics, individual investors, and other interested
parties. In general, the commentators supported the proposed amendments
that would implement Section 951 of the Act. Some commentators,
however, opposed some of the proposed amendments and suggested
modifications or alternatives to the proposals.
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\36\ These comment letters were received prior to publication of
the Proposing Release. See note 17 above.
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We have reviewed and considered all of the comments that we
received relating to the proposed amendments. The adopted rules reflect
changes made in response to many of these comments. We discuss our
revisions with respect to each proposed rule amendment in more detail
throughout this release.
We are adopting Rule 14a-21 to provide a separate shareholder vote
to approve executive compensation, to approve the frequency of such
votes on executive compensation and to approve golden parachute
compensation arrangements in connection with certain extraordinary
business transactions. We are also adopting a new Item 24 of Schedule
14A to provide disclosure regarding the effect of the shareholder votes
required by Rule 14a-21, such as whether each vote is non-binding. In
addition, our amendments to Item 5 of Schedule 14A, Item 3 of Schedule
14C, Item 1011 of Regulation M-A, Item 8 of Schedule 14D-9, and Item 15
of Schedule 13E-3 will require additional disclosure regarding golden
parachute arrangements in connection with certain extraordinary
business transactions, Rule 13e-3 \37\ going-private transactions and
tender offers.
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\37\ 17 CFR 240.13e-3.
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We are also adopting amendments to Item 402 of Regulation S-K to
require disclosure of an issuer's consideration of the say-on-pay vote
in its Compensation Discussion and Analysis, and to prescribe
disclosure about golden parachute compensation arrangements in new Item
402(t). In addition, we are adopting an instruction to Rule 14a-8 to
clarify the treatment of shareholder proposals relating to the
shareholder advisory votes required by Rule 14a-21. Finally, we are
adopting amendments to Form 8-K to facilitate disclosure of the results
of the shareholder advisory vote on the frequency of say-on-pay votes,
and to require disclosure about whether and how the issuer will
implement the results of the shareholder advisory vote on the frequency
of say-on-pay votes.

II. Discussion of the Amendments

A. Shareholder Approval of Executive Compensation

1. Rule 14a-21(a)
Proposed Rule 14a-21(a) would require issuers,\38\ not less
frequently than once every three years, to include in their proxy
statements a separate shareholder advisory vote to approve the
compensation of executives. We are adopting the rule substantially as
proposed with some changes in response to comments.
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\38\ Our rules as adopted apply to issuers who have a class of
equity securities registered under Section 12 [15 U.S.C. 78l] of the
Exchange Act and are subject to our proxy rules. Foreign private
issuers, as defined in Rule 3b-4(c) [17 CFR 240.3b-4(c)], are not
required under Section 14A or the rules we are adopting today to
conduct a shareholder advisory vote on executive compensation nor a
shareholder advisory vote on the frequency of such votes.
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a. Proposed Rule
Under our proposed rule, an issuer would be required, not less
frequently than once every three years, to provide a separate
shareholder advisory vote in proxy statements to approve the
compensation of its named executive officers, as defined in Item
402(a)(3) \39\ of Regulation S-K. Rule 14a-21(a), as proposed, would
specify that the separate shareholder vote on executive compensation is
required only when proxies are solicited for an annual or other meeting
of security holders for which our rules require the disclosure of
executive compensation pursuant to Item 402 of Regulation S-K. Proposed
Rule 14a-21(a) would require a separate shareholder vote to approve the
compensation of executives for the first annual or other such meeting
of shareholders occurring on or after January 21, 2011, the first day
after the end of the 6-month period beginning on the date of enactment
of the Act.
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\39\ 17 CFR 229.402(a)(3).
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In accordance with Section 14A(a)(1), shareholders would vote to
approve the compensation of the issuer's named

[[Page 6013]]

executive officers, as such compensation is disclosed pursuant to Item
402 \40\ of Regulation S-K, including the Compensation Discussion and
Analysis (``CD&A''), the compensation tables and other narrative
executive compensation disclosures required by Item 402. We also
proposed an instruction to Rule 14a-21 to specify that the rule does
not change the scaled disclosure requirements for smaller reporting
companies and that smaller reporting companies would not be required to
provide a CD&A in order to comply with Rule 14a-21.
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\40\ We proposed that if disclosure of golden parachute
compensation arrangements pursuant to proposed Item 402(t) is
included in an annual meeting proxy statement, such disclosure would
be included in the disclosure subject to the shareholder advisory
vote under Rule 14a-21(a). Such disclosure under Item 402(t),
however, would not be required to be included in annual meeting
proxy statements.
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b. Comments on the Proposed Rule
Commentators were generally supportive of the proposal. Many
commentators agreed with the approach, as proposed, not to designate
specific language to be used or require issuers to frame the
shareholder vote to approve executive compensation in the form of a
standard resolution.\41\ Some commentators indicated that issuers
should have flexibility in drafting the resolution.\42\ Commentators
noted that flexibility would permit issuers to tailor the resolution to
the issuer's individual circumstances.\43\ Others stated that we should
designate specific language for the resolution \44\ or at least
establish clear, minimum guidelines,\45\ principles-based
guidelines,\46\ or model language,\47\ while other commentators
suggested we include language for a resolution in the form of non-
exclusive examples \48\ or a safe harbor.\49\ Commentators indicated
that it would be helpful to have an example of resolution language that
would comply with the rule \50\ and that sample language would simplify
the drafting process for issuers and promote efficiency.\51\
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\41\ See, e.g., letters from American Federation of State,
County and Municipal Employees (``AFSCME''), Center on Executive
Compensation (``Center on Exec. Comp.''), Compensia (``Compensia''),
Davis Polk & Wardwell LLP (``Davis Polk''), the Financial Services
Roundtable (``FSR''), Pfizer Inc. (``Pfizer''), Protective Life
Corporation (``Protective Life''), and United Brotherhood of
Carpenters (``UBC'').
\42\ See, e.g., letters from Business Roundtable (``Business
Roundtable'') and Towers Watson (``Towers Watson'').
\43\ See letter from Business Roundtable.
\44\ See, e.g., letters from National Association of Corporate
Directors (``NACD''), PGGM Investments (``PGGM''), Public Citizen
(``Public Citizen''), and WorldatWork (``WorldatWork'').
\45\ See, e.g., letters from Boston Common Asset Management
(``Boston Common''), First Affirmative Financial Network, LLC
(``First Affirmative''), Glass Lewis & Co. (``Glass Lewis''), Social
Investment Forum (``Social Investment''), and Walden Asset
Management (``Walden'').
\46\ See, e.g., letters from International Corporate Governance
Network (``ICGN'') and Teachers Insurance and Annuities Association
of America and College Retirement Equities Fund (``TIAA-CREF'').
\47\ See, e.g., letter from Calvert Group, Ltd. (``Calvert'').
\48\ See, e.g., letters from Society of Corporate Secretaries
and Governance Professionals (``Society of Corp. Sec.'') and
Sullivan & Cromwell LLP (``Sullivan'').
\49\ See, e.g., letters from The Boeing Company (``Boeing'') and
Pearl Meyer & Partners (``PM&P'').
\50\ See letter from Society of Corp. Sec.
\51\ See letter from Sullivan.
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Many commentators agreed with our proposed approach not to exempt
smaller reporting companies from Rule 14a-21(a) and Exchange Act
Section 14A(a)(1).\52\ Some commentators did suggest that smaller
reporting companies should be exempt from the say-on-pay vote \53\ or
required to conduct a say-on-pay vote on a triennial basis beginning in
2013.\54\
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\52\ See, e.g., letters from California Public Employees
Retirement System (``CalPERS''), Council of Institutional Investors
(``CII''), Glass Lewis, ICGN, PGGM, and the State Board of
Administration of Florida (``SBA of Florida'').
\53\ See, e.g., letters from NACD and UBC.
\54\ See letter from the Committee on Federal Regulation of
Securities, Section of Business Law of the American Bar Association
(``ABA'').
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Some commentators suggested that we clarify the relationship
between the federally created right and state law voting rights.\55\
Most commentators, however, indicated there was no need for the
Commission to adopt rules as to which shares are entitled to vote.\56\
One commentator asserted that the issue as to which shares are entitled
to vote is traditionally a state law matter that we do not need to
address in our rulemaking.\57\
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\55\ See, e.g., letter from the ABA.
\56\ See, e.g., letters from Business Roundtable, FSR, Pfizer,
PGGM, and Protective Life.
\57\ See letter from Business Roundtable.
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c. Final Rule
After considering the comments, we are adopting Rule 14a-21(a)
substantially as proposed with some modifications. Under the final
rule, issuers will be required, not less frequently than once every
three years, to provide a separate shareholder advisory vote in proxy
statements to approve the compensation of their named executive
officers, as defined in Item 402(a)(3) of Regulation S-K. Rule 14a-
21(a) specifies that the separate shareholder vote on executive
compensation is required only when proxies are solicited for an annual
or other meeting of security holders for which our rules require the
disclosure of executive compensation pursuant to Item 402 of Regulation
S-K. We have modified the proposal to clarify in the rule that the
shareholder vote on executive compensation required by Exchange Act
Section 14A(a)(1) and Rule 14a-21(a) is required with respect to an
annual meeting of shareholders at which proxies will be solicited for
the election of directors, or a special meeting in lieu of such annual
meeting.\58\ In addition, we have modified the rule to clarify that a
say-on-pay vote is required at least once every three calendar years.
Commentators expressed the view that as proposed, the rule would have
required a say-on-pay vote within three years of the date of the most
recent say-on-pay vote, which in some cases could have required a say-
on-pay vote more frequently than once every three calendar years.\59\
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\58\ See the discussion in Note 18 above.
\59\ See letter from ABA.
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As adopted, Rule 14a-21(a) requires a separate shareholder vote to
approve the compensation of executives for the first annual or other
meeting of shareholders occurring on or after January 21, 2011, the
first day after the end of the 6-month period beginning on the date of
enactment of the Act. In accordance with Section 14A(a)(1),
shareholders would vote to approve the compensation of the issuer's
named executive officers, as such compensation is disclosed pursuant to
Item 402 \60\ of Regulation S-K, including the CD&A, the compensation
tables and other narrative executive compensation disclosures required
by Item 402.\61\ We have included an instruction to Rule 14a-21 to
specify that Rule 14a-21 does not change the scaled disclosure
requirements for smaller reporting companies and that smaller reporting
companies will not be required to provide a CD&A in order to comply
with Rule 14a-21. We understand that smaller reporting companies may
wish to include supplemental disclosure to facilitate shareholder
understanding of

[[Page 6014]]

their compensation arrangements in connection with say-on-pay
votes.\62\ We do not believe, however, that this possibility supports
exempting smaller reporting companies from the say-on-pay votes. As
more fully discussed in Section II.E below, in order to ease compliance
burdens for smaller reporting companies, we are adopting a two-year
temporary exemption before these companies are required to conduct a
shareholder advisory vote to approve executive compensation to permit
these companies additional time to prepare for the new shareholder
advisory votes.
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\60\ If disclosure of golden parachute compensation arrangements
pursuant to Item 402(t) is included in an annual meeting proxy
statement, such disclosure would be included in the disclosure
subject to the shareholder advisory vote under Rule 14a-21(a). Such
disclosure under Item 402(t), however, is not required to be
included in all annual meeting proxy statements.
\61\ While not required, our rules ``would not preclude an
issuer from seeking more specific shareholder opinion through
separate votes on cash compensation, golden parachute policy,
severance or other aspects of compensation.'' See Report of the
Senate Committee on Banking, Housing, and Urban Affairs regarding
The Restoring American Financial Stability Act of 2010, S. Rep. No.
111-176 at 133 (2010).
\62\ See letter from Society of Corp. Sec., which notes that
smaller reporting companies may ``feel compelled to include CD&A to
provide additional disclosure so as to reduce the potential for an
unfavorable shareholder vote.''
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As noted in the Proposing Release, consistent with Section 14A, the
compensation of directors, as disclosed pursuant to Item 402(k) \63\ or
Item 402(r) \64\ is not subject to the shareholder advisory vote. In
addition, if an issuer includes disclosure pursuant to Item 402(s) \65\
of Regulation S-K about the issuer's compensation policies and
practices as they relate to risk management and risk-taking incentives,
these policies and practices will not be subject to the shareholder
advisory vote required by Section 14A(a)(1) as they relate to the
issuer's compensation for employees generally. We note, however, that
to the extent that risk considerations are a material aspect of the
issuer's compensation policies or decisions for named executive
officers, the issuer is required to discuss them as part of its
CD&A,\66\ and therefore such disclosure would be considered by
shareholders when voting on executive compensation.
---------------------------------------------------------------------------

\63\ 17 CFR 229.402(k).
\64\ 17 CFR 229.402(r).
\65\ 17 CFR 229.402(s).
\66\ See Proxy Disclosure Enhancements, Release No. 33-9089
(Dec. 16, 2009) [74 FR 68334] at note 38.
---------------------------------------------------------------------------

Though we have considered the views of commentators that prescribed
language would be helpful, the final rule does not require issuers to
use any specific language or form of resolution to be voted on by
shareholders. This is consistent with the approach taken by the
Commission in adopting Rule 14a-20 to implement the shareholder
advisory vote on executive compensation for companies subject to the
Emergency Economic Stabilization Act of 2008, or EESA. We believe that
issuers should retain flexibility to craft the resolution language. As
we noted in the Proposing Release, however, the shareholder advisory
vote must relate to all executive compensation disclosure disclosed
pursuant to Item 402 of Regulation S-K. Section 14A(a)(1) of the
Exchange Act requires that the shareholder advisory vote must be ``to
approve the compensation of executives, as disclosed pursuant to [Item
402 of Regulation S-K] or any successor thereto.'' \67\ We have added
an instruction to Rule 14a-21(a) to indicate that this language from
Section 14A(a)(1) should be included in an issuer's resolution for the
say-on-pay vote and to provide a non-exclusive example of a resolution
that would satisfy the applicable requirements.\68\ A vote to approve a
proposal on a different subject matter, such as a vote to approve only
compensation policies and procedures, would not satisfy the requirement
of Section 14A(a)(1) or final Rule 14a-21(a). We note that issuers are
not limited to the required shareholder advisory vote under Rule 14a-
21(a) and may solicit shareholder votes on a range of compensation
matters to obtain more specific feedback on the issuer's compensation
policies and programs.
---------------------------------------------------------------------------

\67\ Exchange Act Section 14A(a)(1).
\68\ Instruction to Rule 14a-21(a) provides the following non-
exclusive example that would satisfy Rule 14a-21(a): ``RESOLVED,
that the compensation paid to the company's named executive
officers, as disclosed pursuant to Item 402 of Regulation S-K,
including the Compensation Discussion and Analysis, compensation
tables and narrative discussion, is hereby APPROVED.''
---------------------------------------------------------------------------

2. Item 24 to Schedule 14A
We proposed a new Item 24 to Schedule 14A, to require disclosure in
any proxy statement in which an issuer is providing a separate
shareholder vote on executive compensation to briefly explain the
general effect of the vote, such as whether the vote is non-binding. We
are adopting this amendment to Schedule 14A as proposed with some
modifications.
a. Proposed Amendments
Pursuant to proposed new Item 24 of Schedule 14A, issuers would be
required to disclose in a proxy statement for an annual meeting (or
other meeting of shareholders for which our rules require executive
compensation disclosure) that they are providing a separate shareholder
vote on executive compensation and to briefly explain the general
effect of the vote, such as whether the vote is non-binding.\69\ This
was similar to the approach taken by the Commission in connection with
disclosure requirements about the shareholder vote on executive
compensation for companies subject to the EESA.\70\
---------------------------------------------------------------------------

\69\ Section 14A(a) does not require additional disclosure with
respect to the non-binding nature of the vote. We proposed to
require additional disclosure so that information about the advisory
nature of the vote is available to shareholders before they vote. We
continue to believe this information should be available to
shareholders.
\70\ See Item 20 of Schedule 14A; TARP Adopting Release, supra
note 18, at 75 FR 2790.
---------------------------------------------------------------------------

b. Comments on the Proposed Amendments
Commentators were generally supportive of proposed Item 24 of
Schedule 14A. We requested comment regarding whether any additional
disclosures should be provided by issuers that would be useful to
shareholders. Two commentators indicated that we should amend the
proposal to require disclosure of the results of previous votes on
executive compensation.\71\ Another commentator suggested that we
should remove the reference to the ``general effect'' of the vote as it
would lead to boilerplate disclosure and remove the word ``whether''
from the rule given the non-binding nature of the vote.\72\
---------------------------------------------------------------------------

\71\ See letters from ICGN and PGGM.
\72\ See letter from ABA.
---------------------------------------------------------------------------

c. Final Rule
After considering the comments, we are adopting Item 24 to Schedule
14A as proposed with some modifications.\73\ Though we agree that the
disclosure of previous results would be useful to shareholders, these
results are required to be disclosed pursuant to Item 5.07 of Form 8-K
immediately following the votes. Consequently, we do not believe it is
necessary to mandate such disclosure in Item 24 of Schedule 14A. As
discussed below, we have modified the proposal to require disclosure of
the current frequency of say-on-pay votes and to require disclosure of
when the next say-on-pay vote will occur.
---------------------------------------------------------------------------

\73\ See discussion of the modification to the proposed Item 24
relating to the frequency of say-on-pay votes below at Section
II.B.2.c.
---------------------------------------------------------------------------

Item 24 is consistent with the approach taken by the Commission in
Item 20 of Schedule 14A in connection with disclosure requirements
about the shareholder advisory vote on executive compensation for
companies subject to EESA. Based on our experience with these votes, we
believe that such requirements will lead to disclosure of useful
information about the nature and effect of the vote for shareholders to
consider, such as whether the vote is non-binding. We note that
although not required, issuers may choose to provide additional
disclosure in their proxy materials.
3. Amendments to Item 402(b) of Regulation S-K
Item 402 requires the disclosure of executive compensation and
includes

[[Page 6015]]

requirements prescribing narrative and tabular disclosure, as well as
separate scaled disclosure requirements for smaller reporting
companies.\74\ Item 402(b) \75\ contains the requirement for CD&A,
which is intended to be a narrative overview that puts into context the
executive compensation disclosure provided elsewhere in response to the
requirements of Item 402. The CD&A disclosure requirement is
principles-based, in that it identifies the disclosure concept and
provides several non-exclusive examples. Under Item 402(b)(1), issuers
must explain all material elements of their named executive officers'
compensation by addressing mandatory principles-based topics in their
CD&A.\76\ Item 402(b)(2) of Regulation S-K sets forth certain non-
exclusive examples of the kind of information that an issuer should
address in its CD&A, depending upon the facts and circumstances.
---------------------------------------------------------------------------

\74\ Item 402 also includes requirements to disclose director
compensation (Items 402(k) and 402(r)) and the issuer's compensation
policies as they relate to risk management (Item 402(s)).
\75\ 17 CFR 229.402(b).
\76\ These mandatory principles-based topics require the company
to disclose the objectives of the company's compensation programs;
what the compensation program is designed to reward; each element of
compensation; why the company chooses to pay each element; how the
company determines the amount (and, where applicable, the formula)
for each element; and how each element and the company's decisions
regarding that element fit into the company's overall compensation
objectives and affect decisions regarding other elements.
---------------------------------------------------------------------------

In connection with our implementation of Section 14A(a)(1), we
proposed amendments to require disclosure in CD&A regarding how issuers
have considered the results of previous say-on-pay votes required by
Section 14A and Rule 14a-20.\77\ After reviewing comments on this
proposal, we are adopting amendments to Item 402(b)(1) as proposed,
with some modifications in response to concerns raised by commentators.
---------------------------------------------------------------------------

\77\ 17 CFR 240.14a-20. Pursuant to the EESA, issuers that have
received financial assistance under the Troubled Asset Relief
Program, or TARP, are required to conduct a separate annual
shareholder vote to approve executive compensation during the period
in which any obligation arising from the financial assistance
provided under the TARP remains outstanding.
---------------------------------------------------------------------------

a. Proposed Amendments
We proposed to amend Item 402(b)(1) to add to the mandatory CD&A
topics whether, and if so, how an issuer has considered the results of
previous shareholder votes on executive compensation required by
Section 14A or Rule 14a-20 in determining compensation policies and
decisions and, if so, how that consideration has affected its
compensation policies and decisions. We did not propose to add a
specific requirement for smaller reporting companies to provide
disclosure about how previous votes pursuant to Section 14A or Rule
14a-20 affected compensation policies and decisions because in our view
such information would not be as valuable outside the context of a
complete CD&A covering the full range of matters required to be
addressed by Item 402(b), which smaller reporting companies are not
required to provide.
b. Comments on the Proposed Amendments
Comments on the proposal were mixed. Several commentators expressed
support for an amendment to Item 402(b)(1) to require that issuers
discuss the results of the shareholder vote and its effect, if any, on
executive compensation decisions and policies.\78\ Many of these
commentators agreed with the proposal that discussion of say-on-pay
vote results in CD&A should be mandatory,\79\ in some cases noting that
this would provide shareholders a better understanding of how the board
of directors considered the results of shareholder advisory votes \80\
and encourage a dialogue between issuers and shareholders on the topic
of compensation.\81\ Commentators also indicated that a mandatory
discussion of the consideration of say-on-pay votes will aid
transparency of issuers' disclosures on compensation \82\ and will help
investors better understand compensation decisions made by issuers.\83\
---------------------------------------------------------------------------

\78\ See, e.g., letters from CalPERS, Calvert, CII, Colorado
Public Employees' Retirement Association (``COPERA''), ICGN,
Meridian Compensation Partners (``Meridian''), PGGM, Pensions
Investment Research Consultants (``PIRC''), SBA of Florida,
Sullivan, and TIAA-CREF.
\79\ See, e.g., letters from CalPERS, Calvert, CII, PGGM, PIRC,
SBA of Florida, and TIAA-CREF.
\80\ See letter from CalPERS.
\81\ See letter from TIAA-CREF.
\82\ See letter from PIRC.
\83\ See letter from SBA of Florida.
---------------------------------------------------------------------------

A number of commentators stated that it would be more appropriate
instead to include consideration of say-on-pay votes among the non-
exclusive examples of the kind of information that should be addressed
in CD&A, only if material given the issuer's individual facts and
circumstances \84\ because this approach would avoid boilerplate
disclosure and require discussion only when material,\85\ and that
discussion on a mandatory basis may lead to awkward and non-substantive
disclosure if the issuer has not made changes to its compensation
program in response to the shareholder vote.\86\
---------------------------------------------------------------------------

\84\ See, e.g., letters from ABA, Boeing, Business Roundtable,
Eaton Corporation (``Eaton''), FSR, PM&P, Sullivan, and UnitedHealth
Group (``UnitedHealth'').
\85\ See, e.g., letter from UnitedHealth.
\86\ See letter from PM&P.
---------------------------------------------------------------------------

Other commentators stated that no amendment to CD&A is required
\87\ because the Act does not require additional CD&A disclosure and it
should not be required by rule,\88\ the proposed amendment would add
length to CD&A without providing meaningful information to
shareholders,\89\ and the amendment would deem the consideration of
say-on-pay votes material whether such consideration is material or
not.\90\ Similarly a number of commentators who asserted that amending
Item 402(b) is not required also expressed the view that if the
Commission does adopt an amendment, such CD&A disclosure should be
required only if material under the issuer's individual facts and
circumstances.\91\
---------------------------------------------------------------------------

\87\ See, e.g., letters from Center on Exec. Comp., Compensia,
Davis Polk, Pfizer, Society of Corp. Sec., and UBC.
\88\ See, e.g., letter from Center on Exec. Comp.
\89\ See letter from Davis Polk.
\90\ See, e.g., letter from Society of Corp. Sec.
\91\ See, e.g., letters from Compensia, Davis Polk, and Society
of Corp. Sec.
---------------------------------------------------------------------------

Commentators also disagreed with respect to which say-on-pay votes
should be covered by the CD&A discussion. Some favored only the most
recent say-on-pay vote,\92\ indicating that mandating discussion of
prior votes would result in extraneous discussion \93\ and little
benefit.\94\ Other commentators indicated that prior votes should also
be required to be addressed.\95\ These commentators noted that such
disclosure of prior votes is appropriate given the long-term process of
determining compensation \96\ and that it would permit investors to
evaluate any trends in the results of say-on-pay votes.\97\ One
commentator stated that if CD&A disclosure with respect to say-on-pay
votes is mandatory, it should be limited to the most recent vote, but
if not mandatory should not be so limited.\98\ Although there was
little response to our request for comment regarding whether smaller
reporting companies should be required to disclose their consideration
of

[[Page 6016]]

shareholder advisory votes on executive compensation, one commentator
stated that our existing disclosure requirements for these companies
are sufficient.\99\
---------------------------------------------------------------------------

\92\ See, e.g., letters from ABA, Boeing, Eaton, FSR,
McGuireWoods (``McGuireWoods''), Meridian, NACD, Pfizer, Protective
Life, and Sullivan.
\93\ See letter from Sullivan.
\94\ See letter from McGuireWoods.
\95\ See, e.g., letters from Chris Barnard (``Barnard''),
Calvert, PGGM, PIRC, PM&P, and SBA of Florida.
\96\ See, e.g., letter from PGGM.
\97\ See, e.g., letter from SBA of Florida.
\98\ See letter from Boeing.
\99\ See letter from ICGN.
---------------------------------------------------------------------------

c. Final Rule
After considering the comments, we are adopting amendments to the
disclosure requirements of Item 402(b)(1) substantially as proposed,
with a modification to clarify that this mandatory topic relates to the
issuer's consideration of the most recent say-on-pay vote. As discussed
below, issuers should address their consideration of the results of
earlier say-on-pay votes, to the extent material.
The final rule amends Item 402(b)(1) to require issuers to address
in CD&A whether and, if so, how their compensation policies and
decisions have taken into account the results of the most recent
shareholder advisory vote on executive compensation. Although it is not
mandated by Section 951 of the Act, we continue to believe that
including this mandatory topic in CD&A will facilitate better investor
understanding of issuers' compensation decisions. Because the
shareholder advisory vote will apply to all issuers, we view
information about how issuers have responded to such votes as more in
the nature of a mandatory principles-based topic than an example. The
manner in which individual issuers may respond to such votes in
determining executive compensation policies and decisions will likely
vary depending upon facts and circumstances. We expect that this
variation will be reflected in the CD&A disclosures.
Following consideration of the comments received, we have decided
to limit the mandatory topic to whether, and if so, how the issuer has
considered the results of the most recent say-on-pay vote in
determining compensation policies and decisions, and if so, how that
consideration has affected the issuer's executive compensation policies
and decisions.\100\ This modification reflects that, in making voting
and investment decisions, shareholders will benefit from understanding
what consideration the issuer has given to the most recent say-on-pay
vote. Limiting the mandatory topic to the most recent shareholder vote
should also focus the disclosure so there should not be lengthy
boilerplate discussions of all previous votes. Although we have added
issuer consideration of the most recent say-on-pay vote to the
mandatory topics, we believe that, consistent with the principles-based
nature of CD&A, issuers should address their consideration of the
results of earlier say-on-pay votes to the extent such consideration is
material to the compensation policies and decisions discussed.
---------------------------------------------------------------------------

\100\ Reporting companies are currently required to disclose,
pursuant to Item 5.07 of Form 8-K [17 CFR 249.208a], the preliminary
results of a shareholder vote within four business days after the
end of the meeting at which the vote is held and final voting
results within four business days after the final voting results are
known. We are adopting amendments to require additional disclosure
on Form 8-K regarding the company's determination of the frequency
of say-on-pay votes. See Section II.B.5 below.
---------------------------------------------------------------------------

Because companies with outstanding indebtedness under the TARP will
continue to have an annual say-on-pay vote until they repay all such
indebtedness, these votes should be addressed by issuers in CD&A as
well. To reflect our treatment of companies subject to EESA with
outstanding obligations under TARP, we have also modified the amendment
to Item 402(b)(1) as adopted to address issuer consideration of the
results of the most recent shareholder advisory vote on executive
compensation required by Section 14A or Rule 14a-20. This reflects that
the vote required pursuant to the EESA and 14a-20 is effectively the
same vote that would be required under Section 14A(a)(1).\101\
---------------------------------------------------------------------------

\101\ The treatment of companies subject to EESA with
outstanding obligations under TARP is discussed in Section II.C.3
below.
---------------------------------------------------------------------------

Smaller reporting companies are subject to scaled disclosure
requirements in Item 402 of Regulation S-K and are not required to
include a CD&A. We are not adding a specific requirement for smaller
reporting companies to provide disclosure about how previous votes
pursuant to Section 14A affected compensation policies and decisions
because we believe such information would not be as valuable outside
the context of a complete CD&A covering the full range of matters
required to be addressed by Item 402(b). However, we note that pursuant
to Item 402(o) of Regulation S-K, \102\ smaller reporting companies are
required to provide a narrative description of any material factors
necessary to an understanding of the information disclosed in the
Summary Compensation Table. If consideration of prior say-on-pay votes
is such a factor for a particular issuer, disclosure would be required
pursuant to Item 402(o).
---------------------------------------------------------------------------

\102\ 17 CFR 229.402(o).
---------------------------------------------------------------------------

B. Shareholder Approval of the Frequency of Shareholder Votes on
Executive Compensation

1. Rule 14a-21(b)
We proposed Rule 14a-21(b) pursuant to which issuers would be
required, not less frequently than once every six years, to provide a
separate shareholder advisory vote in proxy statements to determine the
frequency of the shareholder vote on the compensation of executives
required by Section 14A(a)(1). We are adopting this amendment
substantially as proposed with slight modifications in response to
comments.
a. Proposed Rule
Under proposed Rule 14a-21(b), issuers would be required, not less
frequently than once every six years, to provide a separate shareholder
advisory vote in proxy statements for annual meetings to determine
whether the shareholder vote on the compensation of executives required
by Section 14A(a)(1) ``will occur every 1, 2, or 3 years.'' \103\ As
proposed, Rule 14a-21(b) would also clarify that the separate
shareholder vote on the frequency of shareholder votes on executive
compensation would be required only in a proxy statement for an annual
or other meeting of shareholders for which our rules require
compensation disclosure. Consistent with Section 14A, issuers would be
required to provide the separate shareholder vote on the frequency of
the say-on-pay vote for the first annual or other such meeting of
shareholders occurring on or after January 21, 2011.
---------------------------------------------------------------------------

\103\ Exchange Act Section 14A(a)(2).
---------------------------------------------------------------------------

b. Comments on the Proposed Rule
Comments on the proposal were generally favorable. Many
commentators agreed that the rule did not need to specify the required
language to be used for the shareholder vote on the frequency of
shareholder votes to approve executive compensation.\104\ Some
commentators, however, recommended that the Commission should specify
language or provide non-exclusive examples of resolutions so issuers
would know how the requirement may be satisfied.\105\ A number of
commentators also requested that the Commission clarify whether the
vote should be presented in the form of a resolution given that
shareholders will have a choice among three frequencies

[[Page 6017]]

or abstaining from the frequency vote.\106\ Although some commentators
suggested that we specify which shares are entitled to vote in the
shareholder vote on the frequency of say-on-pay votes,\107\ most
commentators indicated there was no need for the Commission to address
this question.\108\
---------------------------------------------------------------------------

\104\ See, e.g., letters from AFSCME, Business Roundtable, FSR,
Protective Life, and Towers Watson.
\105\ See, e.g., letters from Boeing, Pfizer, PGGM, Society of
Corp. Sec., and Sullivan.
\106\ See, e.g., letters from ABA, Pfizer, Society of Corp.
Sec., and Sullivan.
\107\ See, e.g., letter from the ABA.
\108\ See, e.g., letters from Business Roundtable, FSR, Pfizer,
PGGM, and Protective Life.
---------------------------------------------------------------------------

We also requested comment regarding whether a new issuer should be
permitted to disclose the frequency of its say-on-pay votes in the
registration statement for its initial public offering and be exempted
from conducting say-on-pay votes and frequency votes at its annual
meetings until the annual meeting for the year disclosed in its
registration statement. Most commentators indicated that newly public
companies should not be exempt from the say-on-pay and frequency votes
and should be required to conduct say-on-pay and frequency votes at
their first annual shareholders meeting after the initial public
offering.\109\ However, some commentators expressed support for such an
exemption as it would provide these issuers additional time to
formulate their compensation policies as a public company before
conducting the shareholder votes required by Section 14A.\110\
---------------------------------------------------------------------------

\109\ See, e.g., letters from AFSCME, CII, CalPERS, ICGN, Georg
Merkl (``Merkl''), Public Citizen, and RAILPEN Investments and
Universities Superannuation Scheme (``RAILPEN & USS'').
\110\ See, e.g., letters from ABA, Compensia, Davis Polk, NACD,
and Sullivan.
---------------------------------------------------------------------------

c. Final Rule
After reviewing and considering the comments, we are adopting Rule
14a-21(b) as proposed with slight modifications to clarify that the
frequency vote is required at least once during the six calendar years
following the prior frequency vote.\111\ Under Rule 14a-21(b), issuers
will be required, not less frequently than once every six calendar
years, to provide a separate shareholder advisory vote in proxy
statements for annual meetings to determine whether the shareholder
vote on the compensation of executives required by Section 14A(a)(1)
``will occur every 1, 2, or 3 years.'' \112\ After considering and
reviewing comments on the proposed rule, we do not believe it is
necessary to provide a form of resolution for the vote required by Rule
14a-21(b). In response to concerns raised by commentators and discussed
below, we are also adopting a temporary exemption under which smaller
reporting companies will not be required to conduct a shareholder
advisory vote on the frequency of say-on-pay votes until meetings on or
after January 21, 2013.\113\
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\111\ As proposed, Rule 14a-21(b) would have required a
frequency vote within the six-year period from the date of the most
recent frequency vote.
\112\ Exchange Act Section 14A(a)(2).
\113\ See discussion in Section II.E below.
---------------------------------------------------------------------------

Rule 14a-21(b) will also clarify that the separate shareholder vote
on the frequency of shareholder votes on executive compensation will be
required only in a proxy statement for an annual or other meeting of
shareholders at which directors will be elected and that such vote is
required only once every six calendar years. Under Rule 14a-21(b),
issuers will be required to provide the separate shareholder vote on
the frequency of the say-on-pay vote for the first annual or other such
meeting of shareholders occurring on or after January 21, 2011. After
reviewing the comment letters, we continue to believe that the say-on-
pay vote and the frequency vote should be required of newly public
companies in the proxy statement for such company's first annual
meeting after the initial public offering. This will give shareholders
the opportunity to express a view on these matters while the company is
in the process of establishing policies that will apply as a public
company and could benefit from understanding its shareholders' point of
view.
2. Item 24 of Schedule 14A
In order to implement the requirements of Section 14A(a), we
proposed new Item 24 to Schedule 14A, to briefly explain the general
effect of the frequency vote, such as whether the vote is non-binding.
We are adopting this amendment to Schedule 14A as proposed with a
modification.
a. Proposed Amendments
In addition to disclosure regarding the vote on executive
compensation, we proposed that issuers would be required to disclose in
the proxy statement that they are providing a separate shareholder
advisory vote on the frequency of the shareholder advisory vote on
executive compensation. Proposed Item 24 of Schedule 14A would also
require issuers to briefly explain the general effect of this vote,
such as whether the vote is non-binding.
b. Comments on the Proposed Amendments
Commentators generally supported proposed Item 24 of Schedule 14A
as it relates to the frequency of say-on-pay votes.\114\ One
commentator expressed the view that the proposed amendment is not
needed as it will lead to boilerplate disclosure.\115\ Some
commentators also suggested that issuers should be required to disclose
the current frequency of say-on-pay votes.\116\
---------------------------------------------------------------------------

\114\ See, e.g., letters from CalPERS, ICGN, PGGM, and
Protective Life.
\115\ See letter from Society of Corp. Sec.
\116\ See, e.g., letters from ICGN and TIAA-CREF.
---------------------------------------------------------------------------

c. Final Rule
After reviewing and considering the comments, we are adopting Item
24 of Schedule 14A as proposed with a modification. Issuers will be
required to disclose in the proxy statement that they are providing a
separate shareholder advisory vote on the frequency of say-on-pay
votes. Item 24 of Schedule 14A will also require issuers to briefly
explain the general effect of this vote, such as whether the vote is
non-binding.\117\ As noted above, this is similar to the approach taken
by the Commission in connection with disclosure requirements about the
shareholder advisory vote on executive compensation for companies
subject to EESA.\118\ Based on our experience with these votes, we
believe that such requirements will lead to useful disclosure of
information about the nature and effect of the vote for shareholders to
consider, such as whether the vote is non-binding.
---------------------------------------------------------------------------

\117\ As discussed in Section II.A.2.a, Section 14A(a) does not
require additional disclosure with respect to the non-binding nature
of the vote. We are requiring additional disclosure so that
information about the advisory nature of the vote is available to
shareholders before they vote.
\118\ See Section II.A.2.a, above.
---------------------------------------------------------------------------

After reviewing comments, we are also adding a requirement to Item
24 for issuers to provide disclosure of the current frequency of say-
on-pay votes and when the next scheduled say-on-pay vote will
occur,\119\ in their proxy materials. We believe this will provide
useful information to shareholders about upcoming say-on-pay and
frequency shareholder advisory votes.
---------------------------------------------------------------------------

\119\ Issuers should disclose the current frequency as
determined by the board following a shareholder advisory vote. We
would not expect disclosure of either the current frequency or when
the next scheduled say-on-pay vote will occur in proxy materials for
the meeting where an issuer initially conducts the say-on-pay and
frequency votes.
---------------------------------------------------------------------------

3. Amendment to Rule 14a-4
In order to implement the requirements of Section 14A(a)(2), we
also proposed amendments to Rule 14a-4. After considering comments, we
are adopting the amendments to Rule 14a-4 as proposed, with slight
modification.

[[Page 6018]]

a. Proposed Amendments
As noted in the Proposing Release, Section 14A(a)(2) requires a
shareholder advisory vote on whether say-on-pay votes will occur every
1, 2, or 3 years. Thus, shareholders must be given four choices:
Whether the shareholder vote on executive compensation will occur every
1, 2, or 3 years, or to abstain from voting on the matter. In our view,
Section 14A(a)(2) does not allow for alternative formulations of the
shareholder vote, such as proposals that would provide shareholders
with two substantive choices (e.g., to hold a separate shareholder vote
on executive compensation every year or less frequently), or only one
choice (e.g., a company proposal to hold shareholder votes every two
years). We noted in the Proposing Release that we would expect that the
board of directors will include a recommendation as to how shareholders
should vote on the frequency of shareholder votes on executive
compensation.\120\ However, the issuer must make clear in these
circumstances that the proxy card provides for four choices (every 1,
2, or 3 years, or abstain) and that shareholders are not voting to
approve or disapprove the issuer's recommendation. Accordingly, we
proposed amendments to our proxy rules to reflect the statutory
requirement that shareholders must be provided the opportunity to cast
an advisory vote on whether the shareholder vote on executive
compensation required by Section 14A(a)(1) of the Exchange Act will
occur every 1, 2, or 3 years, or to abstain from voting on the
matter.\121\
---------------------------------------------------------------------------

\120\ See Section II.B.3 of the Proposing Release.
\121\ Because the shareholder vote on the frequency of voting on
executive compensation is advisory, we do not believe that it is
necessary to prescribe a standard for determining which frequency
has been ``adopted'' by the shareholders.
---------------------------------------------------------------------------

Specifically, we proposed amendments to Rule 14a-4 under the
Exchange Act, which provides requirements as to the form of proxy that
issuers are required to include with their proxy materials, to require
that issuers present four choices to their shareholders. Absent
amendment, Rule 14a-4 requires the form of proxy to provide means
whereby the person solicited is afforded an opportunity to specify by
boxes a choice between approval or disapproval of, or abstention with
respect to each separate matter to be acted upon, other than elections
to office.\122\ We proposed amendments to revise this standard to
permit proxy cards to reflect the choice of 1, 2, or 3 years, or
abstain, for these votes.
---------------------------------------------------------------------------

\122\ Rule 14a-4(b)(1).
---------------------------------------------------------------------------

b. Comments on the Proposed Amendments
Comments on the proposal were generally favorable. Many
commentators expressed support for the proposed approach where
shareholders are given four choices on the frequency vote.\123\ Some
commentators suggested alternative approaches including a vote where
shareholders would rank each choice of frequency or vote separately for
each of 1, 2, and 3 years,\124\ a vote where management would choose 1,
2, or 3 years as the frequency and ask shareholders to approve or
disapprove its choice,\125\ and a two-step approach whereby
shareholders would first vote whether or not they have a preference as
to the frequency of say-on-pay votes and, if they do have a preference,
subsequently vote on whether such votes should be conducted every 1, 2,
or 3 years.\126\
---------------------------------------------------------------------------

\123\ See, e.g., letters from Calvert, COPERA, ICGN, Meridian,
Merkl, PGGM, and Protective Life.
\124\ See letter from Keith P. Bishop (``Bishop'').
\125\ See letter from UBC.
\126\ See letter from Society of Corp. Sec.
---------------------------------------------------------------------------

In addition, we requested comment in the Proposing Release as to
whether issuers, brokers, transfer agents, and data processing firms
would be able to accommodate the four choices for a single line item on
the proxy card. Commentators indicated that they would be ready for the
vote with four choices on the proxy card by January 21, 2011.\127\ One
commentator recommended that we clarify that issuers may vote
uninstructed shares in accordance with management's recommendations so
long as they follow the requirements of Rule 14a-4,\128\ while another
suggested that the Commission extend the transition guidance permitting
the presentation of three choices for the frequency vote for the entire
2011 proxy season and perhaps require the three-choice approach for all
issuers for 2011 to allow for uniformity among different issuers.\129\
---------------------------------------------------------------------------

\127\ See, e.g., letters from Broadridge Financial Solutions,
Inc. (``Broadridge'') and Proxytrust (``Proxytrust'').
\128\ See letter from Sullivan.
\129\ See letter from ABA. For a discussion of transition
matters, see Section II.F below.
---------------------------------------------------------------------------

c. Final Rule
After considering the comments, we are adopting the rule
substantially as proposed with some modifications. Specifically, we are
adopting amendments to Rule 14a-4 under the Exchange Act, which
provides requirements as to the form of proxy that issuers are required
to include with their proxy materials, to require that issuers present
four choices to their shareholders. Under existing Rule 14a-4, the form
of proxy is required to provide means whereby the person solicited is
afforded an opportunity to specify by boxes a choice between approval
or disapproval of, or abstention with respect to each separate matter
to be acted upon, other than elections to office. Absent an amendment,
Rule 14a-4 would not permit proxy cards to reflect the choice of 1, 2,
or 3 years, or abstain. The amendments revise the rule to permit proxy
cards to reflect the choice of 1, 2, or 3 years, or abstain, for the
frequency vote.
In response to comment, we note that issuers may vote uninstructed
proxy cards in accordance with management's recommendation for the
frequency vote only if the issuer follows the existing requirements of
Rule 14a-4 to (1) include a recommendation for the frequency of say-on-
pay votes in the proxy statement, (2) permit abstention on the proxy
card, and (3) include language regarding how uninstructed shares will
be voted in bold on the proxy card.
4. Amendment to Rule 14a-8
In connection with implementing the requirements of Section
14A(a)(2), we also proposed a note to Rule 14a-8(i)(10) relating to
shareholder proposals. After considering the comments, we are adopting
the amendment to Rule 14a-8 with some modifications.
a. Proposed Amendments
Our proposed amendment to Rule 14a-8 under the Exchange Act would
add a note to Rule 14a-8(i)(10) to clarify the status of shareholder
proposals that seek an advisory shareholder vote on executive
compensation or that relate to the frequency of shareholder votes
approving executive compensation. Rule 14a-8 provides eligible
shareholders with an opportunity to include a proposal in an issuer's
proxy materials for a vote at an annual or special meeting of
shareholders. An issuer generally is required to include the proposal
unless the shareholder has not complied with the rule's procedural
requirements or the proposal falls within one of the rule's 13
substantive bases for exclusion.\130\ One of the substantive bases for
exclusion, Rule 14a-8(i)(10), provides that an issuer

[[Page 6019]]

may exclude a shareholder proposal that has already been substantially
implemented.
---------------------------------------------------------------------------

\130\ These substantive bases for exclusion are set forth in
Rule 14a-8(i).
---------------------------------------------------------------------------

We proposed adding a note to Rule 14a-8(i)(10) to permit the
exclusion of a shareholder proposal that would provide a say-on-pay
vote or seeks future say-on-pay votes or that relates to the frequency
of say-on-pay votes, provided the issuer has adopted a policy on the
frequency of say-on-pay votes that is consistent with the plurality of
votes cast in the most recent vote in accordance with Rule 14a-21(b).
As noted in Section I above, a ``say-on-pay'' vote is defined as a
separate resolution subject to shareholder vote to approve the
compensation of executives, as disclosed pursuant to Item 402 of
Regulation S-K, or any successor to Item 402.
As proposed, an issuer would be permitted to exclude shareholder
proposals that propose a vote on the approval of executive compensation
as disclosed pursuant to Item 402 of Regulation S-K or on the frequency
of such votes, including those drafted as requests to amend the
issuer's governing documents, so long as the issuer has adopted a
policy on the frequency of say-on-pay votes that is consistent with the
plurality of votes cast in the most recent vote required by Rule 14a-
21(b) and provides a vote on frequency at least as often as required by
Section 14A(a)(2).
b. Comments on the Proposed Amendments
Comments on the proposal were mixed. Many commentators supported
the proposed amendment to permit exclusion of shareholder proposals on
frequency and say-on-pay,\131\ stating that the amendment would
eliminate redundancy and reduce administrative burdens and costs.\132\
Other commentators disagreed with the general approach,\133\ stating
that they believe it would be unwise as a matter of public policy and
would inappropriately interpret substantial implementation because the
note would permit exclusion of proposals requesting a frequency that
the issuer has not implemented.\134\ Other commentators asserted that
an amendment is not required because issuers should be permitted to
exclude any shareholder proposals on frequency as long as the issuer
complies with Section 14A(a)(2).\135\ Some commentators suggested that
we should also permit issuers to exclude shareholder proposals on the
frequency of say-on-pay votes when they adopt a policy to hold say-on-
pay votes more frequently than the frequency that is consistent with
the plurality of votes cast in the most recent shareholder vote \136\
to prevent issuers being penalized for providing shareholders with more
frequent say-on-pay votes.\137\ Other commentators felt that issuers
should not be required to adopt a particular policy on the frequency of
say-on-pay votes in order to be permitted to exclude shareholder
proposals on executive compensation,\138\ noting that an issuer should
be permitted to exclude shareholder proposals on frequency so long as
the issuer provides a reasonable basis for the frequency chosen to
prevent an annual re-visiting of the frequency vote by
shareholders.\139\
---------------------------------------------------------------------------

\131\ See, e.g., letters from ABA, Business Roundtable, Center
for Capital Markets Competitiveness of the U.S. Chamber of Commerce
(``CCMC''), Eaton, FSR, ICGN, Pfizer, PGGM, and Protective Life.
\132\ See, e.g., letter from Business Roundtable.
\133\ See, e.g., letters from AFSCME, Calvert, Center on Exec.
Comp., CII, Public Citizen, and UBC.
\134\ See, e.g., letter from AFSCME.
\135\ See letter from UBC.
\136\ See, e.g., letters from ABA, Davis Polk, Meridian, Society
of Corp. Sec., and Sullivan.
\137\ See letter from Sullivan.
\138\ See, e.g., letters from Boeing and Center on Exec. Comp.
\139\ See letter from Boeing.
---------------------------------------------------------------------------

In addition, some commentators stated that the proposed note to
Rule 14a-8(i)(10) should incorporate a majority standard rather than
the proposed plurality standard, so that issuers would need to adopt a
policy consistent with the majority of votes cast in order to exclude a
shareholder proposal as substantially implemented,\140\ noting that the
majority standard would be consistent with policies that boards should
implement actions recommended by majority shareholder vote.\141\ Some
commentators also recommended that issuers should be permitted to
exclude shareholder proposals for votes on executive compensation that
are narrower in scope \142\ than the say-on-pay vote required under
Rule 14a-21(a).\143\ These commentators expressed the concern that
shareholders could undermine the non-binding nature of the frequency
vote through more specific vote proposals.\144\
---------------------------------------------------------------------------

\140\ See, e.g., letters from CalPERS, CII, and SBA of Florida.
\141\ See letter from CII.
\142\ An example would be a shareholder proposal for an advisory
vote on the Chief Executive Officer's compensation as disclosed
under Item 402 of Regulation S-K.
\143\ See, e.g., letters from Business Roundtable, Boeing, CCMC,
Davis Polk, Pfizer, and Society of Corp. Sec.
\144\ See letter from Boeing.
---------------------------------------------------------------------------

Finally, some commentators indicated that it would be inappropriate
to permit companies to exclude shareholder proposals on frequency if
there have been material changes in the company's compensation program
since the prior frequency vote \145\ because shareholders should be
permitted the opportunity to revisit their decision on the frequency
vote under such circumstances.\146\ Other commentators noted that
material changes to an issuer's compensation program should not limit
the availability of Rule 14a-8(i)(10) because shareholders will
understand that a company's compensation program is dynamic and factor
this into their frequency voting decisions.\147\ These commentators
noted that the difficulty in determining whether changes are material
would erode the benefit of the note to Rule 14a-8(i)(10), create
uncertainty as to a company's ability to exclude shareholder proposals
on frequency,\148\ and burden the staff with analyzing materiality on a
case-by-case basis.\149\
---------------------------------------------------------------------------

\145\ See, e.g., letters from Boston Common, Calvert, First
Affirmative, ICGN, PIRC, PGGM, RAILPEN & USS, Social Investment, and
Walden.
\146\ See letter from RAILPEN & USS.
\147\ See, e.g., letters from ABA, Boeing, Frederic W. Cook &
Co., Inc. (``Frederic Cook''), McGuireWoods, Pfizer, PM&P, and
Protective Life.
\148\ See letter from McGuireWoods.
\149\ See letter from Frederic Cook.
---------------------------------------------------------------------------

c. Final Rule
After reviewing the comments, we are adopting the amendment to Rule
14a-8(i)(10) with some modifications.
We continue to believe that under certain conditions, an issuer
should be permitted to exclude subsequent shareholder proposals that
seek a vote on the same matters as the shareholder advisory votes on
say-on-pay and frequency required by Section 14A(a). Consequently,
consistent with the proposal, we are adding a note to Rule 14a-8(i)(10)
to permit the exclusion of a shareholder proposal that would provide a
say-on-pay vote, seeks future say-on-pay votes, or relates to the
frequency of say-on-pay votes in certain circumstances; however, in
response to comments,\150\ we are changing the threshold for exclusion
from a plurality to a majority. Specifically, as adopted, the note to
Rule 14a-8(i)(10) will permit exclusion of such a shareholder proposal
if, in the most recent shareholder vote on frequency of say-on-pay
votes, a single frequency (i.e., one, two or three years) received the
support of a majority of the votes cast and the issuer has adopted a
policy on

[[Page 6020]]

the frequency of say-on-pay votes that is consistent with that
choice.\151\
---------------------------------------------------------------------------

\150\ See, e.g., letters from CalPERS, CII, and SBA of Florida.
\151\ For purposes of this analysis, an abstention would not
count as a vote cast. We are prescribing this voting standard solely
for purposes of determining the scope of the exclusion under the
note to Rule 14a-8(i)(10), and not for the purpose of determining
whether a particular voting frequency should be considered to have
been adopted or approved by shareholder vote as a matter of state
law.
---------------------------------------------------------------------------

In light of the nature of the vote--with three substantive
choices--it is possible that no single choice will receive a majority
of votes and that, as a result, there may be issuers that may not be
able to exclude subsequent shareholder proposals regarding say-on-pay
matters even if they adopt a policy on frequency that is consistent
with plurality of votes cast. We also recognize, however, that if no
single frequency choice receives the support of a majority of votes
cast, the choice preferred by the plurality may not represent the
choice preferred by most of the company's shareholders. For example, if
30% of votes support annual voting, 30% support biennial voting, and
40% favor triennial voting, no frequency would have received a majority
of votes cast; therefore, it is not clear that implementing the
plurality choice would be favored by most of the company's
shareholders. In that situation, if the company implemented triennial
voting and the note to Rule 14a-8(i)(10) allowed exclusion of
shareholder proposals seeking a different frequency, this could prevent
shareholders from putting forth proposals that seek to request that the
company implement a frequency that would be preferred by a majority of
shareholders. After considering commentators' views, we are concerned
that this approach would inappropriately restrict shareholder proposals
on this topic, particularly in light of Section 14A(c)(4)'s directive
that the shareholder advisory votes required by Sections 14A(a) and (b)
may not be construed ``to restrict or limit the ability of shareholders
to make proposals for inclusion in proxy materials related to executive
compensation.''
On the other hand, if a majority of votes cast favors a given
frequency and the issuer adopts a policy on frequency that is
consistent with the choice of the majority of votes, then in our view,
as a matter of policy it is appropriate for Rule 14a-8 to provide for
exclusion of subsequent shareholder proposals that would provide a say-
on-pay vote, seek future say-on-pay votes, or relate to the frequency
of say-on-pay votes. We believe that, in these circumstances,
additional shareholder proposals on frequency generally would
unnecessarily burden the company and its shareholders given the
company's adherence to the view favored by a majority of shareholder
votes regarding the frequency of say-on-pay votes.\152\ As described
above, an issuer would not be permitted to exclude such shareholder
proposals under the note if no frequency choice received a majority of
the votes cast.
---------------------------------------------------------------------------

\152\ We recognize that this approach is different from the
traditional ``substantially implemented'' standard in Rule 14a-
8(i)(10) since the frequency sought by a shareholder would be
different from the frequency the issuer has implemented. We have
revised the note to avoid confusion in that regard. A shareholder
proposal seeking a frequency that is the same as that provided by
the company would be excludable under the traditional
``substantially implemented'' standards in Rule 14a-8(i)(10) without
regard to the new note, assuming there are no other differences that
would lead to a different result.
---------------------------------------------------------------------------

As a result of this amendment, an issuer will be permitted to
exclude shareholder proposals that propose a vote on the frequency of
such votes,\153\ including those drafted as requests to amend the
issuer's governing documents. For example, if in the first vote under
Rule 14a-21(b) a majority of votes were cast for a two-year frequency
for future shareholder votes on executive compensation, and the issuer
adopts a policy to hold the vote every two years, a shareholder
proposal seeking a different frequency could be excluded so long as the
issuer seeks votes on executive compensation every two years.\154\
---------------------------------------------------------------------------

\153\ No-action requests to exclude shareholder proposals that
seek shareholder advisory votes on different aspects of executive
compensation will be evaluated on a case-by-case basis by the staff.
\154\ Issuers seeking to exclude a shareholder proposal under
the note to Rule 14a-8(i)(10) are required to follow the same
shareholder proposal process with the staff of the Commission as
would be required if the issuer intended to rely on any other
substantive basis for exclusion under Rule 14a-8.
---------------------------------------------------------------------------

We also believe that a shareholder proposal that would provide an
advisory vote or seek future advisory votes on executive compensation
with substantially the same scope as the say-on-pay vote required by
Rule 14a-21(a)--the approval of executive compensation as disclosed
pursuant to Item 402 of Regulation S-K--should also be subject to
exclusion under Rule 14a-8(i)(10) if the issuer adopts a policy on
frequency that is consistent with the majority of votes cast. This is
consistent with the proposal, although like additional frequency votes,
the note to Rule 14a-8(i)(10) would condition exclusion on the company
implementing the frequency favored by a majority of shareholders. In
this circumstance, shareholders would be provided the opportunity to
provide say-on-pay votes on the frequency preferred by a majority of
shareholders when last polled, and we believe additional proposals on
the same matter would impose unnecessary burdens on companies and
shareholders.
We are also modifying the note slightly. To avoid confusion, we are
removing the requirement that an issuer must provide ``a vote on
frequency at least as often as required by Section 14A(a)(2).'' We
believe this language is not necessary as issuers are already required
to comply with Section 14A(a)(2) in any event. In addition, we are
removing the language ``as substantially implemented'' from the note to
avoid confusion.
5. Amendment to Form 8-K
We also proposed amendments to Form 10-Q and Form 10-K to require
additional disclosure regarding the issuer's decision to adopt a policy
on the frequency of say-on-pay votes following a shareholder advisory
vote on frequency. After considering the comments, we are not adopting
amendments to Form 10-Q and Form 10-K. Instead, we are adopting a new
Form 8-K Item to require disclosure of the issuer's decision on the
frequency of say-on-pay votes.
a. Proposed Amendments
Issuers are currently required to disclose the preliminary results
of shareholder votes pursuant to Item 5.07 of Form 8-K within four
business days following the day the shareholder meeting ends and final
voting results within four business days of when they are known. This
item will require issuers to report how shareholders voted in the say-
on-pay vote and the frequency of shareholder votes on executive
compensation.
We proposed amendments to Form 10-K and Form 10-Q to require
additional disclosure regarding the issuer's decision in light of such
vote as to how frequently the company will include those say-on-pay
votes for the six subsequent years. Our proposed amendments to Item 9B
of Form 10-K and new Item 5(c) of Part II of Form 10-Q would have
required an issuer to disclose this decision in the Form 10-Q covering
the quarterly period during which the shareholder advisory vote occurs,
or in the Form 10-K if the shareholder advisory vote occurs during the
issuer's fourth quarter. In light of the relevance of this decision to
potential shareholder proposals on the topic, we proposed this
disclosure to notify shareholders on a timely basis about the issuer's
decision on how frequently it

[[Page 6021]]

will provide the say-on-pay vote to shareholders.
b. Comments on the Proposed Amendments
Comments on the proposal were mixed. A number of commentators
supported the amendments as proposed that would require disclosure of
an issuer's decision as to the frequency of say-on-pay votes in the
Form 10-Q or Form 10-K for the period during which the advisory vote
occurs \155\ as the requirement would allow shareholders to readily
obtain an issuer's decision on the frequency of say-on-pay votes.\156\
Some commentators questioned whether the Commission should require such
disclosure of an issuer's determination regarding frequency following
the results of a shareholder advisory vote at all,\157\ given that the
shareholder vote on the frequency of say-on-pay votes is only
advisory.\158\ Other commentators suggested that we should allow
issuers additional time to consider the results of the shareholder vote
\159\ and to contact shareholders for additional feedback,\160\
particularly if the shareholders do not express a clear preference on
frequency. These commentators recommended that we instead require that
disclosure about the issuer's decision be included in a later Form 10-Q
or Form 10-K filing,\161\ Form 8-K filing,\162\ or on the issuer's Web
site.\163\ These commentators indicated that a requirement for a later
filing would still permit shareholders adequate time to submit a
shareholder proposal on the frequency of say-on-pay votes.\164\
---------------------------------------------------------------------------

\155\ See, e.g., letters from CalPERS, ICGN, Meridian, PGGM, and
SBA of Florida.
\156\ See letter from SBA of Florida.
\157\ See, e.g., letters from Business Roundtable, Boeing,
Center on Exec. Comp., CCMC, FSR, and Society of Corp. Sec.
\158\ See, e.g., letter from Society of Corp. Sec.
\159\ See, e.g., letters from Compensia, Davis Polk, Eaton,
Frederic Cook, PM&P, and Protective Life.
\160\ See, e.g., letters from ABA, Boeing, TIAA-CREF, and Time
Warner Inc. (``Time Warner'').
\161\ See, e.g., letters from Eaton, Frederic Cook, Compensia,
and PM&P.
\162\ See, e.g., letters from ABA and Davis Polk.
\163\ See letter from Business Roundtable.
\164\ See letter from ABA.
---------------------------------------------------------------------------

Commentators also noted that Item 5.07 of Form 8-K currently
requires disclosure of the number of votes cast ``for, against or
withheld'' on matters submitted to a vote of shareholders, but that the
item would not permit disclosure of the results of the frequency vote
for ``1 year, 2 years, 3 years, or abstain.'' \165\ These commentators
suggested that we amend Item 5.07 of Form 8-K to facilitate reporting
the results of the frequency vote.\166\
---------------------------------------------------------------------------

\165\ See, e.g., letter from Davis Polk.
\166\ See letter from PIRC.
---------------------------------------------------------------------------

c. Final Rule
After reviewing the comments on this issue, we have concluded that
disclosure of the issuer's determination regarding frequency of say-on-
pay votes should be required, but we are adopting the disclosure
requirement through an amendment to Item 5.07 of Form 8-K in lieu of
amendments to Form 10-Q and Form 10-K. We have considered the position
of commentators who were concerned that the required timing of
disclosure under our proposal would not permit sufficient time for
issuers to fully consider the results of the vote, including through
board deliberations and consultation with shareholders as described
above, before the disclosure of the decision is required.\167\ In light
of this concern, we are adopting this disclosure requirement as a Form
8-K requirement due at a later date, in lieu of amending Form 10-Q and
Form 10-K, to give issuers additional time to make their decisions.
---------------------------------------------------------------------------

\167\ See, e.g., letters from ABA, Boeing, Compensia, Davis
Polk, Eaton, Frederic Cook, PM&P, Protective Life, TIAA-CREF, and
Time Warner.
---------------------------------------------------------------------------

Under our final rule, Item 5.07 of Form 8-K requires an issuer to
disclose its decision regarding how frequently it will conduct
shareholder advisory votes on executive compensation following each
shareholder vote on the frequency of say-on-pay votes. To comply, an
issuer will file an amendment to its prior Form 8-K filings under Item
5.07 that disclose the preliminary and final results of the shareholder
vote on frequency. This amended Form 8-K will be due no later than 150
calendar days after the date of the end of the annual or other meeting
in which the vote required by Rule 14a-21(b) took place, but in no
event later than 60 calendar days prior to the deadline for the
submission of shareholder proposals under Rule 14a-8 for the subsequent
annual meeting, as disclosed in the issuer's proxy materials for the
meeting at which the frequency vote occurred.\168\ In the amended Item
5.07 Form 8-K, the issuer must disclose its determination regarding the
frequency of say-on-pay votes.\169\
---------------------------------------------------------------------------

\168\ Item 5.07 is not among the list of items subject to the
safe harbor from liability in Rules 13a-11 [17 CFR 240.13a-11] and
15d-11 [17 CFR 240.15d-11] under the Exchange Act. In addition,
companies that fail to file a timely report required by Item 5.07
will lose their eligibility to file Form S-3 registration
statements. We are not making a change to this as a result of our
amendments to Item 5.07. We continue to believe that Item 5.07 does
not require management to make rapid materiality and similar
judgments within the compressed Form 8-K timeframe. See Additional
Form 8-K Disclosure Requirements and Acceleration of Filing Date,
Release No. 33-8400 (Mar. 16, 2004) [69 FR 15594] at Section II.E
and Proxy Disclosure Enhancements, Release No. 33-9089 (Dec. 16,
2009) [74 FR 68334] at Section II.E.
\169\ Item 5.07(d) of Form 8-K.
---------------------------------------------------------------------------

We believe the time period specified for filing the amended Item
5.07 Form 8-K should address commentators' requests that we revise the
proposal to allow companies additional time to carefully consider the
results of the frequency vote, including through board and committee
deliberations and discussions with shareholders, before disclosure of
the decision is required.\170\ It also should provide enough time for
shareholders to consider whether to submit a shareholder proposal on
say-on-pay votes or on the frequency of say-on-pay votes once the
disclosure is provided.
---------------------------------------------------------------------------

\170\ In this regard, we note the recent guidance provided by
the Division of Corporation Finance that Regulation FD [17 CFR
243.100 et seq.] does not prohibit directors from speaking privately
with a shareholder or group of shareholders as described in that
guidance. See Regulation FD CDIs, Question 101.11.
---------------------------------------------------------------------------

In addition, in response to comment,\171\ we are adopting a
technical amendment to Item 5.07(b) of Form 8-K to facilitate reporting
of shareholder votes on frequency. Item 5.07 of Form 8-K generally
requires an issuer to ``state the number of votes cast for, against, or
withheld, as well as the number of abstentions and broker non-votes as
to each such matter * * *.'' The amendments we adopt today will clarify
that, with respect to the vote on the frequency of say-on-pay votes,
the issuer will be required to disclose the number of votes cast for
each of 1 year, 2, years, and 3 years, as well as the number of
abstentions.\172\
---------------------------------------------------------------------------

\171\ See, e.g., letters from Davis Polk and PIRC.
\172\ We are adopting a conforming technical change to
Instruction 1 to Item 5.07 to carve out Item 5.07(d) from the four-
business day period for reporting the event. See Instruction 1 to
Item 5.07 of Form 8-K.
---------------------------------------------------------------------------

6. Effect of Shareholder Vote
Although the language in Section 951 of the Act indicates that the
separate resolution subject to shareholder vote is ``to determine'' the
frequency of the shareholder vote on executive compensation, in light
of new Section 14A(c) of the Exchange Act, we continue to believe this
shareholder vote, and all shareholder votes required by Section 951 of
the Act, are intended to be non-binding on the issuer or the issuer's
board of directors. New Section 14A(c) states that the shareholder
votes referred to in Section 14A(a) and Section 14A(b) (which includes
all votes

[[Page 6022]]

under Section 951 of the Act) ``shall not be binding on the issuer or
the board of directors of an issuer.'' \173\ Though we received a
comment letter asserting that the shareholder vote on frequency is
binding,\174\ in our view the plain language of Exchange Act Section
14A(c) indicates that this vote is advisory. Accordingly, we are
adopting new Item 24 of Schedule 14A to include language to require
disclosure regarding the general effect of the shareholder advisory
votes, such as whether the vote is non-binding.\175\
---------------------------------------------------------------------------

\173\ Exchange Act Section 14A(c).
\174\ See letter from Merkl.
\175\ Even though each of the shareholder advisory votes
required by Section 14A is non-binding pursuant to the rule of
construction in Section 14A(c), as we noted in Note 69 of the
Proposing Release, we believe these votes could play a role in an
issuer's executive compensation decisions.
---------------------------------------------------------------------------

C. Issues Relating to Both Shareholder Votes Required by Section 14A(a)

1. Amendments to Rule 14a-6
We proposed amendments to Rule 14a-6 to add the say-on-pay and
frequency of say-on-pay votes to the list of items that do not require
the filing of proxy materials in preliminary form. After considering
comments, we are adopting the proposed amendments to Rule 14a-6, with
some modification.
a. Proposed Amendments
Rule 14a-6(a) generally requires issuers to file proxy statements
in preliminary form at least ten calendar days before definitive proxy
materials are first sent to shareholders, unless the items included for
a shareholder vote in the proxy statement are limited to specified
matters. During the time before final proxy materials are filed, our
staff has the opportunity to comment on the disclosures and issuers are
able to incorporate the staff's comments in their final proxy
materials. Absent an amendment to Rule 14a-6(a), a proxy statement that
includes a solicitation for either the shareholder vote on the approval
of executive compensation or the approval of the frequency of the votes
approving executive compensation required by Sections 14A(a)(1) and
14A(a)(2) would need to be filed in preliminary form. Because the
shareholder vote on executive compensation and the shareholder vote on
the frequency of such shareholder votes are required for all issuers,
we view them as similar to the other items specified in Rule 14a-6(a)
that do not require a preliminary filing. In the Proposing Release, we
noted our view that a preliminary filing requirement for the
shareholder votes on executive compensation and the frequency of such
votes would impose unnecessary administrative burdens and preparation
and processing costs associated with the filing and processing of proxy
material that would unlikely be selected for review in preliminary
form.\176\
---------------------------------------------------------------------------

\176\ See Section II.C.1 of the Proposing Release. See also,
Proxy Rules--Amendments to Eliminate Filing Requirements for Certain
Preliminary Proxy Material; Amendments With Regard to Rule 14a-8,
Shareholder Proposals, Release No. 34-25217 (Dec. 21, 1987) [52 FR
48982].
---------------------------------------------------------------------------

We proposed amendments to Rule 14a-6(a) to add the shareholder
votes on executive compensation and the frequency of shareholder votes
on executive compensation required by Section 14A(a) to the list of
items that do not trigger a preliminary filing.\177\ As proposed, a
proxy statement that includes a solicitation with respect to either of
these shareholder votes would not trigger a requirement that the issuer
file the proxy statement in preliminary form, so long as a preliminary
filing would not otherwise be required under Rule 14a-6(a).
---------------------------------------------------------------------------

\177\ In the recent release relating to the similar shareholder
votes for companies subject to EESA with outstanding indebtedness
under the TARP program, we received comments regarding whether a
preliminary proxy statement should be required for shareholder votes
on executive compensation for TARP companies. While some
commentators argued that a preliminary proxy statement should be
required, other commentators argued persuasively that the burdens of
such an approach outweighed the costs. As a result, we decided to
eliminate the requirement for a preliminary proxy statement for
shareholder votes on executive compensation for TARP companies. See
TARP Adopting Release, supra note 18, at 75 FR 2791.
---------------------------------------------------------------------------

b. Comments on the Proposed Amendments
Comments on the proposal were favorable. While one commentator
stated that say-on-pay votes and votes on the frequency of say-on-pay
votes should trigger the requirement to file in preliminary form to
provide the market and investors additional time to consider the
executive compensation disclosures,\178\ the preponderance of
commentators agreed that no preliminary proxy should be required.\179\
These commentators noted the similarity in proposals for all issuers
and the likelihood that the administrative burdens would outweigh any
benefits from a preliminary filing.\180\ In addition, one commentator
asserted that we should not require a preliminary proxy statement for
shareholder advisory votes on the frequency of say-on-pay votes that
are not required by Section 14A so that issuers would not be required
to file in preliminary form as a result of including a frequency vote
in their proxy materials voluntarily.\181\ Other commentators suggested
that no preliminary proxy statement should be required for any separate
shareholder vote on executive compensation,\182\ noting that it would
be inappropriate to require a preliminary filing for proposals on more
narrow aspects of compensation if a preliminary filing is not required
for broader proposals.\183\
---------------------------------------------------------------------------

\178\ See letter from Brian Foley (``Foley'').
\179\ See, e.g., letters from Ameriprise Financial
(``Ameriprise''), ABA, Business Roundtable, CalPERS, Center on Exec.
Comp., Compensia, Davis Polk, FSR, ICGN, Pfizer, PGGM, PM&P,
Protective Life, and Society of Corp. Sec.
\180\ See, e.g., letter from Compensia.
\181\ See letter from Business Roundtable.
\182\ See letters from ABA and ICGN.
\183\ See letter from ABA.
---------------------------------------------------------------------------

c. Final Rule
After considering the comments, we are adopting the amendments to
Rule 14a-6(a) as proposed, with slight modifications. We are adopting
amendments to Rule 14a-6(a) to add any shareholder advisory vote on
executive compensation, including shareholder votes to approve
executive compensation and the frequency of shareholder votes on
executive compensation required by Section 14A(a), to the list of items
that do not trigger a preliminary filing. As adopted, a proxy statement
that includes a solicitation with respect to any advisory vote on
executive compensation, including a say-on-pay vote or a vote on the
frequency of say-on-pay votes, would not trigger a requirement that the
issuer file the proxy statement in preliminary form, so long as any
other matters to which the solicitation relates include only the other
matters specified by Rule 14a-6(a). Finally, in a revision from the
proposal, this amendment will also encompass an advisory vote on
executive compensation, including a vote on the frequency of say-on-pay
votes, that is not required by Section 14A. Upon review of the
comments, we are persuaded by commentators' arguments that our
preliminary proxy filing requirements should not differentiate between
say-on-pay votes simply because, in one case, the issuer is required to
include the proposal, and, in the other, the issuer chooses to do so.
2. Broker Discretionary Voting
As noted in the Proposing Release,\184\ Section 957 of the Act
amends Section 6(b) of the Exchange Act \185\ to direct the national
securities exchanges to change their rules to prohibit broker
discretionary voting of uninstructed shares in certain matters,
including

[[Page 6023]]

shareholder votes on executive compensation. The national securities
exchanges have made substantial progress in amending their rules
regarding broker discretionary voting on executive compensation matters
to implement this requirement.\186\ Under these amended exchange rules,
for issuers with a class of securities listed on a national securities
exchange, broker discretionary voting of uninstructed shares is not
permitted for a shareholder vote on executive compensation or a
shareholder vote on the frequency of the shareholder vote on executive
compensation.\187\
---------------------------------------------------------------------------

\184\ See Section II.C.2 of the Proposing Release.
\185\ 15 U.S.C. 78f(b).
\186\ See, e.g., Notice of Filing and Order Granting Accelerated
Approval of a Proposed Rule Change to Amend NYSE Rule 452 and Listed
Company Manual Section 402.08 to Eliminate Broker Discretionary
Voting on Executive Compensation Matters, Release No. 34-62874, SR-
NYSE-2010-59 (Sept. 9, 2010); Notice of Filing and Order Granting
Accelerated Approval of Proposed Rule Change to Prohibit Members
from Voting Uninstructed Shares on Certain Matters, Release No. 34-
62992, SR-NASDAQ-2010-114 (Sept. 24, 2010).
\187\ Broker discretionary voting in connection with merger or
acquisition transactions also is not permitted under rules of the
national securities exchanges. See, e.g., NYSE Rule 452.
---------------------------------------------------------------------------

3. Relationship to Shareholder Votes on Executive Compensation for TARP
Companies
Issuers that have received financial assistance under the Troubled
Asset Relief Program, or TARP, are required to conduct a separate
annual shareholder vote to approve executive compensation during the
period in which any obligation arising from the financial assistance
provided under the TARP remains outstanding.\188\
---------------------------------------------------------------------------

\188\ Section 111(e) of the Emergency Economic Stabilization Act
of 2008, 12 U.S.C. 5221. See also Rule 14a-20.
---------------------------------------------------------------------------

Because the vote required to approve executive compensation
pursuant to the Emergency Economic Stabilization Act of 2008, or EESA,
is effectively the same vote that would be required under Section
14A(a)(1), as we indicated in the Proposing Release,\189\ we believe
that a shareholder vote to approve executive compensation under Rule
14a-20 for issuers with outstanding indebtedness under the TARP would
satisfy Rule 14a-21(a). Consequently, we noted in the Proposing Release
that we would not require an issuer that conducts an annual shareholder
advisory vote to approve executive compensation pursuant to EESA to
conduct a separate shareholder advisory vote on executive compensation
under Section 14A(a)(1) until that issuer has repaid all indebtedness
under the TARP. Such an issuer would be required to include a separate
shareholder advisory vote on executive compensation pursuant to Section
14A(a)(1) and Rule 14a-21(a) for the first annual meeting of
shareholders after the issuer has repaid all outstanding indebtedness
under the TARP. Commentators on this issue generally expressed support
for our proposed approach to companies with outstanding indebtedness
under TARP,\190\ and we have determined to implement this approach
under the rules as adopted.
---------------------------------------------------------------------------

\189\ See Section II.C.3 of the Proposing Release.
\190\ See, e.g., letters from ABA, CalPERS, COPERA, Davis Polk,
FSR, PGGM, and RAILPEN & USS.
---------------------------------------------------------------------------

Even though issuers with outstanding indebtedness under the TARP
have a separate statutory requirement to provide an annual shareholder
vote on executive compensation so long as they are indebted under the
TARP, absent exemptive relief these issuers would be required, pursuant
to Section 14A(a)(2) of the Exchange Act, to provide a separate
shareholder advisory vote on the frequency of shareholder votes on
executive compensation for the first annual or other such meeting of
shareholders on or after January 21, 2011. In our view, however,
because such issuers have a requirement to conduct an annual
shareholder advisory vote on executive compensation so long as they are
indebted under the TARP, a shareholder advisory vote on the frequency
of such votes while the issuer remains subject to a requirement to
conduct such votes on an annual basis would not serve a useful purpose.
We expressed these views in the Proposing Release \191\ and, as noted
above, commentators supported our views on this point.
---------------------------------------------------------------------------

\191\ See Section II.C.3 of the Proposing Release.
---------------------------------------------------------------------------

We have considered, therefore, whether issuers with outstanding
indebtedness under the TARP should be subject to the requirements of
Section 14A(a)(2) of the Exchange Act. We do not believe it is
necessary or appropriate in the public interest or consistent with the
protection of investors to require an issuer to conduct a shareholder
advisory vote on the frequency of the shareholder advisory vote on
executive compensation when the issuer already is required to conduct
advisory votes on executive compensation annually regardless of the
outcome of such frequency vote. Because Section 14A(a)(2) would burden
TARP issuers and their shareholders with an additional vote while
providing little benefit to either the issuer or its shareholders, we
continue to believe an exemption by rule is appropriate, pursuant to
both the exemptive authority granted by Section 14A(e) of the Exchange
Act \192\ and the Commission's general exemptive authority pursuant to
Section 36(a)(1) of the Exchange Act.\193\ As a result, Rule 14a-21(b),
as we are adopting it, exempts an issuer with outstanding indebtedness
under the TARP from the requirements of Rule 14a-21(b) and Section
14A(a)(2) until the issuer has repaid all outstanding indebtedness
under the TARP. Similar to the approach for shareholder advisory votes
under Rule 14a-21(a), such an issuer would be required to include a
separate shareholder advisory vote on the frequency of shareholder
advisory votes on executive compensation pursuant to Section 14A(a)(2)
and Rule 14a-21(b) for the first annual meeting of shareholders after
the issuer has repaid all outstanding indebtedness under the TARP.
---------------------------------------------------------------------------

\192\ Exchange Act Section 14A(e) provides that ``the Commission
may, by rule or order, exempt an issuer or class of issuers from the
requirement'' under Sections 14A(a) or 14A(b). Section 14A(e)
further provides that ``in determining whether to make an exemption
under this subsection, the Commission shall take into account, among
other considerations, whether the requirements under [Section 14A(a)
and 14A(b)] disproportionately burdens small issuers.'' In adopting
this exemption, the Commission considered whether the requirements
of Section 14A(a) and (b) as applied to TARP recipients to conduct a
shareholder advisory vote on the frequency of say-on-pay votes could
disproportionately burden small issuers. As described further in
Section II.E below, we have also considered whether the provision as
a whole disproportionately burdens small issuers. We note, in
addition, that to the extent a TARP recipient is a small issuer, it
will be subject to the exemption.
\193\ 15 U.S.C. 78mm(a)(1). Exchange Act Section 36(a)(1)
provides that ``the Commission, by rule, regulation, or order, may
conditionally or unconditionally exempt any person, security, or
transaction, or any class of persons, securities, or transactions,
from any provision or provisions of this title or of any rule or
regulation thereunder, to the extent that such exemption is
necessary or appropriate in the public interest, and is consistent
with the protection of investors.''
---------------------------------------------------------------------------

D. Disclosure of Golden Parachute Arrangements and Shareholder Approval
of Golden Parachute Arrangements

1. General
Section 14A(b)(1) of the Exchange Act requires all persons making a
proxy or consent solicitation seeking shareholder approval of an
acquisition, merger, consolidation or proposed sale or disposition of
all or substantially all of an issuer's assets to provide disclosure,
in accordance with rules we promulgate, of any agreements or
understandings that the soliciting person has with its named executive
officers (or that it has with the named executive officers of the
acquiring issuer) concerning compensation that is based on or otherwise
relates to the

[[Page 6024]]

merger transaction. In addition, Section 14A(b)(1) requires disclosure
of any agreements or understandings that an acquiring issuer has with
its named executive officers and that it has with the named executive
officers of the target company in transactions in which the acquiring
issuer is making a proxy or consent solicitation seeking shareholder
approval of an acquisition, merger, consolidation or proposed sale or
disposition of all or substantially all of an issuer's assets. Section
14A(b)(1) of the Exchange Act requires the disclosure to be in a
``clear and simple form in accordance with regulations to be
promulgated by the Commission'' and to include ``the aggregate total of
all such compensation that may (and the conditions upon which it may)
be paid or become payable to or on behalf of such executive officer.''
\194\
---------------------------------------------------------------------------

\194\ Exchange Act Section 14A(b)(1).
---------------------------------------------------------------------------

Under existing Commission rules, a target issuer soliciting
shareholder approval of a merger is required to describe briefly any
substantial interest, direct or indirect, by security holdings or
otherwise, of any person who has been an executive officer or director
since the beginning of the last fiscal year in any matter to be acted
upon.\195\ In response to this requirement, target issuers often
include disclosure in their proxy statements about compensation
arrangements that may be payable to a target issuer's executive
officers and directors in connection with the transaction. In addition,
under our existing rules, issuers are required to include in annual
reports and annual meeting proxy statements detailed information in
accordance with Item 402(j) of Regulation S-K about payments that may
be made to named executive officers upon termination of employment or
in connection with a change in control.\196\ The Item 402(j) disclosure
is provided based on year-end information and various assumptions, and
generally does not reflect any actual termination or termination
event.\197\
---------------------------------------------------------------------------

\195\ Item 5 of Schedule 14A.
\196\ See Item 402(j) of Regulation S-K [17 CFR 229.402(j)],
Item 8 of Schedule 14A, and Item 11 of Form 10-K. Item 402(j)
disclosure is required in both Annual Reports on Form 10-K and in
annual meeting proxy statements, though such disclosure is typically
provided in annual meeting proxy statements and incorporated into
the Form 10-K by reference pursuant to General Instruction G(3) of
Form 10-K. References to ``annual meeting proxy statements'' in this
context are meant to encompass both locations for the disclosure.
\197\ See Instruction 1 to Item 402(j), which requires
quantitative disclosure applying the assumptions that the triggering
event took place on the last business day of the issuer's last
completed fiscal year, and the price per share of the issuer's
securities is the closing market price as of that date. Where a
triggering event has actually occurred for a named executive officer
who was no longer serving as a named executive officer of the issuer
at the end of the last completed fiscal year, Instruction 4 to Item
402(j) requires Item 402(j) disclosure for that named executive
officer only for that triggering event.
---------------------------------------------------------------------------

2. Item 402(t) of Regulation S-K
We proposed Item 402(t) of Regulation S-K to require disclosure of
named executive officers' golden parachute arrangements in both tabular
and narrative formats. This disclosure will be required in merger
proxies and other disclosure documents for similar transactions as
described in Section II.D.3 below. After considering the comments on
this proposal, we are adopting Item 402(t) as proposed, with some
modifications.
a. Proposed Amendments
We proposed Item 402(t) of Regulation S-K to require disclosure of
named executive officers' golden parachute arrangements in both tabular
and narrative formats. We based our proposals on Section 14A(b)(1)'s
requirement that disclosure of the golden parachute compensation in any
proxy or consent solicitation to approve an acquisition, merger,
consolidation or proposed sale or disposition of all or substantially
all assets be ``in a clear and simple form in accordance with
regulations to be promulgated by the Commission'' and include ``the
aggregate total of all such compensation that may (and the conditions
upon which it may) be paid or become payable to or on behalf of such
executive officer.'' \198\
---------------------------------------------------------------------------

\198\ Exchange Act Section 14A(b)(1).
---------------------------------------------------------------------------

Consistent with Section 14A(b)(1) of the Exchange Act, agreements
or understandings between a target issuer conducting a solicitation and
its named executive officers would be subject to disclosure under
proposed Item 402(t). In addition, because golden parachute
compensation arrangements also may involve agreements or understandings
between the acquiring issuer and the named executive officers of the
target issuer, we proposed that Item 402(t) require disclosure of this
compensation in addition to the disclosure mandated by Section
14A(b)(1). Specifically, to cover the full scope of potential golden
parachute compensation applicable to the transaction, we proposed that
Item 402(t) require disclosure of all golden parachute compensation
relating to the merger among the target and acquiring issuers and the
named executive officers of each.\199\
---------------------------------------------------------------------------

\199\ However, because any agreements between a soliciting
target company's named executive officers and the acquiring company
are beyond the scope of the disclosure required by Section
14A(b)(1), we did not propose to subject such agreements to the Rule
14a-21(c) shareholder advisory vote required by Section 14A(b)(2)
and Rule 14a-21(c). See discussion of Rule 14a-21(c) in Section
II.D.4 below.
---------------------------------------------------------------------------

We did not propose to amend the requirements for golden parachutes
disclosure in annual meeting proxy statements, although, under our
proposal companies would be permitted to provide disclosure in annual
meeting proxies in accordance with the new requirement.\200\
---------------------------------------------------------------------------

\200\ See Sections II.D.2 and II.D.4 below.
---------------------------------------------------------------------------

b. Comments on the Proposed Amendments
Comments on the proposal were generally favorable. We requested
comment on a number of aspects of proposed Item 402(t), which we
describe in more detail below.
i. General Comments on the Proposed Item 402(t) Table
We proposed that the Item 402(t) table would present quantitative
disclosure of the individual elements of compensation that a named
executive officer would receive that are based on or otherwise relate
to the merger, acquisition, or similar transaction, and the total for
each named executive officer.
Many commentators agreed that Item 402(t) as proposed would elicit
disclosure of all elements of golden parachute compensation ``in a
clear and simple form'' as required by Section 14A(b)(1).\201\ In
addition, some commentators suggested that Item 402(t) should be
clarified to require disclosure of only compensation triggered by the
subject transaction so that issuers are not required to disclose any
golden parachute compensation that would not be triggered by the
subject transaction.\202\
---------------------------------------------------------------------------

\201\ See, e.g., letters from Davis Polk, PGGM, and WorldatWork.
\202\ See, e.g., letters from Davis Polk, Society of Corp. Sec.,
and Wachtell.
\203\ See, e.g., letters from Compensia, Davis Polk,
McGuireWoods, PM&P, and Sullivan.
---------------------------------------------------------------------------

ii. Comments on the Elements of Compensation and Presentation of the
Proposed Item 402(t) Table
As proposed, Item 402(t) would not have any de minimis exceptions
for compensation below a certain dollar threshold and would not require
disclosure of previously vested equity and pension benefits. Some
commentators urged that Item 402(t) should have de minimis exceptions,
like Item 402(j),\203\ because, in their view, the exclusion of such
immaterial amounts would not be inconsistent with Section 14A(b)(1)'s
requirement to

[[Page 6025]]

disclose the total amount of golden parachute compensation.\204\ In
addition, some commentators asserted that we should amend Item 402(j)
rather than propose a new Item 402(t).\205\
---------------------------------------------------------------------------

\204\ See letter from Compensia.
\205\ See, e.g., letters from Business Roundtable and Meridian.
---------------------------------------------------------------------------

Most commentators agreed with the proposed approach to omit
previously vested equity and pension benefits from the table,\206\ as
including such amounts in the table could lead to confusion by
overstating the total compensation.\207\ Other commentators, however,
recommended that such compensation be disclosed in the table \208\ to
make the compensation disclosure more comprehensive.\209\
---------------------------------------------------------------------------

\206\ See, e.g., letters from ABA, Center on Exec. Comp., Davis
Polk, FSR, ICGN, NACD, Pfizer, PM&P, Protective Life, and
WorldatWork.
\207\ See letter from ABA.
\208\ See, e.g., letters from Barnard, Glass Lewis, PGGM, and
Senator Levin.
\209\ See, e.g., letter from Glass Lewis.
---------------------------------------------------------------------------

A number of commentators also requested various other changes to
the proposed table. Some commentators argued that issuers should have
more flexibility in drafting the table to fit their individual
circumstances,\210\ or that issuers should be permitted to
differentiate between cash severance compensation and cash amounts for
outstanding awards that have been accelerated.\211\ With respect to
employment agreements, most commentators supported our proposed
approach to exclude disclosure of employment agreements from the Item
402(t) table,\212\ though some commentators argued that such employment
agreements should be quantified and included in the tabular disclosure
to provide more comprehensive disclosure.\213\ A number of commentators
supported the footnote identification of amounts of ``single-trigger''
and ``double-trigger'' \214\ compensation elements,\215\ with some
commentators recommending that the disclosure be included in the main
text rather than in footnotes if an issuer believes it would be useful
to the presentation.\216\ One commentator, however, indicated that
identification of single-trigger and double-trigger elements should not
be required as it believed this disclosure would not be useful to
investors.\217\
---------------------------------------------------------------------------

\210\ See letter from ABA.
\211\ See letter from Towers Watson.
\212\ See, e.g., letters from ABA, Center on Exec. Comp.,
Compensia, Davis Polk, Frederic Cook, FSR, Hermes, and PGGM.
\213\ See, e.g., letters from Glass Lewis, NACD, and PIRC.
\214\ A ``double-trigger'' arrangement requires that the
executive's employment be terminated without cause or that the
executive resign for good reason within a limited period of time
after the change-in-control to trigger payment. A ``single-trigger''
arrangement does not require such a termination or resignation after
the change-in-control to trigger payment.
\215\ See, e.g., letters from CalPERS, CII, FSR, Hermes, ICGN,
and PGGM.
\216\ See, e.g., letters from ABA and NACD.
\217\ See letter from Protective Life.
---------------------------------------------------------------------------

We also requested comment with respect to the appropriate
measurement for issuer stock price for tabular disclosure in proxy
statements for mergers or similar transactions. A number of
commentators agreed with our proposed approach to calculate such
amounts based on the issuer's share price as of the latest practicable
date,\218\ though many other commentators suggested that the share
price contemplated by the deal should be used, if available,\219\ with
an alternative to use the average closing price over the first five
business days following public announcement of the transaction.\220\
One commentator expressed a concern that the share price as of the
latest practicable date could lead to potential gaming of the price by
issuers.\221\
---------------------------------------------------------------------------

\218\ See, e.g., letters from ABA, Center on Exec. Comp., and
ICGN.
\219\ See, e.g., letters from Davis Polk, PM&P, and Sullivan.
\220\ See letter from PGGM.
\221\ See letter from PGGM.
---------------------------------------------------------------------------

iii. Comments on Individuals Subject to Item 402(t) Disclosure
Some commentators indicated that requiring disclosure under Item
402(t) of a broader group of individuals than is required by Exchange
Act Section 14A(b)(1) would be potentially confusing to investors \222\
as such disclosure goes beyond the requirements of Section 14A and
could lead to as many as three separate tables.\223\ Different
commentators supported disclosure of the broader group of individuals
\224\ in order to provide the full picture of compensation being
received in connection with the transaction.\225\
---------------------------------------------------------------------------

\222\ See, e.g., letters from Center on Exec. Comp., Davis Polk,
FSR, NACD, Pfizer, PGGM, Protective Life, Towers Watson, Wachtell,
Lipton, Rosen & Katz (``Wachtell''), and WorldatWork.
\223\ See letter from Davis Polk.
\224\ See, e.g., letters from CalPERS, ICGN, PIRC, and Senator
Carl Levin (``Senator Levin'').
\225\ See letter from PIRC.
---------------------------------------------------------------------------

Most commentators supported the proposal that issuers would not be
required to include Item 402(t) information with respect to individuals
who would have been among the most highly compensated executive
officers but for the fact that they were not serving as an executive
officer at the end of the last completed fiscal year.\226\ One
commentator, however, argued that issuers should be permitted to
include disclosure of the compensation of such individuals to conform
to the presentation of compensation in prior filings and that we should
clarify that the named executive officers subject to Item 402(t) is
determined in the same manner as under Item 5.02(e) of Form 8-K.\227\
---------------------------------------------------------------------------

\226\ See, e.g., letters from Davis Polk, ICGN, PGGM, and PM&P.
\227\ See letter from ABA.
---------------------------------------------------------------------------

iv. Comments on Item 402(t) Disclosure in Annual Meeting Proxy
Statements
In the Proposing Release, we did not propose requiring Item 402(t)
disclosure in annual meeting proxy statements. Most commentators agreed
that the proposed Item 402(t) narrative and tabular disclosure should
not be required in annual meeting proxy statements \228\ given the
costs and burdens this would impose on issuers.\229\ However, other
commentators recommended that such disclosure should be required in
annual meeting proxy statements,\230\ noting that such information
plays a key part in shareholder evaluation of an issuer's compensation
program.\231\
---------------------------------------------------------------------------

\228\ See, e.g., letters from ABA, Center for Exec. Comp.,
Compensia, Davis Polk, Frederic Cook, FSR, Hermes Equity Ownership
Services (``Hermes''), ICGN, McGuireWoods, PGGM, PM&P, and
WorldatWork.
\229\ See, e.g., letter from Frederic Cook.
\230\ See, e.g., letters from AFSCME, Protective Life, and
Public Citizen.
\231\ See letter from AFSCME.
---------------------------------------------------------------------------

c. Final Rule
After considering comments, we are adopting Item 402(t) of
Regulation S-K as proposed, with some modifications, to require
disclosure of named executive officers' golden parachute arrangements
in both tabular and narrative formats.
i. Item 402(t) Table and Narrative Requirements
We are adopting the following new table, as proposed:

[[Page 6026]]

Golden Parachute Compensation
--------------------------------------------------------------------------------------------------------------------------------------------------------
Tax
Name Cash ($) Equity ($) Pension/NQDC Perquisites/ reimbursement Other ($) Total ($)
($) benefits ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h)
--------------------------------------------------------------------------------------------------------------------------------------------------------
PEO..................................... .............. .............. .............. .............. .............. .............. ..............
PFO..................................... .............. .............. .............. .............. .............. .............. ..............
A....................................... .............. .............. .............. .............. .............. .............. ..............
B....................................... .............. .............. .............. .............. .............. .............. ..............
C....................................... .............. .............. .............. .............. .............. .............. ..............
--------------------------------------------------------------------------------------------------------------------------------------------------------

The table presents quantitative disclosure of the individual
elements of compensation that an executive would receive that are based
on or otherwise relate to the merger, acquisition, or similar
transaction, and the total for each named executive officer.\232\ As
proposed and adopted, elements that will be separately quantified and
included in the total will be any cash severance payment (e.g., base
salary, bonus, and pro-rata non-equity incentive plan \233\
compensation payments) (column (b)); the dollar value of accelerated
stock awards, in-the-money option awards for which vesting would be
accelerated, and payments in cancellation of stock and option awards
(column (c)); pension and nonqualified deferred compensation benefit
enhancements (column (d)); perquisites and other personal benefits and
health and welfare benefits (column (e)); and tax reimbursements (e.g.,
Internal Revenue Code Section 280G tax gross-ups) (column (f)).
Consistent with the proposal, we are adopting an ``Other'' column of
the table for any additional elements of compensation not specifically
includable in the other columns of the table (column (g)). This column,
like the columns for the other elements, will require footnote
identification of each separate form of compensation reported. The
final column in the table requires disclosure, for each named executive
officer, of the aggregate total of all such compensation (column
(h)).\234\ We are adopting the table as proposed, with a requirement
for separate footnote identification of amounts attributable to
``single-trigger'' arrangements and amounts attributable to ``double-
trigger'' arrangements, so that shareholders can readily discern these
amounts.
---------------------------------------------------------------------------

\232\ Item 402(t)(2) of Regulation S-K.
\233\ As defined in Item 402(a)(6)(iii) of Regulation S-K.
\234\ Exchange Act Section 14A(b)(1) requires disclosure of
``the aggregate total of all such compensation that may (and the
conditions upon which it may) be paid or become payable to or on
behalf of such executive officer.''
---------------------------------------------------------------------------

As proposed and adopted, the tabular disclosure required by Item
402(t) requires quantification with respect to any agreements or
understandings, whether written or unwritten, between each named
executive officer and the acquiring company or the target company,
concerning any type of compensation, whether present, deferred or
contingent, that is based on or otherwise relates to an acquisition,
merger, consolidation, sale or other disposition of all or
substantially all assets. The table will quantify cash severance,
equity awards that are accelerated or cashed out, pension and
nonqualified deferred compensation enhancements, perquisites, and tax
reimbursements. In addition, the table requires disclosure and
quantification of the value of any other compensation related to the
transaction.\235\
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\235\ Consistent with our proposals, we have adopted Instruction
3 to Item 402(t)(2) to provide, like Instruction 1 to Item 402(j),
that in the event uncertainties exist as to the provision of
payments and benefits, or the amounts involved, the issuer is
required to make a reasonable estimate applicable to the payment or
benefit and disclose material assumptions underlying such estimate
in its disclosure. Unlike Item 402(j), Item 402(t) does not permit
the disclosure of an estimated range of payments.
---------------------------------------------------------------------------

However, as adopted, Item 402(t) will require tabular and narrative
disclosure in a proxy statement soliciting shareholder approval of a
merger or similar transaction or a filing made with respect to a
similar transaction only of compensation that is based on or otherwise
relates to the subject transaction.\236\ We agree with commentators
that it would not be useful to shareholders to require disclosure of
amounts that would not be paid or payable in connection with the
transaction subject to shareholder approval.
---------------------------------------------------------------------------

\236\ Instruction 1 to Item 402(t)(2).
---------------------------------------------------------------------------

To implement the statutory mandate to disclose the conditions upon
which the compensation may be paid or become payable, as proposed and
adopted, Item 402(t) \237\ requires issuers to describe any material
conditions or obligations applicable to the receipt of payment,
including but not limited to non-compete, non-solicitation, non-
disparagement or confidentiality agreements, their duration, and
provisions regarding waiver or breach.\238\ We are also adopting a
requirement, as proposed, to provide a description of the specific
circumstances that would trigger payment,\239\ whether the payments
would or could be lump sum, or annual, and their duration, and by whom
the payments would be provided,\240\ and any material factors regarding
each agreement.\241\ These narrative items are modeled on the narrative
disclosure required with respect to termination and change-in-control
agreements.\242\
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\237\ Item 402(t)(3) of Regulation S-K.
\238\ Item 402(t)(3)(iii) of Regulation S-K.
\239\ Item 402(t)(3)(i) of Regulation S-K.
\240\ Item 402(t)(3)(ii) of Regulation S-K.
\241\ Item 402(t)(3) of Regulation S-K. Such material factors
would include, for example, provisions regarding modifications of
outstanding options to extend the vesting period or the post-
termination exercise period, or to lower the exercise price.
\242\ Item 402(j) of Regulation S-K.
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ii. Elements of Compensation and Presentation of Item 402(t) Table
In response to commentators' requests for greater flexibility to
facilitate clear presentation, we note that under our final rule
issuers are permitted to add additional named executive officers, and
additional columns or rows to the tabular disclosure, such as to
disclose cash severance separately from other cash compensation or to
distinguish ``single-trigger'' and ``double-trigger'' arrangements, so
long as such disclosure is not misleading.
As noted in the Proposing Release,\243\ we considered whether
making the disclosure requirements in Item 402(j) applicable to
transactions enumerated in Section 14A(b)(1), rather than adopting a
new disclosure item for purposes of Section 14A(b)(1), would be an
appropriate approach to satisfy the requirements of the Act. However,
certain elements required by Section

[[Page 6027]]

14A(b)(1) are not included in Item 402(j). Specifically, Item 402(j)
does not require disclosure about arrangements that do not discriminate
in scope, terms or operation in favor of executive officers and that
are available generally to all salaried employees,\244\ permits
exclusion of de minimis perquisites and other personal benefits,\245\
and does not require presentation of an aggregate total of all
compensation that is based on or otherwise relates to a
transaction.\246\
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\243\ See Section II.D.2 of the Proposing Release.
\244\ Instruction 5 to Item 402(j).
\245\ See Instruction 2 to Item 402(j), which permits exclusion
of perquisites and other personal benefits or property if the
aggregate amount of such compensation will be less than $10,000.
\246\ As proposed, we are adopting conforming changes to Item
402(a)(6)(ii) [17 CFR 229.402(a)(6)(ii)] and Item 402(m)(5)(ii) [17
CFR 229.402(m)(5)(ii)] of Regulation S-K to clarify that information
regarding group life, health, hospitalization, or medical
reimbursement plans that do not discriminate in scope, terms or
operation, in favor of executive officers or directors of the
company and that are generally available to all salaried employees
must be included in disclosure pursuant to proposed Item 402(t).
---------------------------------------------------------------------------

Despite the views of some commentators, we continue to believe that
Item 402(t) should not permit exclusion of de minimis perquisites and
other personal benefits because exclusion of these amounts would be
inconsistent with Section 14A(b)(1), which requires disclosure of ``the
aggregate total of all such compensation that may [* * *] be paid or
become payable [* * *].'' Moreover, we continue to believe that the
Section 14A(b)(1) requirement to disclose the information ``in a clear
and simple form'' is best satisfied through the use of tabular
disclosure, which Item 402(j) does not require.
Item 402(t), like Item 402(j),\247\ does not require separate
disclosure or quantification with respect to compensation disclosed in
the Pension Benefits Table and Nonqualified Deferred Compensation
Table. Item 402(t), as proposed and adopted, also does not require
disclosure or quantification of previously vested equity awards because
these award amounts are vested without regard to the transaction. We
agree with the views expressed by some commentators that previously
vested equity awards are not compensation ``that is based on or
otherwise relates to'' the transaction. Similarly, after reviewing the
comments, we continue to believe that we should not require tabular
disclosure and quantification of compensation from bona fide post-
transaction employment agreements to be entered into in connection with
the merger or acquisition transaction. We agree with the views
expressed by many commentators that future employment arrangements are
not compensation ``that is based on or otherwise relates to'' the
transaction.\248\
---------------------------------------------------------------------------

\247\ See Instruction 3 to Item 402(j).
\248\ Information regarding such future employment agreements is
subject to disclosure pursuant to Item 5(a) and Item 5(b)(xii) of
Schedule 14A to the extent that such agreements constitute a
``substantial interest'' in the matter to be acted upon.
---------------------------------------------------------------------------

Under the final rule, where Item 402(t) disclosure is included in
an annual meeting proxy statement,\249\ the price per share amount will
be calculated based on the closing market price per share of the
issuer's securities on the last business day of the issuer's last
completed fiscal year, as proposed,\250\ consistent with quantification
standards used in Item 402(j). However, in response to comments, we
have modified how the issuer stock price will be measured for
calculating dollar amounts for the tabular disclosure required by Item
402(t) in connection with a transactional filing. In a proxy statement
soliciting shareholder approval of a merger or similar transaction or a
filing made with respect to a similar transaction, Item 402(t)'s
tabular quantification of dollar amounts based on issuer stock price
will be based on the consideration per share, if such value is a fixed
dollar amount, or otherwise on the average closing price per share over
the first five business days following the first public announcement of
the transaction.\251\
---------------------------------------------------------------------------

\249\ A company may choose to include the disclosure in the
annual meeting proxy statement in order for the Section 14A(a)(1)
shareholder vote to satisfy the exception from the merger proxy
separate vote. See Section II.D.4 below.
\250\ Instruction 2 to Item 402(t)(2).
\251\ Instruction 1 to Item 402(t)(2).
---------------------------------------------------------------------------

iii. Individuals Subject to Item 402(t) Disclosure
We continue to believe that Item 402(t) disclosure should cover a
broader group of individuals than is required by Section 14A(b).
Because compensation arrangements may involve agreements or
understandings between the acquiring issuer and the named executive
officers of the target issuer, Item 402(t), as proposed and adopted,
requires disclosure of the full scope of golden parachute compensation
applicable to the transaction. We agree with commentators and continue
to believe that shareholders may find disclosure about these
arrangements that are not otherwise required to be disclosed by Section
14A(b) informative to their voting decisions.
As both proposed and adopted, we have included an instruction
providing that Item 402(t) disclosure need not be provided for persons
who are named executive officers because they would have been among the
most highly compensated executive officers but for the fact that they
were not serving as an executive officer at the end of the last
completed fiscal year.\252\ However, in response to comments, we are
clarifying that where Item 402(t) disclosure is provided in a proxy
statement soliciting shareholder approval of a merger or similar
transaction or a filing made with respect to a similar transaction,
this instruction will be applied with respect to the named executive
officers for whom disclosure was required in the issuer's most recent
filing requiring Summary Compensation Table disclosure.\253\
---------------------------------------------------------------------------

\252\ Instruction 1 to Item 402(t), which requires Item 402(t)
disclosure for individuals covered by Items 402(a)(3)(i), (ii) and
(iii), and for smaller reporting companies, the individuals covered
by Items 402(m)(2)(i) and (ii). Item 402(t) disclosure will not be
required for individuals for whom Item 402(t) disclosure otherwise
is required by Item 402(a)(3)(iv), and for smaller reporting
companies, by Item 402(m)(2)(iii).
\253\ Instruction 1 to Item 402(t)(2) and Instruction 2 to Item
1011(b). This is similar to the approach used in Instruction 4 to
Item 5.02 of Form 8-K.
---------------------------------------------------------------------------

iv. Item 402(t) Disclosure in Annual Meeting Proxy Statements
We are not requiring Item 402(t) disclosure in annual meeting proxy
statements. We agree with the views expressed by most commentators that
the proposed Item 402(t) narrative and tabular disclosure should not be
required in annual meeting proxy statements given the costs and burdens
this would impose on issuers. We believe that the requirements of Item
402(j) provide sufficient information to shareholders in that context,
and note that issuers may also include disclosure pursuant to Item
402(t) voluntarily if they believe it would permit shareholders to gain
a better understanding of their compensation programs.
An issuer seeking to satisfy the exception from the separate merger
proxy shareholder vote under Section 14A(b)(2) and Rule 14a-21(c) by
including Item 402(t) disclosure in an annual meeting proxy statement
soliciting the shareholder vote required by Section 14A(a)(1) and Rule
14a-21(a) \254\ will be able to satisfy Item 402(j) disclosure
requirements with respect to a change-in-control of the issuer by
providing the disclosure required by Item 402(t).\255\ The issuer

[[Page 6028]]

must still include in an annual meeting proxy statement disclosure in
accordance with Item 402(j) about payments that may be made to named
executive officers upon termination of employment.
---------------------------------------------------------------------------

\254\ This exception and the comments we received on the
exception are discussed in Section II.D.4 below.
\255\ We note also that one example of material information to
be addressed in CD&A is the basis for selecting particular
termination or change-in-control events as triggering payment (e.g.,
the rationale for providing a single trigger for payment in the
event of a change-in-control). See Item 402(b)(2)(xi) of Regulation
S-K.
---------------------------------------------------------------------------

3. Amendments to Schedule 14A, Schedule 14C, Schedule 14D-9, Schedule
13E-3, Schedule TO, and Item 1011 of Regulation M-A
We proposed amendments to require that the disclosure set forth in
Item 402(t) of Regulation S-K be included in merger proxies as well as
filings for other transactions not referenced in the Act. After
considering the comments received, we are adopting the amendments to
Schedule 14A, Schedule 14C, Schedule 14D-9, Schedule 13E-3, and Item
1011 of Regulation M-A as proposed with slight modifications to Item
1011 of Regulation M-A. We are also adopting an amendment to Schedule
TO to clarify that the Item 402(t) disclosure is not required in third-
party bidders' tender offer statements, so long as the transactions are
not also Rule 13e-3 going-private transactions.
a. Proposed Amendments
We proposed amendments to Items 5(a) and (b) of Schedule 14A under
the Exchange Act, as well as conforming changes to Item 3 of Schedule
14C, Item 1011(b) of Regulation M-A, Item 15 of Schedule 13E-3 and Item
8 of Schedule 14D-9. These proposals were intended to implement the
disclosure requirements in Section 14A(b)(1) as well as to extend the
new disclosure requirements to similar transactions by requiring that
the disclosure set forth in Item 402(t) of Regulation S-K be included
in any proxy or consent solicitation material seeking shareholder
approval of an acquisition, merger, consolidation, or proposed sale or
other distribution of all or substantially all the assets of the
issuer. Our proposals would require such disclosure not only in a proxy
or consent solicitation relating to such a transaction, as required by
the Act, but also in the following:
Information statements filed pursuant to Regulation 14C;
Proxy or consent solicitations that do not contain merger
proposals but require disclosure of information under Item 14 of
Schedule 14A pursuant to Note A of Schedule 14A;
Registration statements on Forms S-4 and F-4 containing
disclosure relating to mergers and similar transactions;
Going private transactions on Schedule 13E-3; and
Third-party tender offers on Schedule TO and Schedule 14D-
9 solicitation/recommendation statements.
We also proposed amendments to Item 1011(b) of Regulation M-A that
would require the bidder \256\ in a third-party tender offer to provide
information in its Schedule TO about a target's golden parachute
arrangements only to the extent the bidder has made a reasonable
inquiry about the golden parachute arrangements and has knowledge of
such arrangements. In addition, we proposed exceptions to both the
disclosure requirement under Item 1011(b) for both bidders and targets
in third-party tender offers and filing persons in Rule 13e-3 going-
private transactions where the target or subject company is a foreign
private issuer, and to the disclosure obligation under Item 402(t) with
respect to agreements and understandings with senior management of
foreign private issuers where the target or acquirer is a foreign
private issuer.
---------------------------------------------------------------------------

\256\ ``Bidder'' is defined in Rule 14d-1(g)(2) [17 CFR 240.14d-
1(g)(2)].
---------------------------------------------------------------------------

b. Comments on the Proposed Amendments
Comments on the proposal were generally favorable. A number of
commentators expressed support for our proposed approach to require
disclosure of golden parachute arrangements in connection with other
transaction not specifically referenced in the Act.\257\ One
commentator objected that the proposal goes beyond the scope of the
statute by requiring disclosure of golden parachute compensation in
connection with tender and exchange offers.\258\ One commentator also
questioned whether such disclosure should be required in third-party
tender offers, given the difficulty bidders may face in obtaining
accurate information regarding a target company's golden parachute
arrangements.\259\ Commentators also supported excluding foreign
private issuers from Item 402(t) disclosure requirements for bidders
and target companies in third-party tender offers and filing persons in
Rule 13e-3 going-private transactions.\260\
---------------------------------------------------------------------------

\257\ See, e.g., letters from ICGN and PGGM.
\258\ See letter from Wachtell.
\259\ See letter from ABA.
\260\ See, e.g., letters from ABA, ICGN, and PGGM.
---------------------------------------------------------------------------

c. Final Rule
After considering the comments, we are adopting the amendments to
Schedule 14A, Schedule 14C, Schedule 14D-9, Schedule 13E-3, and Item
1011 of Regulation M-A as proposed, with slight modifications to Item
1011 of Regulation M-A. We are also adopting an amendment to Schedule
TO to provide that bidders in third-party tender offers are not
required to provide the disclosure required by Item 1011(b) of
Regulation M-A.
Issuers could structure transactions in a manner that avoids
implicating Section 14(a) of the Exchange Act (e.g., tender offers and
certain Rule 13e-3 going-private transactions), while still effectively
seeking the consent of shareholders with respect to their investment
decision (e.g., whether or not to tender their shares or approve a
going-private transaction, in instances where such going-private
transactions are not subject to Regulation 14A). For these reasons, we
continue to believe that requiring Item 402(t) disclosure in all such
transactions furthers the purposes of Section 14A(b) of the Exchange
Act and would minimize the regulatory disparity that might otherwise
result from treating such transactions differently. Thus, we are
adopting amendments that would require the Item 402(t) disclosure in
various transactions, whether a merger, acquisition, a Rule 13e-3
going-private transaction or a tender offer.\261\
---------------------------------------------------------------------------

\261\ As adopted, companies filing solicitation/recommendation
statements on Schedule 14D-9 in connection with third-party tender
offers will be obligated to provide this additional disclosure. See
Item 8 of Schedule 14D-9. However, as explained below, bidders
filing offer statements on Schedule TO will not have a similar
obligation. See Item 11 of Schedule TO.
---------------------------------------------------------------------------

In addition, we note that acquiring companies may solicit proxies
to approve the issuance of shares or a reverse stock split in order to
conduct a merger transaction, and that such proxy statements are
required to include disclosure of information required under Item 14 of
Schedule 14A pursuant to Note A of Schedule 14A. Thus, we are also
adopting amendments that would require the Item 402(t) disclosure in
those proxy statements that are required to include disclosure of
information required under Item 14 of Schedule 14A pursuant to Note A
of Schedule 14A.\262\ The shareholder advisory vote required by Section
14A(b)(2), however, will not be extended to transactions beyond those
specified in that section.
---------------------------------------------------------------------------

\262\ See Item 5(a)(5) and Item 5(b)(3) of Schedule 14A, which
will require acquiring companies to include the Item 402(t)
disclosure with respect to each named executive officer of both the
acquiring issuer and the target issuer.
---------------------------------------------------------------------------

We have revised the final rule in response to comments to provide
that

[[Page 6029]]

bidders in third-party tender offers will not be required to comply
with Item 1011(b), which calls for Item 402(t) disclosure. We are
persuaded that bidders may face difficulties in obtaining the
information necessary to provide such disclosure \263\ and that it is
not necessary to require a bidder to provide this information since the
target companies will be required to provide the Item 402(t) golden
parachute compensation disclosure in Schedule 14D-9 filed by the tenth
business day from the date the tender offers are first published, sent
or given to security holders.\264\ We believe this revision to the
proposal will alleviate a potential burden that bidders in third-party
tender offers may encounter while still accomplishing our goal of
minimizing the regulatory disparity that might otherwise result from
treating third-party tender offers differently than other transactions
described in this section by retaining the disclosure requirement in
Schedule 14D-9. However, we did not adopt a similar revision to the
proposed changes to Schedule 13E-3; therefore, the disclosure of golden
parachute arrangements will be required in third-party tender offers
that are also Rule 13e-3 going-private transactions.\265\ In light of
the revision to the proposal, we are not adopting the instruction to
Item 1011(b) of Regulation M-A that would have allowed bidders to
provide the disclosure only to the extent the information was known
after making a reasonable inquiry. Therefore, Item 1011(b), as adopted,
does not include the proposed instruction.
---------------------------------------------------------------------------

\263\ See letter from ABA.
\264\ We are adopting an amendment to Schedule TO to avoid
imposing on bidders the obligation to provide such disclosure. See
Item 11 of Schedule TO.
\265\ See Item 15 of Schedule 13E-3.
---------------------------------------------------------------------------

In addition, we are adopting as proposed an exception to the
disclosure requirement under Item 1011(b) for targets in third-party
tender offers and filing persons in Rule 13e-3 going-private
transactions where the target or subject company is a foreign private
issuer. Consistent with the proposal, we are also adopting an exception
to the disclosure obligation under Item 402(t) with respect to
agreements and understandings with senior management of foreign private
issuers where the target or acquirer is a foreign private issuer.\266\
We agree with commentators and believe such accommodations are
appropriate in light of our long-standing accommodation to foreign
private issuers regarding compensation disclosure.\267\
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\266\ Instruction 2 to Item 402(t).
\267\ See, e.g., Item 402(a)(1) of Regulation S-K, and Items 6.B
and 6.E.2 of Form 20-F [17 CFR 249.220f].
---------------------------------------------------------------------------

4. Rule 14a-21(c)
Section 14A(b)(2) generally requires a separate shareholder
advisory vote on golden parachute compensation arrangements required to
be disclosed under Section 14A(b)(1) in connection with mergers and
similar transactions. A separate shareholder advisory vote would not be
required on golden parachute compensation if disclosure of that
compensation had been included in the executive compensation disclosure
that was subject to a prior advisory vote of shareholders under Section
14A(a)(1) of the Exchange Act.
We proposed Rule 14a-21(c) to implement these requirements. We are
adopting this rule substantially as proposed with some minor changes in
response to comments.
a. Proposed Rule
Proposed Rule 14a-21(c) would require issuers to conduct a separate
shareholder advisory vote in proxy statements for meetings at which
shareholders are asked to approve an acquisition, merger,
consolidation, or proposed sale or other disposition of all or
substantially all assets, consistent with Section 14A(b)(2). This
shareholder advisory vote would be required only with respect to the
golden parachute agreements or understandings required to be disclosed
by Section 14A(b)(1), as disclosed pursuant to proposed Item 402(t) of
Regulation S-K. We proposed Rule 14a-21(c) to require a shareholder
advisory vote only on the golden parachute compensation agreements or
understandings for which Section 14A(b)(1) requires disclosure and
Section 14A(b)(2) requires a shareholder vote. Consistent with Section
14A(b)(2), as proposed, issuers would not be required to include in the
merger proxy a separate shareholder vote on golden parachute
compensation disclosed in accordance with Item 402(t) of Regulation S-K
if Item 402(t) disclosure of that compensation had been included in the
executive compensation disclosure that was subject to a prior vote of
shareholders under Section 14A(a)(1) of the Exchange Act and Rule 14a-
21(a).
b. Comments on the Proposed Amendments
Comments on the proposal were generally positive. As noted above,
some commentators indicated that requiring disclosure under Item 402(t)
of a broader group of individuals than would be covered by the Rule
14a-21(c) shareholder advisory vote would be potentially confusing to
investors \268\ as such disclosure goes beyond the requirements of
Section 14A and could lead to as many as three separate tables.\269\
---------------------------------------------------------------------------

\268\ See, e.g., letters from Center on Exec. Comp., Davis Polk,
FSR, NACD, Pfizer, PGGM, Protective Life, Towers Watson, Wachtell,
Lipton, Rosen & Katz (``Wachtell''), and WorldatWork.
\269\ See letter from Davis Polk.
---------------------------------------------------------------------------

Most commentators agreed with our proposed approach that if golden
parachute arrangements were modified or amended subsequent to being
subject to the annual shareholder vote under Rule 14a-21(a), a separate
shareholder vote in the merger proxy should be required to cover only
the changes to such arrangements,\270\ given that full disclosure of
the full set of arrangements will also be provided.\271\ Some
commentators, however, believed that in this circumstance the
subsequent vote should cover the entire set of golden parachute
arrangements, not just the changes, so that shareholders have the
opportunity to vote on the full complement of compensation that would
be payable.\272\
---------------------------------------------------------------------------

\270\ See, e.g., letters from ABA, Frederic Cook, McGuireWoods,
NACD, PGGM, Protective Life, and WorldatWork.
\271\ See, e.g., letter from ABA.
\272\ See, e.g., letter from CII.
---------------------------------------------------------------------------

In addition, some commentators recommended that certain changes to
golden parachute arrangements that were altered or amended subsequent
to being subject to the shareholder advisory vote under Rule 14a-21(a)
should be exempt from a separate shareholder advisory vote in a merger
proxy. In their view, there should be an exemption for certain routine,
non-substantive changes, such as where the same compensation
arrangements apply to new named executive officers who were not
included in the prior disclosure that was subject to the shareholder
vote,\273\ subsequent grants in the ordinary course of additional
awards subject to the same acceleration terms that applied to awards
covered by a previous vote,\274\ routine changes in salary subsequent
to the prior vote,\275\ and changes that result in a reduction in
compensation value.\276\ Other

[[Page 6030]]

commentators stated that there should be no exceptions and that a new
golden parachute vote should be required if there have been any changes
since the arrangements were subject to the Rule 14a-21(a) shareholder
advisory vote.\277\
---------------------------------------------------------------------------

\273\ See, e.g., letters from McGuireWoods, PM&P, Protective
Life, Steve Quinlivan (``Quinlivan''), and Sullivan.
\274\ See, e.g., letters from Business Roundtable, Compensia,
FSR, McGuireWoods, PM&P, Protective Life, Sullivan, and Wachtell.
\275\ See letter from McGuireWoods.
\276\ See, e.g., letters from Frederic Cook, Meridian, and
Protective Life.
\277\ See, e.g., letters from Glass Lewis and PGGM.
---------------------------------------------------------------------------

c. Final Rule
After considering the comments, we are adopting Rule 14a-21(c) as
proposed, with some modifications. Consistent with the proposal, our
rule does not require issuers to use any specific language or form of
resolution to be voted on by shareholders. In addition, we note that,
as provided in Section 14A(c), this shareholder vote will not be
binding on the issuer or its board of directors.
i. Scope of Rule 14a-21(c) Shareholder Advisory Vote
Under Rule 14a-21(c), issuers will be required to provide a
separate shareholder advisory vote in proxy statements for meetings at
which shareholders are asked to approve an acquisition, merger,
consolidation, or proposed sale or other disposition of all or
substantially all assets, consistent with Section 14A(b)(2). However,
issuers are not required to provide a separate shareholder advisory
vote in proxy statements for meetings at which shareholders are asked
to approve other proposals, such as an increase in authorized shares or
a reverse stock split, which may be necessary for the issuer to
effectuate a transaction. A vote under Rule 14a-21(c) is required only
if the shareholders are voting to approve the transaction and the
transaction and golden parachute arrangements come within those covered
by Section 14A(b). Consistent with the proposal, this advisory vote
will be required only with respect to the golden parachute agreements
or understandings required to be disclosed by Section 14A(b)(1), as
disclosed pursuant to proposed Item 402(t) of Regulation S-K.
Section 14A(b)(1) requires disclosure of any agreements or
understandings between the soliciting person and any named executive
officer of the issuer or any named executive officers of the acquiring
issuer, if the soliciting person is not the acquiring issuer. When a
target issuer conducts a proxy or consent solicitation to approve a
merger or similar transaction, golden parachute compensation agreements
or understandings between the acquiring issuer and the named executive
officers of the target issuer are not within the scope of disclosure
required by Section 14A(b)(1), and thus a shareholder vote to approve
arrangements between the soliciting target issuer's named executive
officers and the acquiring issuer is not required by Exchange Act
Section 14A(b)(2). Consequently, consistent with the proposal, Rule
14a-21(c) as adopted requires a shareholder advisory vote only on the
golden parachute compensation agreements or understandings for which
Section 14A(b)(1) requires disclosure and Section 14A(b)(2) requires a
shareholder vote. As described in Section II.D.2.c.iii above, however,
disclosure of all golden parachute arrangements will be required, even
though a vote on the arrangements will not be required.
ii. Exceptions to Rule 14a-21(c) Shareholder Advisory Vote
Consistent with Section 14A(b)(2) and our proposal, issuers will
not be required to include in the merger proxy a separate shareholder
vote on the golden parachute compensation disclosed under Item 402(t)
of Regulation S-K if Item 402(t) disclosure of that compensation had
been included in the executive compensation disclosure that was subject
to a prior vote of shareholders under Section 14A(a)(1) of the Exchange
Act and Rule 14a-21(a). In this regard, we note that Section 14A(b)(2)
requires only that the golden parachute arrangements have been subject
to a prior shareholder vote under Section 14A(a)(1); such arrangements
need not have been approved by shareholders.
For issuers to take advantage of this exception, however, the
executive compensation disclosure subject to the prior shareholder vote
must have included Item 402(t) disclosure of the same golden parachute
arrangements. Even if the annual meeting proxy statement provided some
disclosure with respect to golden parachute arrangements,\278\ the
annual meeting proxy statement must include the disclosure required by
Item 402(t) in order for the annual meeting shareholder vote under
Section 14A(a)(1) and Rule 14a-21(a) to satisfy the exception from the
merger proxy separate shareholder vote under Section 14A(b)(2) and Rule
14a-21(c). Consequently, we would expect that some issuers may
voluntarily include Item 402(t) disclosure with their other executive
compensation disclosure in annual meeting proxy statements soliciting
the shareholder vote required by Section 14A(a)(1) and Rule 14a-21(a)
so that this exception would be available to the issuer for a potential
subsequent merger or acquisition transaction. We also expect that some
issuers may choose to include the new disclosure for other reasons,
such as investor interest in the information.
---------------------------------------------------------------------------

\278\ See CD&A and Item 402(j) of Regulation S-K, and for
smaller reporting companies see Item 402(q)(2) of Regulation S-K for
the disclosure requirements applicable to annual meeting proxy
statements.
---------------------------------------------------------------------------

The exception will be available only to the extent the same golden
parachute arrangements previously subject to an annual meeting
shareholder vote remain in effect, and the terms of those arrangements
have not been modified subsequent to the Section 14A(a)(1) shareholder
vote. As proposed and adopted, if the disclosure pursuant to Item
402(t) has been updated to change only the value of the items in the
Golden Parachute Compensation Table to reflect price movements in the
issuer's securities, no new shareholder advisory vote under Section
14A(b)(1) will be required. New golden parachute arrangements, and any
revisions to golden parachute arrangements that were subject to a prior
Section 14A(a)(1) shareholder vote will be subject to the separate
merger proxy shareholder vote requirement of Section 14A(b)(2) and Rule
14a-21(c).\279\
---------------------------------------------------------------------------

\279\ For example, we would view any change that would result in
an IRC Section 280G tax gross-up becoming payable as a change in
terms triggering such a separate vote, even if such tax gross-up
becomes payable only because of an increase in the issuer's share
price.
---------------------------------------------------------------------------

Additionally, we agree with certain commentators \280\ that changes
that result only in a reduction in value of the total compensation
payable should not require a new shareholder vote. If the shareholders
have had an opportunity to vote on a more highly valued compensation
package, then we do not believe issuers should be required to provide a
separate vote on a change that results only in a compensation package
that has been reduced in value.
---------------------------------------------------------------------------

\280\ See, e.g., letters from Frederic Cook, Meridian, and
Protective Life.
---------------------------------------------------------------------------

We believe that the other examples of changes cited by
commentators, including changes in compensation because of a new named
executive officer, additional grants of equity compensation in the
ordinary course, and increases in salary, are significant changes to
the golden parachute compensation disclosure and, consistent with
Section 14A(b)(2), should be subject to a shareholder vote. Because a
shareholder vote would already have been obtained on portions of the
arrangements, however, only the new arrangements and revised terms of
the arrangements previously subject to a Section 14A(a)(1) shareholder
vote will be subject to the merger proxy separate

[[Page 6031]]

shareholder vote under Section 14A(b)(2) and Rule 14a-21(c).
Consistent with the proposal, issuers providing for a shareholder
vote on new arrangements or revised terms will need to provide two
separate tables under Item 402(t) of Regulation S-K in merger proxy
statements.\281\ One table will disclose all golden parachute
compensation, including both arrangements and amounts previously
disclosed and subject to a say-on-pay vote under Section 14A(a)(1) and
Rule 14a-21(a) and the new arrangements or revised terms. The second
table will disclose only the new arrangements or revised terms subject
to the vote, so that shareholders can clearly see what is subject to
the shareholder vote under Section 14A(b)(2) and Rule 14a-21(c).
Similarly, in cases where Item 402(t) requires disclosure of
arrangements between an acquiring company and the named executive
officers of the soliciting target company, issuers will need to clarify
whether these agreements are included in the shareholder advisory vote
by providing a separate table of all agreements and understandings
subject to the shareholder advisory vote required by Section 14A(b)(2)
and Rule 14a-21(c), if different from the full scope of golden
parachute compensation subject to Item 402(t) disclosure.\282\
---------------------------------------------------------------------------

\281\ See Instruction 6 to Item 402(t)(2) of Regulation S-K.
\282\ Instruction 7 to Item 402(t)(2). As discussed above, such
agreements are not required to be subject to the Rule 14a-21(c)
shareholder advisory vote, but issuers may voluntarily subject them
to such a vote.
---------------------------------------------------------------------------

E. Treatment of Smaller Reporting Companies

Section 951 of the Act establishes a new Section 14A(e) of the
Exchange Act, which provides that we may, by rule or order, exempt an
issuer or class of issuers from the requirements of Section 14A(a) and
(b). In determining whether to make an exemption under this subsection,
we are directed to take into account, among other considerations,
whether the requirements of Sections 14A(a) and 14A(b)
disproportionately burden small issuers.
In the Proposing Release, we did not propose to exempt small
issuers or smaller reporting companies \283\ from the requirements of
Sections 14A(a) and 14A(b). Comments on this issue were mixed. Many
commentators agreed that the requirements of Section 14A should be
applied to all issuers and that there should be no exemptions for
smaller reporting companies,\284\ while a number of other commentators
asserted that smaller reporting companies should be exempt from the
requirements of Exchange Act Section 14A and our proposed rules.\285\
Among those opposed to applying the requirements to smaller reporting
companies, in addition to stating that these requirements would be a
burden to smaller reporting companies,\286\ some commentators asserted
that smaller reporting companies may feel compelled to include
additional disclosure beyond the scaled requirements otherwise
applicable to smaller reporting companies, including a CD&A, because of
such votes,\287\ which would impose significant burdens on these
issuers. One commentator urged that, if we do not exempt smaller
reporting companies, we should at least delay implementation of the
proposed rules for smaller reporting companies so that smaller
companies would have the opportunity to observe how larger companies
conduct the vote and respond to the disclosure requirements.\288\
---------------------------------------------------------------------------

\283\ ``Smaller reporting company'' is defined in Rule 12b-2
under the Exchange Act.
\284\ See, e.g., letters from AFSCME, Boston Common, CalPERS,
Calvert, CII, First Affirmative, Glass Lewis, ICGN, Merkl, PGGM,
Public Citizen, RAILPEN & USS, SBA of Florida, Senator Levin, Social
Investment, and Walden.
\285\ See, e.g., letters from American Bankers Association
(``Am. Bankers''), Independent Community Bankers of America
(``ICBA''), NACD, Society of Corp. Sec., and Virginia Bankers
Association (``VBA'').
\286\ See, e.g., letters from ABA, Am. Bankers, and VBA.
\287\ See, e.g., letters from ABA and Society of Corp. Sec.
\288\ See letter from ABA.
---------------------------------------------------------------------------

After reviewing and considering these comments, we are adopting a
temporary exemption for smaller reporting companies so that these
issuers will not be required to conduct either a shareholder advisory
vote on executive compensation or a shareholder advisory vote on the
frequency of say-on-pay votes until the first annual or other meeting
of shareholders occurring on or after January 21, 2013.\289\ We do not
believe that smaller reporting companies should be permanently exempt
from the say-on-pay vote, frequency of say-on-pay votes and golden
parachute disclosure and vote because we believe investors have the
same interest in voting on the compensation of smaller reporting
companies and in clear and simple disclosure of golden parachute
compensation in connection with mergers and similar transactions as
they have for other issuers. However, after reviewing comments on the
potential burdens on smaller reporting companies, we believe it is
appropriate to provide additional time before smaller reporting
companies are required to conduct the shareholder advisory votes on
executive compensation and the frequency of say-on-pay votes.
---------------------------------------------------------------------------

\289\ Rules 14a-21(a) and (b).
---------------------------------------------------------------------------

We believe that a delayed effective date for the say-on-pay and
frequency votes for smaller reporting companies should allow those
companies to observe how the rules operate for other companies and
should allow them to better prepare for implementation of the rules. We
also believe that delayed implementation for these companies will allow
us to evaluate the implementation of the adopted rules by larger
companies and provide us with the additional opportunity to consider
whether adjustments to the rule would be appropriate for smaller
reporting companies before the rule becomes applicable to them. We
believe a temporary exemption by rule is appropriate, under the
exemptive authority granted by Section 14A(e) of the Exchange Act \290\
and also under the Commission's general exemptive authority pursuant to
Section 36(a)(1) of the Exchange Act, in the public interest and
consistent with the protection of investors.\291\
---------------------------------------------------------------------------

\290\ Exchange Act Section 14A(e) provides that ``the Commission
may, by rule or order, exempt an issuer or class of issuers from the
requirement'' under Sections 14A(a) or 14A(b). Section 14A(e)
further provides that ``in determining whether to make an exemption
under this subsection, the Commission shall take into account, among
other considerations, whether the requirements under [Section 14A(a)
and 14A(b)] disproportionately burdens small issuers.'' In
considering whether to provide an exemption, the Commission
considered whether the requirements of Section 14A(a) and (b) as
applied to smaller reporting companies to conduct a shareholder
advisory vote on executive compensation and a shareholder advisory
vote on the frequency of say-on-pay votes could disproportionately
burden small issuers.
\291\ 15 U.S.C. 78 mm(a)(1). Exchange Act Section 36(a)(1)
provides that ``the Commission, by rule, regulation, or order, may
conditionally or unconditionally exempt any person, security, or
transaction, or any class of persons, securities, or transactions,
from any provision or provisions of this title or of any rule or
regulation thereunder, to the extent that such exemption is
necessary or appropriate in the public interest, and is consistent
with the protection of investors.''
---------------------------------------------------------------------------

This temporary exemption for smaller reporting companies does not
apply to the requirements of Section 14A(b)(2) and Rule 14a-21(c) to
provide a shareholder advisory vote on golden parachute compensation in
connection with mergers or other extraordinary transactions. We view
the temporary exemption as a transition matter that will facilitate
eventual compliance with the regular, periodic say-on-pay vote
requirement by smaller reporting

[[Page 6032]]

companies. We do not believe similar considerations support an
exemption for the shareholder advisory vote on golden parachute
arrangements in light of the extraordinary nature of the transactions
involved.
We have also crafted our amendments to minimize the costs for
smaller reporting companies, while providing shareholders the
opportunity to express their views on the companies' compensation
arrangements. For example, once they fully apply to smaller reporting
companies, our amendments will provide shareholders of those companies
the same voting rights with respect to executive compensation as apply
to shareholders of other companies subject to the proxy rules. We do
not believe that Section 14A and our final rules, especially given the
temporary exemption, would unduly burden smaller reporting companies.
For example, our final rule does not alter the existing scaled
disclosure requirements set forth in Item 402 of Regulation S-K for
smaller reporting companies, which recognize that the compensation
arrangements of smaller reporting companies typically are less complex
than those of other public companies.\292\ Under the rules we adopt
today, we do not alter the provision in our rules that smaller
reporting companies are not required to provide a CD&A. Therefore, the
amendment to Item 402(b) of Regulation S-K will not apply to smaller
reporting companies, as such companies are not required to provide a
CD&A.
---------------------------------------------------------------------------

\292\ See Executive Compensation and Related Person Disclosure,
Release No. 33-8732A (Aug. 29, 2006) [71 FR 53158] (hereinafter, the
``2006 Executive Compensation Release'') at Section II.D.1. The
scaled compensation disclosure requirements for smaller reporting
companies are set forth in Item 402(1) [17 CFR 229.402(l)] through
(r) [17 CFR 229.402(r)] of Regulation S-K.
---------------------------------------------------------------------------

Our amendments will, however, require quantification of golden
parachute arrangements in merger proxies. Smaller reporting companies
are not required to provide this quantification under current Item
402(q) in annual meeting proxy statements, and are not required to do
so under our new rules unless they seek to qualify for the exception
for a shareholder advisory vote on golden parachute compensation in a
later merger transaction. Even though our rules impose additional
disclosure requirements relating to the shareholder advisory votes
required by Section 14A, we do not believe our rules will impose a
significant additional cost or disproportionate burden upon smaller
reporting companies. As noted above, smaller reporting companies tend
to have less complex compensation arrangements \293\ so the additional
disclosures should not add significantly to their disclosure burden. As
a result, we do not believe the rules we adopt today place a
disproportionate burden on smaller reporting companies.
---------------------------------------------------------------------------

\293\ See 2006 Executive Compensation Release, supra note 292,
at Section II.D.1.
---------------------------------------------------------------------------

F. Transition Matters

As noted above in Section I, Section 14A(a)(3) requires that both
the initial shareholder vote on executive compensation and the initial
vote on the frequency of votes on executive compensation be included in
proxy statements relating to an issuer's first annual or other meeting
of the shareholders occurring on or after January 21, 2011. Because
Section 14A(a) applies to shareholder meetings taking place on or after
January 21, 2011, any proxy statements, whether in preliminary or
definitive form, even if filed prior to this date, for meetings taking
place on or after January 21, 2011, must include the separate
resolutions for shareholders to approve executive compensation and the
frequency of say-on-pay votes required by Section 14A(a) without regard
to whether our rules to implement Section 14A(a) have become effective
by that time. To facilitate compliance with the new statute, we
addressed certain first year transition issues in the Proposing
Release. We are now extending those transition positions as described
below.
Before effectiveness of the amendment to Rule 14a-6(a) adopted in
this release, Rule 14a-6 will continue to require the filing of a
preliminary proxy statement at least ten days before the proxy is sent
or mailed to shareholders unless the meeting relates only to the
matters specified by Rule 14a-6(a). Until the rules we are adopting to
implement Exchange Act Section 14A become effective, we will not object
if issuers do not file proxy material in preliminary form if the only
matters that would require a filing in preliminary form are the say-on-
pay vote and frequency of say-on-pay vote required by Section 14A(a).
Before the amendment to Rule 14a-4 adopted in this release becomes
effective, Rule 14a-4 provides that persons solicited are to be
afforded the choice between approval or disapproval of, or abstention
with respect to, each matter to be voted on, other than elections of
directors. Until effectiveness of the amendment to Rule 14a-4 adopted
in this release, we will not object if the form of proxy for a
shareholder vote on the frequency of say-on-pay votes provides means
whereby the person solicited is afforded an opportunity to specify by
boxes a choice among 1, 2 or 3 years, or abstain. In addition, we
understand that, although some commentators indicated they are prepared
for the four-choice frequency vote, the systems of other proxy service
providers are currently set up to register at most three votes--for,
against, or abstain--and these providers may have short-term difficulty
in programming their systems to enable shareholders to vote among four
choices. As a result, because the preparedness of these providers may
vary significantly on a firm-by-firm basis, for any proxy materials
filed for meetings to be held on or before December 31, 2011, we will
not object if the form of proxy for a shareholder vote on the frequency
of say-on-pay votes provides means whereby the person solicited is
afforded an opportunity to specify by boxes a choice among 1, 2 or 3
years, and there is no discretionary authority to vote proxies on the
frequency of say-on-pay votes matter in the event the person solicited
does not select a choice among 1, 2 or 3 years.\294\
---------------------------------------------------------------------------

\294\ See Shareholder Communications, Shareholder Participation
in the Corporate Electoral Process and Corporate Governance
Generally, Release No. 34-16356 (Nov. 21, 1979) [44 FR 68770].
---------------------------------------------------------------------------

Issuers with outstanding indebtedness under the TARP are already
required to conduct an annual shareholder advisory vote on executive
compensation until the issuer has repaid all outstanding indebtedness
under the TARP. Because such issuers are subject to an annual
requirement to provide a say-on-pay vote, a requirement to provide a
vote on the frequency of such votes would impose unnecessary burdens on
issuers and shareholders, and our final rules provide an exemption from
such requirement. Until the rules we are adopting to implement Exchange
Act Section 14A become effective, we will not object if an issuer with
outstanding indebtedness under the TARP does not include a resolution
for a shareholder advisory vote on the frequency of say-on-pay votes in
its proxy statement for its annual meeting, provided it fully complies
with its say-on-pay voting obligations under EESA Section 111(e).
Finally, as we discussed above, we are adopting a temporary
exemption for smaller reporting companies to defer application of the
requirements of Section 14A(a)(1) and (a)(2) and Rule 14a-21(a) and (b)
to conduct shareholder advisory votes on executive compensation and the
frequency of such votes. Until the rules we are adopting to implement
Exchange Act Section 14A

[[Page 6033]]

become effective, we will not object if a smaller reporting company
does not include a resolution for a shareholder advisory vote on say-
on-pay or the frequency of say-on-pay votes in its proxy statement for
its annual meeting. As with other issuers, smaller reporting companies
are required to conduct the shareholder advisory vote on golden
parachute compensation upon effectiveness of Rule 14a-21(c).

III. Paperwork Reduction Act

A. Background

Certain provisions of the final amendments contain ``collection of
information'' requirements within the meaning of the Paperwork
Reduction Act of 1995 (``PRA'').\295\ We published a notice requesting
comment on the collection of information requirements in the proposing
release for the rule amendments, and we submitted these requirements to
the Office of Management and Budget (``OMB'') for review in accordance
with the PRA.\296\ The title for the collection of information is:
---------------------------------------------------------------------------

\295\ 44 U.S.C. 3501 et seq.
\296\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------

(1) ``Regulation 14A and Schedule 14A'' (OMB Control No. 3235-
0059);
(2) ``Regulation 14C and Schedule 14C'' (OMB Control No. 3235-
0057);
(3) ``Form 8-K'' (OMB Control No. 3235-0060);
(4) ``Form 10'' (OMB Control No. 3235-0064);
(5) ``Regulation S-K'' (OMB Control No. 3235-0071); \297\
---------------------------------------------------------------------------

\297\ The paperwork burden from Regulation S-K is imposed
through the forms that are subject to the disclosures in Regulation
S-K and is reflected in the analysis of those forms. To avoid a
Paperwork Reduction Act inventory reflecting duplicative burdens,
for administrative convenience we estimate the burdens imposed by
Regulation S-K to be a total of one hour.
---------------------------------------------------------------------------

(6) ``Schedule 14D-9'' (OMB Control No. 3235-0102);
(7) ``Schedule 13E-3'' (OMB Control No. 3235-0007);
(8) ``Schedule TO'' (OMB Control No. 3235-0515);
(9) ``Form S-1'' (OMB Control No. 3235-0065);
(10) ``Form S-4'' (OMB Control No. 3235-0324);
(11) ``Form S-11'' (OMB Control No. 3235-0067);
(12) ``Form F-4'' (OMB Control No. 3235-0325); and
(13) ``Form N-2'' (OMB Control No. 3235-0026).
The regulations, schedules, and forms were adopted under the
Securities Act and the Exchange Act, except for Form N-2, which we
adopted pursuant to the Securities Act and the Investment Company Act.
The regulations, forms, and schedules set forth the disclosure
requirements for periodic reports, current reports, registration
statements and proxy and information statements filed by companies to
help shareholders make informed voting decisions. The hours and costs
associated with preparing, filing and sending the form or schedule
constitute reporting and cost burdens imposed by each collection of
information. An agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless it displays
a currently valid OMB control number.

B. Summary of the Final Rules

As discussed in more detail above, we are adopting new Rule 14a-21
under the Exchange Act and new Item 24 of Schedule 14A. Rule 14a-21
will implement the requirements of Section 14A of the Exchange Act to
provide separate shareholder advisory votes on executive compensation,
the frequency of shareholder votes on executive compensation, and, in
connection with merger and similar transactions, golden parachute
compensation arrangements. New Item 24 of Schedule 14A will require
disclosure in proxy statements with respect to each of these
shareholder votes. New Rule 14a-21 and new Item 24 of Schedule 14A will
increase existing disclosure burdens for proxy statements by requiring:
New disclosure about the requirement to provide separate
shareholder votes on executive compensation, the frequency of
shareholder votes on executive compensation and golden parachute
compensation arrangements in connection with merger transactions; and
New disclosure of the general effect of the shareholder
advisory votes, such as whether such votes are non-binding.
As discussed in more detail above, we are also adopting amendments
to Item 402(b) of Regulation S-K. The amendments to Item 402(b) of
Regulation S-K may increase existing disclosure burdens for proxy
statements by requiring:
New disclosure of whether, and if so, how the issuer has
considered the results of the most recent shareholder vote on executive
compensation required by Section 14A of the Exchange Act in determining
compensation policies and decisions, and, if so, how that consideration
has affected the issuer's compensation decisions and policies.
As discussed in more detail above, we are also adopting new Item
402(t) of Regulation S-K and amendments to Item 1011(b) of Regulation
M-A, Item 5 of Schedule 14A, Item 3 of Schedule 14C, Item 15 of
Schedule 13E-3, Item 11 of Schedule TO, and Item 8 of Schedule 14D-9.
These amendments, other than the amendment to Schedule TO, will
increase existing disclosure burdens for proxy statements, registration
statements on Form S-4 and F-4, solicitation/recommendation statements
on Schedule 14D-9, and going-private schedules by requiring:
New tabular and narrative disclosure of understandings and
agreements of named executive officers with acquiring and target
companies in connection with merger, acquisition, Rule 13e-3 going-
private transactions, and tender offers,\298\ and disclosure of the
aggregate total of all compensation that may be paid or become payable
to each named executive officer.
---------------------------------------------------------------------------

\298\ Companies filing solicitation/recommendation statements on
Schedule 14D-9 in connection with third-party tender offers will be
obligated to provide this additional disclosure. However, bidders
filing tender offer statements on Schedule TO will not have a
similar obligation.
---------------------------------------------------------------------------

As discussed in more detail above, we are adopting amendments to
Form 8-K. The amendments to Form 8-K will increase existing disclosure
burdens for current reports on Form 8-K by requiring:
New disclosure of the issuer's decision of how frequently
to provide a separate shareholder vote on executive compensation in
light of a shareholder advisory vote on the frequency of shareholder
votes on executive compensation conducted pursuant to Section 14A(a)(2)
of the Exchange Act.
Together, new Rule 14a-21 and new Item 24 of Schedule 14A and the
amendments to Item 5 of Schedule 14A, Item 3 of Schedule 14C, Item 402
of Regulation S-K, Item 1011 of Regulation M-A, Item 15 of Schedule
13E-3, Item 11 of Schedule TO, and Item 8 of Schedule 14D-9 will
implement and supplement the requirements under Section 14A of the
Exchange Act and also will provide additional meaningful disclosure
regarding golden parachute arrangements and issuers' consideration of
the shareholder votes and the effect of such votes on issuers'
compensation policies and decisions. We believe these changes will
result in more meaningful disclosure for investors making voting or
investment decisions.
We are adopting an amendment to Rule 14a-4, which relates to the
form of proxy that issuers are required to include with their proxy
materials, to require that issuers present four choices to their
shareholders in connection with the advisory vote on frequency. We are
also adopting an amendment to Rule

[[Page 6034]]

14a-6 to add the shareholder votes on executive compensation and the
frequency of shareholder votes on executive compensation required by
Section 14A(a), as well as any shareholder advisory vote on executive
compensation, to the list of items that do not trigger the filing of a
preliminary proxy statement. In addition, we are adopting an amendment
to Rule 14a-8, adding a note to Rule 14a-8(i)(10) to clarify the status
of shareholder proposals relating to the approval of executive
compensation or the frequency of shareholder votes approving executive
compensation. Finally, we are adopting conforming amendments to Item
402(a) and Item 402(m) of Regulation S-K, clarifying that the
disclosure required by proposed Item 402(t) includes information
regarding group life, health, hospitalization, or medical reimbursement
plans that do not discriminate in scope, terms or operation, in favor
of executive officers or directors of the registrant and that are
available generally to all salaried employees. Pursuant to these
conforming amendments, issuers may continue to omit such information in
connection with disclosure required by other portions of Item 402 of
Regulation S-K. The amendments to Rule 14a-4, Rule 14a-6, Rule 14a-8
under the Exchange Act and Item 402(a) and Item 402(m) of Regulation S-
K will not increase any existing disclosure burden. We believe these
amendments will merely clarify existing and new statutory requirements
or reduce burdens otherwise arising from our proposals. As a result,
these amendments will not affect any existing disclosure burden.
Compliance with the proposed amendments by affected U.S. issuers
will be mandatory. Responses to the information collections will not be
kept confidential and there would be no mandatory retention period for
the information disclosed.

C. Summary of Comment Letters and Revisions to Proposals

In the Proposing Release, we requested comment on the PRA analysis.
We did not receive any comments that addressed our overall burden
estimates for the proposed amendments, though our analysis was cited by
one commentator who discussed our cost-benefit analysis.\299\
---------------------------------------------------------------------------

\299\ See letter from CCMC.
---------------------------------------------------------------------------

We have made few substantive modifications to the proposed
amendments. We have adopted an amendment to Form 8-K to require the
disclosure we had proposed to require in Form 10-Q or Form 10-K.
Therefore, we have adjusted our estimates to reflect no changes to
Forms 10-Q and 10-K and to estimate the increased burdens for Form 8-K.
We have also revised our amendments with respect to Schedule TO to
eliminate the proposed requirement for bidders in third-party tender
offers to provide Item 402(t) disclosure. We have adjusted our
estimates to reflect no changes to Schedule TO, as any increased burden
will be reflected in Schedule 13E-3 because Item 402(t) disclosure will
be required in any tender offer that is also a Rule 13e-3 going-private
transaction.

D. Revisions to PRA Reporting and Cost Burden Estimates

We anticipate that the disclosure amendments will increase the
burdens and costs for companies that would be subject to the proposed
amendments. New Section 14A of the Exchange Act, as created by Section
951 of the Act, has already increased the burdens and costs for issuers
by requiring separate shareholder votes on executive compensation and
the frequency of shareholder votes on executive compensation. Section
14A also requires additional disclosure of golden parachute
arrangements in proxy solicitations to approve merger transactions and
a separate shareholder vote to approve such arrangements in certain
circumstances. Our amendments address the Act's requirements in the
context of disclosure under the Federal proxy rules, Regulation S-K and
related forms and schedules, thereby creating only an incremental
increase in the burdens and costs for such issuers. The amendments
specify how issuers are to comply with Section 14A of the Exchange Act
and require new disclosure with respect to comparable transactions.
For purposes of the PRA, in the Proposing Release we estimated the
annual incremental paperwork burden for all companies to prepare the
disclosure that would be required under our proposals to be
approximately 25,192 hours of company personnel time and a cost of
approximately $8,141,200 for the services of outside professionals.
These estimates included the time and the cost of data gathering
systems and disclosure controls and procedures, the time and cost of
preparing and reviewing disclosure by in-house and outside counsel and
executive officers, and the time and cost of filing documents and
retaining records. In deriving our estimates, we recognize that the
burdens will likely vary among individual companies based on a number
of factors, including the size and complexity of their organizations,
the nature and complexity of their golden parachute compensation
arrangements, and the nature of their operations. We believe that some
companies will experience costs in excess of this average in the first
year of compliance with proposals and some companies may experience
less than the average costs. As discussed above, as a result of changes
to our proposed rules, we are slightly reducing the total PRA burden
and cost estimates that we originally submitted to the OMB in
connection with the proposed amendments. We estimate the annual
incremental paperwork burden for all companies to prepare the
disclosure that would be required under our rule amendments to be
approximately 24,942 hours of company personnel time and a cost of
approximately $7,841,200 for the services of outside professionals.
We derived our new burden hour and cost estimates by estimating the
average number of hours it would take an issuer to prepare and review
the proposed disclosure requirements. These estimates represent the
average burden for all companies, both large and small. Our estimates
have been adjusted to reflect the fact that some of the amendments will
be required in some but not all of the above listed documents depending
upon the circumstances, and would not apply to all companies.
With respect to reporting companies, the disclosure required by new
Item 402(t) of Regulation S-K will be required in merger proxy and
information statements, Forms S-4 and F-4, Schedule 13E-3 and certain
solicitation/recommendation statements. The disclosure required by new
Item 402(t) may also be included in annual meeting proxy statements on
a voluntary basis.
The disclosure required by our amendments to Item 402(b) of
Regulation S-K will be required in proxy and information statements as
well as Forms 10, 10-K, S-1, S-4, S-11, and N-2. The proposed
amendments to CD&A will not be applicable to smaller reporting
companies because under current CD&A reporting requirements these
companies are not required to provide CD&A in their Commission filings.
Based on the number of proxy filings that were received in the 2009
fiscal year, we estimate that approximately 1,200 domestic companies
are smaller reporting companies that have a public float of less than
$75 million.

[[Page 6035]]

In the Proposing Release, we based our annual burden estimates on
other assumptions. We have made some small adjustments to these
estimates to reflect the revisions we made to the amendments. First, we
continue to assume that the burden hours of the amendments will be
comparable to the burden hours related to similar disclosure
requirements under current reporting requirements, such as the
disclosure required by Item 402(j). Second, we continue to assume that
substantially all of the burdens associated with the amendments to Rule
14a-21 and Item 24 will be associated with Schedule 14A as this will be
the primary disclosure document in which these items will be prepared
and presented. In the case of our proposed amendments to Item 402(b)
and Item 402(t) of Regulation S-K, we continue to assume that the
burdens associated with the amendments will be associated with various
disclosure documents as these items will be included in a number of
forms and statements. We have noted an additional 1 hour for the
amendments to Form 8-K, and we are no longer proposing any amendments
that would alter the disclosure burden of Form 10-Q and Form 10-K.
For each reporting company, we estimate that the amendments will
impose on average the following incremental burden hours:
2 hours for the amendments to CD&A.
1 hour for the amendments to Item 24 of Schedule 14A.
1 hour for the amendments to Form 8-K.
20 hours for new Item 402(t) of Regulation S-K.
1. Annual Meeting Proxy Statements
For purposes of the PRA, in the case of reporting companies, we
estimate the annual incremental paperwork burden for annual meeting
proxy statements under the amendments will be approximately 1 hour per
form for companies that are smaller reporting companies, and 3 hours
per form for companies that are non-accelerated filers (and not smaller
reporting companies), accelerated filers, or large accelerated
filers.\300\ The estimated burden is smaller for smaller reporting
companies as such issuers are not required to include a CD&A.
---------------------------------------------------------------------------

\300\ Our estimate for annual proxy statements is based upon an
estimated burden over a six-year period during which the shareholder
advisory votes required by Section 14A(a) would not occur annually.
We used a six-year period because issuers will conduct at least two
shareholder advisory votes on executive compensation and at least
one shareholder advisory vote on the frequency of such votes in this
time period. We then estimated an average annual burden based on the
average burden over the six-year period.
---------------------------------------------------------------------------

2. Exchange Act Current Reports
For purposes of the PRA, we estimate the annual incremental
paperwork burden for Form 8-K under the amendments will be
approximately 1 hour per form. Our estimates below also account for the
fact that each issuer will only be required to include additional
disclosure in one amended Form 8-K each year the issuer conducts a
shareholder advisory vote on frequency.
3. Securities Act Registration Statements and Exchange Act Registration
Statements
For purposes of the PRA, in the case of reporting companies, we
estimate the annual incremental paperwork burden for Securities Act and
Exchange Act registration statements under the amendments is
approximately 2 hours per form, which represents the additional burden
associated with our amendments to CD&A.\301\ In making our estimates,
we note that the additional burdens in CD&A only apply to issuers who
have conducted a prior shareholder advisory vote and would not apply,
for example, to issuers making an initial filing on Form S-1 or Form S-
11.
---------------------------------------------------------------------------

\301\ We have assumed that the annual incremental paperwork
burden under the proposed amendments to Item 402(b) of Regulation S-
K would be included in the annual meeting proxy statement.
---------------------------------------------------------------------------

4. Merger Proxies, Tender Offer Documents and Schedule 13E-3
For purposes of the PRA, in the case of reporting companies, we
estimate the annual incremental paperwork burden for merger proxy
statements, and registration statements on Form S-4 and F-4 to be 21
hours per form, as these forms will be required to include additional
disclosures under Item 24 of Schedule 14A and Item 402(t) of Regulation
S-K. We estimate the annual incremental paperwork burden for merger
information statements, and tender offer solicitation/recommendation
statements and Schedules 13E-3 to be 20 hours per form, as these forms
will be required to include Item 402(t) disclosure but will not be
required to include additional disclosure under Item 24 of Schedule
14A.
The tables below illustrate the total annual compliance burden of
the collection of information in hours and in cost under the proposed
amendments for current reports; proxy and information statements; Form
10; registration statements on Forms S-1, S-4, F-4, S-11, and N-2; and
Regulation S-K.\302\ The burden estimates were calculated by
multiplying the estimated number of responses by the estimated average
amount of time it would take an issuer to prepare and review the
proposed disclosure requirements. For the Exchange Act report on Form
8-K, and the proxy statements we estimate that 75% of the burden of
preparation is carried by the company internally and that 25% of the
burden of preparation is carried by outside professionals retained by
the issuer at an average cost of $400 per hour.
---------------------------------------------------------------------------

\302\ Figures in both tables have been rounded to the nearest
whole number.
---------------------------------------------------------------------------

For registration statements on Forms S-1, S-4, F-4, S-11, and N-2,
and the Exchange Act registration statement on Form 10, we estimate
that 25% of the burden of preparation is carried by the issuer
internally and that 75% of the burden of preparation is carried by
outside professionals retained by the issuer at an average cost of $400
per hour. There is no change to the estimated burden of the collections
of information under Regulation S-K because the burdens that this
regulation imposes are reflected in our revised estimated for the
forms. The portion of the burden carried by outside professionals is
reflected as a cost, while the portion of the burden carried by the
issuer internally is reflected in hours.

[[Page 6036]]

Table 1--Incremental Paperwork Burden Under the Amendments For Current Reports; Proxy and Information Statements
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of Incremental Total
responses burden hours/ incremental 75% Company 25% Professional
\303\ form burden hours Professional costs
(A) (B) (C)=(A)*(B) (D)=(C)*0.75 (E)=(C)*0.25 (F)=(E)*$400
--------------------------------------------------------------------------------------------------------------------------------------------------------
8-K \304\............................................... 7,212 1 7,212 5,409 1,803 $721,200
Form 10 \305\........................................... 9 2 18 4 14 5,600
DEF 14A \306\........................................... 7,212
Accel. Filers........................................... 6,112 3 18,336 13,752 4,584 1,833,600
SRC Filers.............................................. 1,100 1 1,100 825 275 110,000
DEF 14C................................................. 582
Accel. Filers........................................... 482 2 964 723 241 96,400
SRC Filers.............................................. 100 0 0 0 0 0
Reg. S-K................................................ N/A N/A N/A N/A N/A N/A
-----------------------------------------------------------------------------------------------
Total............................................... .............. .............. 27,630 20,713 .............. 2,766,800
--------------------------------------------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------

\303\ The number of responses reflected in the table equals the
actual number of forms and schedules filed with the Commission
during the 2009 calendar year, adjusted to reflect the estimated
number of forms and schedules that would be required to include
additional disclosure under our rules as proposed. As explained
below in notes 304 through 306, we have reduced the number of
estimated filings to reflect that the additional disclosure
requirements will only apply to a smaller number of the forms filed.
\304\ We calculated the burden hours for Form 8-K based on the
number of proxy statements filed with the Commission during the 2009
calendar year. We assumed that there would be an aggregate equal
number of Forms 8-K to disclose the issuer's plans with respect to
the frequency vote as the number of proxy statements.
\305\ The burden allocation for Form 10 uses a 25% internal to
75% outside professional allocation. We have reduced the number of
estimated Form 10 filings to reflect that approximately 95% of these
forms would not require additional disclosure, as new disclosure
required under Item 402 will only relate to issuers in spin-off
transactions that are disclosing compensation of public parent
companies that have conducted a prior shareholder vote on executive
compensation.
\306\ The estimates for Schedule 14A and Schedule 14C are
separated to reflect our estimate of the burden hours and costs
related to the proposed amendments to CD&A which will be applicable
to companies that are large accelerated filers, accelerated filers,
and non-accelerated filers (that are not smaller reporting
companies), but will not be applicable to smaller reporting
companies.

Table 2--Incremental Paperwork Burden Under the Amendments for Registration Statements, Merger Proxy and Information Statements, Tender Offer Documents
and Schedules 13E-3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of Incremental Total
responses burden hours/ incremental 25% Company 75% Professional
\307\ form burden hours Professional costs
(A) (B) (C)=(A)*(B) (D)=(C)*0.25 (E)=(C)*0.75 (F)=(E)*$400
--------------------------------------------------------------------------------------------------------------------------------------------------------
Form S-1 \308\.......................................... 485 2 970 243 727 $290,800
Form S-11............................................... 22 2 44 11 33 13,200
Form S-4 \309\.......................................... 499 21 10,479 2,620 7,859 3,143,600
Form F-4................................................ 27 21 567 142 425 170,000
DEFM 14A................................................ 137 21 2,877 719 2,158 863,200
DEFM 14C \310\.......................................... 14 20 280 70 210 84,000
Schedule 14D-9.......................................... 77 20 1,540 385 1,155 462,000
Schedule 13E-3.......................................... 5 20 100 25 75 30,000
Form N-2 \311\.......................................... 29 2 58 14 44 17,600
Reg. S-K................................................ N/A N/A N/A N/A N/A N/A
-----------------------------------------------------------------------------------------------
Total............................................... .............. .............. 16,915 4,229 .............. 5,074,400
--------------------------------------------------------------------------------------------------------------------------------------------------------

IV. Cost-Benefit Analysis

A. Introduction

We are adopting amendments to implement and supplement the

[[Page 6037]]

provisions of the Dodd-Frank Act relating to shareholder approval of
executive compensation and disclosure and shareholder approval of
golden parachute compensation arrangements. Section 951 of the Dodd-
Frank Act amends the Exchange Act by adding new Section 14A. New
Section 14A(a)(1) requires companies to conduct a separate shareholder
advisory vote to approve the compensation of executives. Section
14A(a)(2) requires companies to conduct a separate shareholder advisory
vote to determine how often an issuer will conduct a shareholder
advisory vote on executive compensation. In addition, Section 14A(b)
requires companies soliciting votes to approve merger or acquisition
transactions to provide disclosure of certain ``golden parachute''
compensation arrangements and, when such arrangements have not been
included in the shareholder advisory vote on executive compensation, to
conduct a separate shareholder advisory vote to approve the golden
parachute compensation arrangements.\312\
---------------------------------------------------------------------------

\307\ The number of responses reflected in the table equals the
actual number of forms and schedules filed with the Commission
during the 2009 calendar year, adjusted to reflect the estimated
number of forms and schedules that would be required to include
additional disclosure under our rules as proposed. As explained
below in notes 308 through 311, we have reduced the number of
estimated filings to reflect that the additional disclosure
requirements will only apply to a smaller number of the forms filed.
\308\ We have reduced the number of estimated Form S-1 and Form
S-11 filings to reflect that approximately 60% of these forms will
not require additional disclosure, as new disclosure required under
Item 402 will only relate to issuers who are already public
companies and have conducted a prior shareholder vote on executive
compensation.
\309\ We have reduced the number of estimated Form S-4 and Form
F-4 filings to reflect an approximate 75% of these forms which will
not relate to mergers or similar transactions but will be other
transactions (e.g., holding company formations and financings) to
which the amended rules will not apply.
\310\ We have reduced the number of estimated DEFM 14C filings
to reflect an approximate 15% of these forms, which will not relate
to merger transactions but will involve dissolutions and similar
transactions.
\311\ We have reduced the number of estimated Form N-2 filings
to reflect that 29 filings were made by business development
companies during calendar year 2009, because only business
development companies will be subject to the amended disclosure
required under Item 402 on Form N-2.
\312\ According to the Dodd-Frank Wall Street Reform and
Consumer Protection Act Conference Report at page 872, Section 951
is ``designed to address shareholder rights and executive
compensation practices.''
---------------------------------------------------------------------------

We are adopting new Rule 14a-21 to implement Section 14A(a)(1) by
providing separate shareholder advisory votes to approve executive
compensation, to approve the frequency of such votes on executive
compensation, and to approve golden parachute compensation arrangements
at shareholder meetings at which shareholders are asked to approve
merger transactions. In addition to the votes required by Section 14A,
we are also adopting a new Item 24 of Schedule 14A to elicit
disclosure, similar to our approach with respect to TARP companies
providing shareholder advisory votes on executive compensation,
regarding the effect of the shareholder votes required by Rule 14a-21,
including whether the votes are non-binding.
New Item 402(t) of Regulation S-K implements and supplements the
statutory requirement in Section 14A(b)(1) to promulgate rules for the
clear and simple disclosure of golden parachute compensation
arrangements that the soliciting person has with its named executive
officers (if the acquiring issuer is not the soliciting person) or that
it has with the named executive officers of the acquiring issuer that
relate to the merger transaction. In addition, Item 402(t), will
supplement the requirements of Section 14A(b)(1) by requiring
disclosure of golden parachute compensation arrangements between the
acquiring company and the named executive officers of the target
company if the target company is the soliciting person.
Our amendments to Item 5 of Schedule 14A and Item 3 of Schedule 14C
will require disclosure regarding golden parachute compensation
arrangements in accordance with Section 14A(b)(1) of the Exchange Act.
We are also adopting amendments to require that additional disclosure
regarding golden parachute compensation arrangements be included in
connection with other transactions. We are adopting amendments to
Regulation M-A, Schedule 14D-9, and Schedule 13E-3 that will require
additional disclosure regarding golden parachute compensation
arrangements in connection with Rule 13e-3 going-private transactions
and tender offers.\313\
---------------------------------------------------------------------------

\313\ Companies filing solicitation/recommendation statements on
Schedule 14D-9 in connection with third-party tender offers will be
obligated to provide this additional disclosure. However, bidders
filing tender offer statements on Schedule TO will not have a
similar obligation.
---------------------------------------------------------------------------

We are also adopting amendments to Item 402 of Regulation S-K to
require additional Compensation Discussion and Analysis disclosure
about the issuer's response to the shareholder vote on executive
compensation and to provide additional disclosure about golden
parachute compensation arrangements. We are also adopting amendments to
Form 8-K to require disclosure regarding the issuer's action as a
result of the shareholder advisory vote on the frequency of shareholder
votes on executive compensation.
We are adopting an amendment to Rule 14a-4, which relates to the
form of proxy that issuers are required to include with their proxy
materials, to require that issuers present four choices to their
shareholders in connection with the advisory vote on frequency. We are
also adopting an amendment to Rule 14a-6 to add the shareholder votes
on executive compensation and the frequency of shareholder votes on
executive compensation required by Section 14A(a), as well as any
shareholder advisory vote on executive compensation, to the list of
items that do not trigger the filing of a preliminary proxy statement.
In addition, we are adopting an amendment to Rule 14a-8, adding a note
to Rule 14a-8(i)(10) to clarify the status of shareholder proposals
relating to the approval of executive compensation or the frequency of
shareholder votes approving executive compensation.
The rules we are adopting, which implement the relevant provisions
of the Dodd-Frank Act, will directly affect most public companies as
well as potential private acquirers. Our amended rules implement the
shareholder advisory vote requirements of Section 14A, promulgate rules
for additional disclosure in accordance with Section 14A(b)(1), and
provide for additional disclosure, not required by Section 14A,
relating to the shareholder advisory votes. In addition, our amended
rules expand the required disclosure of Section 14A(b)(1) to require
disclosure of arrangements between additional parties, namely
agreements between the acquiring company and named executive officers
of the target company, and require disclosure with respect to
additional transactions, including certain tender offers and Rule 13e-3
going-private transactions. As discussed below, the enhanced disclosure
required by our amended rules regarding the shareholder approval of
executive compensation and companies' responses to shareholder votes
will provide shareholders and investors with timely information about
such votes that is consistent with the information required to be
provided under the Act and that enhance the operation of our rules
pursuant to the Act. The enhanced disclosure regarding golden parachute
compensation will provide a more complete picture of the compensation
to shareholders as they consider voting and investment decisions
relating to mergers and similar transactions.
We are sensitive to the costs and benefits imposed by the rule and
form amendments we are adopting. The discussion below focuses on the
costs and benefits of the amendments made by the Commission to
implement the Act within its permitted discretion, rather than the
costs and benefits of the Act itself.

B. Comments on the Cost-Benefit Analysis

In the Proposing Release, we requested qualitative and quantitative
feedback on the nature of the benefits and costs described and any
benefits and costs we may have overlooked. We received one comment
letter relating to the cost-benefit analysis in the Proposing
Release.\314\ The commentator asserted that we had underestimated the
costs and burdens involved because we did not take into account the
following additional categories of costs: Costs

[[Page 6038]]

associated with proxy advisory firms and the potential for companies to
retain additional consulting services relating to their compensation
decisions and say-on-pay votes, additional costs associated with
submitting no-action letter requests under Rule 14a-8, and increased
costs due to increased demand for proxy solicitation and other
shareholder communications services.\315\
---------------------------------------------------------------------------

\314\ See letter from CCMC.
\315\ See letter from CCMC. See also Section IV.D below for
additional discussion.
---------------------------------------------------------------------------

C. Benefits

The amended rules we are adopting today are intended to implement
and supplement the requirements of Section 14A of the Exchange Act as
set forth in Section 951 of the Dodd-Frank Act. Our amended rules not
only implement the shareholder advisory votes required by Section 14A,
but also require additional disclosure addressing whether, and if so,
how issuers have considered these required shareholder advisory votes,
and if so, how such votes have affected the companies' compensation
policies and decisions.
We believe the enhanced disclosures about the results of the
shareholder advisory vote on the frequency of the approval of executive
compensation will provide timely information to shareholders about the
issuer's plans for future shareholder advisory votes. The enhanced
disclosure and amendments to the CD&A requirements in Item 402(b) of
Regulation S-K about whether, and if so, how an issuer has considered
the results of a shareholder vote to approve executive compensation
and, if so, how that consideration has affected its compensation
policies and decisions will benefit shareholders and other market
participants by providing potentially useful information for voting and
investment decisions.
Our amended rules will also specify how the shareholder advisory
votes required by Section 14A(a) relate to existing shareholder
advisory votes required for issuers with outstanding indebtedness under
TARP. In our view, because of the similarity of the separate annual
say-on-pay vote requirements, a company with indebtedness under TARP
need only provide one annual shareholder advisory vote. As we have
discussed above, we have indicated that the annual shareholder advisory
vote under EESA would fulfill the requirements for the shareholder vote
pursuant to Section 14A(a)(1) and Rule 14a-21(a). We believe this
benefits such companies by reducing confusion and burdens of the two
requirements by specifying that two separate annual shareholder votes
are not required. In addition, because issuers with indebtedness under
TARP must conduct an annual shareholder advisory vote on executive
compensation, we have adopted an exemption from the frequency vote
required by Section 14A(a)(2) and Rule 14a-21(b) until the issuer
repays all indebtedness under TARP. We believe this benefits such
issuers and their shareholders by avoiding the cost and confusion of
conducting a vote on the frequency of a shareholder advisory vote when
the frequency of such a vote is mandated by another requirement.
After reviewing the comments we have received, we are also adopting
a temporary exemption for smaller reporting companies that will delay
the implementation of the shareholder advisory votes on say-on-pay and
frequency required by Section 14A(a) and Rule 14a-21(a) and (b) for a
two-year period. We believe that a delayed effective date for the say-
on-pay and frequency votes will benefit smaller reporting companies by
allowing these companies to observe how the rules operate for other
companies by preparing them for implementation of the rules. We believe
that delayed implementation for these companies will also allow us to
evaluate the implementation of the adopted rules by larger companies
and provide us with the additional opportunity to consider whether
adjustments to the rule would be appropriate for smaller reporting
companies before the rule becomes applicable to them.
In these amended rules, we also provide guidance for issuers and
shareholders regarding the interaction of the shareholder advisory
votes required by Section 14A and shareholder proposals under Rule 14a-
8 by adding a note to Rule 14a-8(i)(10). The note we are adopting will
reduce potential confusion among shareholders and issuers with respect
to what may be excluded under our rules in light of the new
requirements under Section 14A, while preserving the ability of
shareholders to make proposals relating to executive compensation.
New Item 402(t) of Regulation S-K will require narrative and
tabular disclosure of golden parachute compensation arrangements in the
clear and simple form required by Section 14A(b)(1) of the Exchange
Act. Because Section 14A(b)(1) requires that disclosure not only be in
a clear and simple form, but also that it include an aggregate total of
all golden parachute compensation for each named executive officer, we
have adopted Item 402(t) to require that such disclosure appear in a
table. The tabular format is designed to provide investors with clear
disclosure about golden parachute compensation that is comparable
across different issuers and transactions and make the information more
accessible. In addition to the tabular disclosure, we are also adopting
amendments to require narrative disclosure to provide additional
context and disclosure not suitable to the tabular format. Our approach
is similar to the existing approach to executive compensation
disclosure in Item 402 of Regulation S-K and provides a focused manner
in which to present and quantify golden parachute compensation.
Narrative disclosure supplements the tables by providing additional
context and discussion of the numbers presented in the table. We
believe that the combination of narrative and tabular disclosure will
provide the clearest picture of the full scope of golden parachute
compensation in the clear and simple format required by Section
14A(b)(1).
Because Section 14A(b)(1)'s disclosure requirements are limited to
agreements or understandings between the person conducting the
solicitation and any named executive officers of the issuer or any
named executive officers of the acquiring issuer if the person
conducting the solicitation is not the acquiring issuer, we have
formulated Item 402(t) to require disclosure, in addition to the
disclosure mandated by Section 14A(b)(1), of agreements or
understandings between the acquiring company and the named executive
officers of the target company. Item 402(t) requires disclosure of all
golden parachute compensation relating to the merger among the target
and acquiring companies and the named executive officers of each in
order to cover the full scope of golden parachute compensation
applicable to the transaction. By providing disclosure of the full
scope of golden parachute compensation, we believe issuers will provide
more detailed, comprehensive, and useful information to shareholders to
consider when making their voting or investment decisions.
Likewise, additional disclosure on golden parachute compensation,
without regard to whether the transaction is structured as a merger, a
tender offer,\316\ or a Rule 13e-3 going-private transaction that is
not subject to Regulation 14A, will benefit

[[Page 6039]]

shareholders and other market participants by allowing them to timely
and more accurately assess the transaction and evaluate with greater
acuity the golden parachute compensation that named executive officers
could expect to receive and the related potential interests such
officers might have in pursuing and/or supporting a change in control
transaction. While our existing disclosure requirements include much of
this disclosure, the specificity and narrative and tabular format of
Item 402(t) will allow for a clear presentation of the full scope of
the information. Furthermore, by standardizing disclosure of golden
parachute compensation arrangements across different transaction
structures, our amended rules will enable shareholders to compare more
easily such compensation among various types of change in control
transactions and structures. In addition, our amended rules will also
enable the shareholders of the acquirer to timely and more accurately
assess the cost of the acquisition transaction in proxy statements for
which additional disclosure is required pursuant to Note A of Schedule
14A where acquirer shareholders do not vote on the merger transaction
but vote to approve another proposal such as the issuance of shares or
a stock split.
---------------------------------------------------------------------------

\316\ Companies filing solicitation/recommendation statements on
Schedule 14D-9 in connection with third-party tender offers will be
obligated to provide this additional disclosure. However, bidders
filing tender offer statements on Schedule TO will not have a
similar obligation.
---------------------------------------------------------------------------

We have adopted such disclosure requirements in both tabular and
narrative formats, with disclosure of aggregate total compensation, in
accordance with the requirement of Section 14A(b)(1) that such
disclosure be in a clear and simple form. To the extent investors
expect to see information about all of the economic benefits that may
accrue to an executive in one location of the proxy statement
(including golden parachute arrangements and other compensation, such
as future employment contracts), the benefit of this disclosure may be
limited since the information about other executive compensation that
may be disclosed in proxy materials does not need to be included in
tabular format pursuant to Item 402(t) of Regulation S-K.
Our amended rules will also benefit issuers by specifying how they
must comply with the requirements of Exchange Act Section 14A in the
context of the Federal proxy rules. The amended rules will eliminate
uncertainty that may exist among issuers and other market participants,
if we did not propose any rules, regarding what is necessary under the
Commission's proxy rules when conducting a shareholder vote required
under Exchange Act Section 14A. The amended rules specify how the
statutory requirements operate in connection with the Federal proxy
rules and accordingly, we believe the amended rules promote better
compliance with the requirements of Exchange Act Section 14A and reduce
the amount of management time and financial resources necessary to
ensure that issuers comply with their obligations under both Exchange
Act Section 14A and the Federal proxy rules. This will benefit issuers,
their shareholders and other market participants.

D. Costs

We recognize that the amendments we are adopting will impose new
disclosure requirements on companies and are likely to result in costs
related to information collection.\317\ The amendments we are adopting
that require the disclosure of executive compensation in a tabular
format are likely to result in certain costs. We expect these costs,
however, to be limited since much of the compensation required to be
disclosed under our amended rules is currently required to be disclosed
in narrative format in the existing disclosure regime.
---------------------------------------------------------------------------

\317\ We estimate the annual incremental paperwork burden for
all companies to prepare the disclosure that would be required under
both Exchange Act Section 14A and our rule amendments to be
approximately 24,942 hours of company personnel time and a cost of
approximately $7,841,200 for the services of outside professionals.
As noted above in the Comments on the Cost-Benefit Analysis section,
we received one comment letter relating to the cost-benefit analysis
that asserted that the PRA numbers cited in the Proposing Release
underestimated the costs and burdens involved. See letter from CCMC.
We acknowledge that the PRA estimates do not reflect the full
magnitude of the economic costs involved, but are estimates of the
collection of information burden and cost for the limited purpose of
the PRA. In addition to costs arising from our rule amendments, the
PRA estimates include collection of information-related costs
arising from new Exchange Act Section 14A.
---------------------------------------------------------------------------

Our analysis of the costs of the amendments we are adopting today
relates to the incremental direct and indirect costs arising from the
requirements in our rule amendments. The analysis below does not
reflect any additional direct or indirect costs arising from new
Exchange Act Section 14A, including the shareholder advisory votes on
say-on-pay, frequency, and golden parachute compensation, and any
likely additional costs which would be incurred because of these votes.
As noted above, one commentator asserted that we had underestimated the
costs and burdens involved because we did not take into account the
following additional categories of costs: Costs associated with proxy
advisory firms and the potential for companies to retain additional
consulting services relating to their compensation decisions and say-
on-pay votes, additional costs associated with submitting no-action
letter requests under Rule 14a-8, and increased costs due to increased
demand for proxy solicitation and other shareholder communications
services.\318\ We do not believe the additional costs described by the
commentator will arise as a result of our amendments today as these
items relate to increased costs resulting from the requirements of
Section 14A, including the say-on-pay vote, the frequency vote, and the
shareholder advisory vote on golden parachute compensation. With
respect to costs associated with submitting no-action letter requests
and Rule 14a-8, we note that Section 14A(c)(4) specifically provides
that the Section 14A shareholder advisory votes may not be construed
``to restrict or limit the ability of shareholders to make proposals
for inclusion in proxy materials related to executive compensation.''
\319\ Although our new rules include a note advising of one
circumstance when a shareholder proposal may be excluded, the rules do
not impose any new obligations with respect to Rule 14a-8.
---------------------------------------------------------------------------

\318\ See letter from CCMC.
\319\ Exchange Act Section 14A(c)(4).
---------------------------------------------------------------------------

We are adopting new Item 402(t) to implement the requirement of
Section 14A(b)(1) of the Exchange Act that we promulgate rules for
disclosure of golden parachute compensation arrangements in a clear and
simple form, which we believe is best provided in both narrative and
tabular format. In addition to the required disclosure under Section
14A(b)(1), we are also expanding the disclosure to cover agreements
between the acquiring company and the named executive officers of a
target company in a merger or similar transaction. Though this
additional disclosure will result in certain additional costs for
issuers preparing a merger proxy, we believe that the additional
disclosure is appropriate in order to provide shareholders information
about the full scope of golden parachute compensation applicable to the
transaction. If the disclosure provided by the issuer is not presented
in a clear manner, the disclosure of golden parachute compensation for
both target and acquirer executives in target and acquirer proxy
statements may be confusing to investors. In addition, because parties
often have to rely on each other for the other side's information, this
reliance may add to

[[Page 6040]]

the costs of mergers that are ultimately born by shareholders. There
may also be certain indirect costs to issuers and shareholders as a
result of our rule amendments, as the additional disclosure of golden
parachute compensation may result in increased transactional expenses
in the form of additional advisers and consultants, increased time to
prepare disclosure documents, and increased time and expense to
negotiate compensation arrangements.
Furthermore, companies engaging in or subject to a Rule 13e-3
going-private transaction and companies preparing solicitation/
recommendation statements given their status as targets in third-party
tender offers may face increased costs because of the required
disclosure of golden parachute compensation arrangements, including the
required table and aggregate totals. In addition, companies soliciting
proxies or consents for transactions for which additional disclosure is
required pursuant to Note A of Schedule 14A may face increased costs as
well due to the additional disclosure requirements of Item 5 of
Schedule 14A. We have adopted these disclosure requirements that go
beyond the requirements of Section 14A(b)(1) because we believe the
rules will reduce the regulatory disparity that might otherwise result
from treating such transactions differently from mergers. In response
to commentators, however, we have eliminated the proposed requirement
for bidders in third-party tender offers to provide Item 402(t)
disclosure. We believe this change is appropriate given that target
companies that are the subject of third-party tender offers will
provide the 402(t) disclosure in their Schedules 14D-9 within ten days
after the commencement of the offers. We also believe this change
addresses the concern expressed by one of the commentators that third-
party bidders, particularly in non-negotiated transactions, may not
have access to reliable information about the golden parachute
arrangements between target companies and their named executive
officers. By retaining the disclosure requirement in Schedule 14D-9, we
are still able to minimize the regulatory disparity that might
otherwise result from treating third-party tender offers differently
than other transactions.
As noted above, there may also be additional indirect costs
relating to such increased disclosure, as well as costs associated with
obtaining compensation information from the other parties involved in a
transaction in order to fulfill the issuer's disclosure obligations.
The expanded Compensation Discussion and Analysis disclosure may
also result in costs associated with drafting disclosure that addresses
whether, and if so, how the results of a shareholder vote on executive
compensation were considered in determining the issuer's compensation
policies and decisions and any resultant effect on those compensation
policies and decisions. Similarly, the revisions to the current
reporting requirements on Form 8-K may result in costs associated with
assessing the results of a shareholder vote on the frequency of
shareholder votes to approve executive compensation and drafting the
additional disclosure regarding the company's plans to conduct votes in
the future. Some of these costs could include the cost of hiring
additional advisors, such as attorneys, to assist in the analysis and
drafting.
We believe that these costs will not be unduly burdensome given
that much of the disclosure is covered by our pre-existing disclosure
requirements, even though we are adopting rules that require that such
disclosure be included in both narrative and tabular format. The
amendments we adopt exceed the pre-existing narrative requirements, as
we are adopting tabular disclosure with an aggregate total and no de
minimis threshold for perquisites. We expect that there will be
incremental costs associated with drafting the additional disclosure,
but that much of the information would be readily obtainable by the
parties given existing disclosure requirements and as part of the due
diligence process prior to drafting the transaction documents.
In addition to the direct costs associated with the required
disclosure, the amended rules might create additional indirect costs
for private companies that may be engaged in takeovers of public
companies. We do not expect, however, the specific and detailed
disclosure and the shareholder advisory vote regarding golden
parachutes to diminish the number of takeover transactions.
The note to Rule 14a-8(i)(10) we are adopting may also impose
certain costs on shareholders as it would permit issuers to exclude
certain shareholder proposals that would otherwise not be excludable
under our rules. In addition, our rule amendments may impose certain
indirect costs on shareholders who might pursue alternative means to
communicate their positions regarding the frequency of say-on-pay
votes. We do not believe that the rules we are adopting today would
impose any additional direct or indirect costs on issuers because of
shareholder proposals. Any such costs would result from the shareholder
advisory votes required by Section 14A.

V. Consideration of Impact on the Economy, Burden on Competition, and
Promotion of Efficiency, Competition and Capital Formation

Section 23(a)(2) of the Exchange Act \320\ also requires us, when
adopting rules under the Exchange Act, to consider the impact that any
new rule would have on competition. Section 23(a)(2) prohibits us from
adopting any rule that would impose a burden on competition not
necessary or appropriate in furtherance of the purposes of the Exchange
Act. In addition, Section 2(b) \321\ of the Securities Act and Section
3(f) \322\ of the Exchange Act require us, when engaging in rulemaking
where we are required to consider or determine whether an action is
necessary or appropriate in the public interest, to also consider
whether the action will promote efficiency, competition, and capital
formation.
---------------------------------------------------------------------------

\320\ 15 U.S.C. 78w(a)(2).
\321\ 15 U.S.C. 77b(b).
\322\ 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

The amendments we are adopting will implement the Section 14A
requirement for shareholder advisory votes to approve executive
compensation, the frequency of such votes, and golden parachute
compensation arrangements in connection with merger and similar
transactions. We also adopting certain additional disclosure
requirements to provide investors with additional information about
these required votes and to apply the required disclosure from Section
14A(b)(1) to certain other agreements and transaction structures. We do
not believe that the additional disclosure we are adopting will impose
a burden on competition.
The amendments we are adopting will not only implement the
requirements of Section 14A of the Exchange Act, but will also help
ensure that shareholders receive disclosure regarding the required
votes, the nature of an issuer's responsibilities to hold the votes
under Section 14A, and the issuer's consideration of the results of the
votes and the effect of such consideration on the issuer's compensation
policies and decisions. The amendments will also enhance the
transparency of a company's compensation policies. As discussed in
greater detail above, we believe these benefits will be achieved
without imposing any significant additional burdens on issuers. As a
result, the amendments we are adopting should improve the ability of
investors to make informed voting and investment decisions, and,
therefore lead to

[[Page 6041]]

increased efficiency and competitiveness of the U.S. capital markets.
We believe the amendments we are adopting will also benefit issuers
and their shareholders by specifying in a clear and concise fashion how
issuers must comply with the Dodd-Frank Act requirements, in the
context of the Federal proxy rules and our disclosure rules. By
specifying how issuers must comply with the shareholder advisory votes
and enhanced disclosure requirements from Section 14A, our rules will
allow for more consistent disclosure from all entities and clearer
disclosure for shareholders. By reducing uncertainty and promoting
efficient presentation of information, our rules will permit issuers to
more efficiently plan and draft disclosure documents, including annual
meeting proxy statements, merger proxies, and tender offer and going-
private documents.
Our rules will also provide additional time before smaller
reporting companies are required to conduct the shareholder advisory
votes on executive compensation and the frequency of say-on-pay votes.
We believe that a delayed effective date for smaller reporting
companies should allow those companies to observe how the rules operate
for other companies and will increase efficiency by allowing them to
better prepare for implementation of the rules. We also believe that
delayed implementation for these companies will allow us to evaluate
the implementation of the adopted rules by larger companies and provide
us with the additional opportunity to consider whether adjustments to
the rule would be appropriate for smaller reporting companies before
the rules become applicable to them.
Our rules will require enhanced disclosure of golden parachute
compensation arrangements in merger and similar transactions,
regardless of how such transactions are structured. We believe the
uniformity of our disclosure requirements across different types of
transactions will help competition as issuers will be able to structure
such transactions as they see fit, without the additional disclosure
required by Section 14A(b) weighing in favor of a particular
transaction structure. Though our amended rules will create additional,
incremental disclosure burdens, we believe that the rules we are
amending will enhance capital formation by allowing for clearer
disclosure, more informed voting decisions by investors, and
consistency across different types of transactions.

VI. Final Regulatory Flexibility Act Analysis

This Final Regulatory Flexibility Analysis (FRFA) has been prepared
in accordance with the Regulatory Flexibility Act.\323\ This FRFA
relates to revisions to the rules under the Exchange Act regarding the
proxy solicitation process and related executive compensation
disclosures.
---------------------------------------------------------------------------

\323\ 5 U.S.C. 601.
---------------------------------------------------------------------------

A. Reasons for, and Objectives of, the Proposed Action

The rule amendments are designed to implement the requirements of
Section 951 of the Dodd-Frank Act, enhance the disclosure relating to
the shareholder advisory votes required by Exchange Act Section 14A,
and specify how our proxy rules will apply to such votes. Specifically,
we are adopting amendments to the proxy rules to require shareholder
advisory votes to approve executive compensation, to approve the
frequency of shareholder votes to approve executive compensation, and
to approve golden parachute compensation arrangements in connection
with merger transactions. The amendments also require enhanced
disclosure regarding an issuer's consideration of these votes and the
impact of such consideration on an issuer's compensation policies and
decisions.

B. Legal Basis

We are adopting the amendments pursuant to Section 951 of the Dodd-
Frank Wall Street Reform and Consumer Protection Act, Sections 3(b), 6,
7, 10, and 19(a) of the Securities Act of 1933, as amended, and
Sections 13, 14(a), 14A, 23(a), and 36 of the Securities Exchange Act
of 1934, as amended.

C. Significant Issues Raised by Public Comments

In the Proposing Release, we requested comment on any aspect of the
IRFA, including the number of small entities that would be affected by
the proposed amendments, the nature of the impact, how to quantify the
number of small entities that would be affected, and how to quantify
the impact of the proposed amendments. We did not receive comments
specifically addressing the IRFA. However, several commentators
addressed aspects of the proposed rule amendments that could
potentially affect small entities. In particular, some commentators
believed that smaller companies should be exempted from all or part of
the amendments.\324\ Although we are not adopting a complete exemption
from the amendments, we have made revisions to the amendments to phase-
in the requirements for a shareholder advisory vote on executive
compensation and a shareholder advisory vote on the frequency of say-
on-pay votes for two full years to give smaller reporting companies
more time to prepare for implementation of the rules and so that they
can observe how larger companies conduct the votes. Smaller reporting
companies will be required to conduct shareholder advisory votes on
golden parachute compensation as required by Rule 14a-21(c) without a
two-year delay.
---------------------------------------------------------------------------

\324\ See, e.g., letters from Am. Bankers, ICBA, NACD, Society
of Corp. Sec., and VBA.
---------------------------------------------------------------------------

D. Small Entities Subject to the Final Amendments

The amendments will affect some companies that are small entities.
The Regulatory Flexibility Act defines ``small entity'' to mean ``small
business,'' ``small organization,'' or ``small governmental
jurisdiction.'' \325\ The Commission's rules define ``small business''
and ``small organization'' for purposes of the Regulatory Flexibility
Act for each of the types of entities regulated by the Commission.
Securities Act Rule 157 \326\ and Exchange Act Rule 0-10(a) \327\
define a company, other than an investment company, to be a ``small
business'' or ``small organization'' if it has total assets of $5
million or less on the last day of its most recent fiscal year. We
estimate that there are approximately 1,210 companies, other than
investment companies, that may be considered small entities. The
proposed amendments would affect small entities that have a class of
securities that are registered under Section 12 of the Exchange Act. An
investment company, including a business development company,\328\ is
considered to be a ``small business'' if it, together with other
investment companies in the same group of related investment companies,
has net assets of $50 million or less as of the end of its most recent
fiscal year.\329\ We believe that certain of the amendments would
affect small entities that are business development companies that have
a class of securities registered under Section 12 of the Exchange Act.
We estimate that there

[[Page 6042]]

are approximately 31 business development companies that may be
considered small entities.
---------------------------------------------------------------------------

\325\ 5 U.S.C. 601(6).
\326\ 17 CFR 230.157.
\327\ 17 CFR 240.0-10(a).
\328\ Business development companies are a category of closed-
end investment companies that are not required to register under the
Investment Company Act [15 U.S.C. 80a-2(a)(48)].
\329\ 17 CFR 270.0-10(a).
---------------------------------------------------------------------------

E. Reporting, Recordkeeping, and Other Compliance Requirements

The disclosure amendments are designed to enhance the disclosure
regarding the shareholder advisory votes required by Section 14A of the
Exchange Act and provide additional disclosure about golden parachute
compensation arrangements. These amendments would require small
entities to provide:
Disclosure of the shareholder advisory votes required by
Section 14A and the effects of such votes, including whether they are
non-binding;
Disclosure of golden parachute arrangements described by
Section 14A(b)(1) of the Exchange Act in merger proxies, and additional
disclosure not required by Section 14A(b)(1) in connection with tender
offers and going private transactions; and
Disclosure of the issuer's decision in light of the
shareholder vote on the frequency of shareholder votes to approve
executive compensation required by Section 14A(a)(2) of the Exchange
Act as to how frequently the issuer will include a shareholder vote on
the compensation of executives.

F. Duplicative, Overlapping, or Conflicting Federal Rules

We believe the amendments would not duplicate, overlap, or conflict
with other Federal rules.

G. Significant Alternatives

The Regulatory Flexibility Act directs us to consider alternatives
that would accomplish our stated objectives, while minimizing any
significant adverse impact on small entities. In connection with the
disclosure amendments, we considered the following alternatives:
Establishing different compliance or reporting
requirements or timetables that take into account the resources
available to small entities;
Clarifying, consolidating, or simplifying compliance and
reporting requirements under the rules for small entities;
Use of performance rather than design standards; and
Exempting small entities from all or part of the
requirements.
Currently, small entities that are smaller reporting companies
under Exchange Act Rule 12b-12 are subject to some different compliance
or reporting requirements under Regulation S-K and the amendments will
not affect these requirements.\330\ Under Regulation S-K, smaller
reporting companies are permitted to provide abbreviated compensation
disclosure with respect to the principal executive officer and two most
highly compensated executive officers for the last two completed fiscal
years. Specifically, smaller reporting companies may provide the
executive compensation disclosure specified in Items 402(l) through (r)
of Regulation S-K, rather than the corresponding disclosure specified
in Items 402(a) through (k) of Regulation S-K. Items 402(l) through (r)
do not require smaller reporting companies to provide CD&A. Other than
the amendments to CD&A, the remaining disclosure requirements apply to
smaller reporting companies to the same extent as larger issuers,
following the two-year phase-in period for say-on-pay votes and votes
on the frequency of say-on-pay votes.
---------------------------------------------------------------------------

\330\ Rule 12b-2 excludes business development companies from
the definition of ``smaller reporting companies.''
---------------------------------------------------------------------------

As noted above, the amendments to CD&A do not apply to smaller
reporting companies. We are not expanding the existing scaled
disclosure requirements under Item 402 of Regulation S-K, or
establishing additional different compliance requirements or an
exemption from coverage of the proposed amendments for smaller
reporting companies. The amendments will provide investors with
enhanced disclosure regarding the shareholder votes required by Section
14A of the Exchange Act and the issuers' consideration of the votes.
We are adopting amendments to Item 5 of Schedule 14A, as well as
other forms and schedules, to implement and supplement the requirement
of Section 14A(b)(1) to provide disclosure of golden parachute
compensation arrangements in a clear and simple form. Under the
amendments, all companies will be subject to the same golden parachute
disclosure requirements. As amended, Schedule 14A will require the
disclosure pursuant to Item 402(t) of Regulation S-K with respect to
golden parachute compensation arrangements for merger proxies. Though
much of the disclosure required by our amendment to Item 5 of Schedule
14A is currently required for all issuers, regardless of size, under
our amended rules such disclosure will be required to be included in a
tabular format pursuant to Item 402(t) of Regulation S-K, which will
include an aggregate total and specific quantification of various
compensation elements. All companies, regardless of size, will also be
subject to these additional disclosure requirements in connection with
other transactions not required by Section 14A(b)(1), including certain
tender offers and Rule 13e-3 going-private transactions.
In addition, our amendments will require clear and straightforward
disclosure of issuer's responses to shareholder advisory votes, and of
golden parachute compensation arrangements in connection with mergers
and similar transactions. We have used design rather than performance
standards in connection with the amendments because, based on our past
experience, we believe the amendments will be more useful to investors
if there are specific disclosure requirements. The amendments are
intended to result in more comprehensive and clear disclosure. In
addition, the specific disclosure requirements in the amendments will
promote consistent and comparable disclosure among all companies.

VII. Statutory Authority and Text of the Amendments

The amendments described in this release are being adopted under
the authority set forth in Section 951 of the Dodd-Frank Wall Street
Reform and Consumer Protection Act, Sections 3(b), 6, 7, 10, and 19(a)
of the Securities Act of 1933, as amended, and Sections 13, 14(a), 14A,
23(a), and 36 of the Securities Exchange Act of 1934, as amended.

List of Subjects in 17 CFR Parts 229, 240 and 249

Reporting and recordkeeping requirements, Securities.

Text of the Amendments

For the reasons set out in the preamble, the Commission amends
title 17, chapter II, of the Code of Federal Regulations as follows:

PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES
ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND
CONSERVATION ACT OF 1975--REGULATION S-K

0
1. The general authority citation for part 229 is revised to read as
follows:

Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2,
77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 777iii,
77jjj, 77nnn, 77sss, 78c, 78i, 78j, 78l, 78m, 78n, 78n-1, 78o, 78u-
5, 78w, 78ll, 78mm, 80a-8, 80a-9, 80a-20, 80a-29, 80a-30, 80a-31(c),
80a-37, 80a-38(a), 80a-39, 80b-11, and 7201 et seq.; and 18 U.S.C.
1350, unless otherwise noted.
* * * * *

[[Page 6043]]

0
2. Amend Sec. 229.402 by:
0
a. Revising the last sentence of paragraph (a)(6)(ii);
0
b. Removing ``and'' at the end of paragraph (b)(1)(v);
0
c. Removing the period and adding in its place ``; and'' at the end of
paragraph (b)(1)(vi);
0
d. Adding paragraph (b)(1)(vii);
0
e. Revising the last sentence of paragraph (m)(5)(ii); and
0
f. Adding paragraph (t).
The revisions read as follows:

Sec. 229.402 (Item 402) Executive compensation.

(a) * * *
(6) * * *
(ii) * * * Except with respect to the disclosure required by
paragraph (t) of this Item, registrants may omit information regarding
group life, health, hospitalization, or medical reimbursement plans
that do not discriminate in scope, terms or operation, in favor of
executive officers or directors of the registrant and that are
available generally to all salaried employees.
* * * * *
(b) * * *
(1) * * *
(vii) Whether and, if so, how the registrant has considered the
results of the most recent shareholder advisory vote on executive
compensation required by section 14A of the Exchange Act (15 U.S.C.
78n-1) or Sec. 240.14a-20 of this chapter in determining compensation
policies and decisions and, if so, how that consideration has affected
the registrant's executive compensation decisions and policies.
* * * * *
(m) * * *
(5) * * *
(ii) * * * Except with respect to disclosure required by paragraph
(t) of this Item, smaller reporting companies may omit information
regarding group life, health, hospitalization, or medical reimbursement
plans that do not discriminate in scope, terms or operation, in favor
of executive officers or directors of the smaller reporting company and
that are available generally to all salaried employees.
* * * * *
(t) Golden Parachute Compensation. (1) In connection with any proxy
or consent solicitation material providing the disclosure required by
section 14A(b)(1) of the Exchange Act (15 U.S.C. 78n-1(b)(1)) or any
proxy or consent solicitation that includes disclosure under Item 14 of
Schedule 14A (Sec. 240.14a-101) pursuant to Note A of Schedule 14A,
with respect to each named executive officer of the acquiring company
and the target company, provide the information specified in paragraphs
(t)(2) and (3) of this section regarding any agreement or
understanding, whether written or unwritten, between such named
executive officer and the acquiring company or target company,
concerning any type of compensation, whether present, deferred or
contingent, that is based on or otherwise relates to an acquisition,
merger, consolidation, sale or other disposition of all or
substantially all assets of the issuer, as follows:

Golden Parachute Compensation
--------------------------------------------------------------------------------------------------------------------------------------------------------
Tax
Name Cash ($) Equity ($) Pension/ NQDC Perquisites/ reimbursement Other ($) Total ($)
($) benefits ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h)
--------------------------------------------------------------------------------------------------------------------------------------------------------
PEO..................................... .............. .............. .............. .............. .............. .............. ..............
PFO..................................... .............. .............. .............. .............. .............. .............. ..............
A....................................... .............. .............. .............. .............. .............. .............. ..............
B....................................... .............. .............. .............. .............. .............. .............. ..............
C....................................... .............. .............. .............. .............. .............. .............. ..............
--------------------------------------------------------------------------------------------------------------------------------------------------------

(2) The table shall include, for each named executive officer:
(i) The name of the named executive officer (column (a));
(ii) The aggregate dollar value of any cash severance payments,
including but not limited to payments of base salary, bonus, and pro-
rated non-equity incentive compensation plan payments (column (b));
(iii) The aggregate dollar value of:
(A) Stock awards for which vesting would be accelerated;
(B) In-the-money option awards for which vesting would be
accelerated; and
(C) Payments in cancellation of stock and option awards (column
(c));
(iv) The aggregate dollar value of pension and nonqualified
deferred compensation benefit enhancements (column (d));
(v) The aggregate dollar value of perquisites and other personal
benefits or property, and health care and welfare benefits (column
(e));
(vi) The aggregate dollar value of any tax reimbursements (column
(f));
(vii) The aggregate dollar value of any other compensation that is
based on or otherwise relates to the transaction not properly reported
in columns (b) through (f) (column (g)); and
(viii) The aggregate dollar value of the sum of all amounts
reported in columns (b) through (g) (column (h)).

Instructions to Item 402(t)(2).

1. If this disclosure is included in a proxy or consent
solicitation seeking approval of an acquisition, merger, consolidation,
or proposed sale or other disposition of all or substantially all the
assets of the registrant, or in a proxy or consent solicitation that
includes disclosure under Item 14 of Schedule 14A (Sec. 240.14a-101)
pursuant to Note A of Schedule 14A, the disclosure provided by this
table shall be quantified assuming that the triggering event took place
on the latest practicable date, and that the price per share of the
registrant's securities shall be determined as follows: If the
shareholders are to receive a fixed dollar amount, the price per share
shall be that fixed dollar amount, and if such value is not a fixed
dollar amount, the price per share shall be the average closing market
price of the registrant's securities over the first five business days
following the first public announcement of the transaction. Compute the
dollar value of in-the-money option awards for which vesting would be
accelerated by determining the difference between this price and the
exercise or base price of the options. Include only compensation that
is based on or otherwise relates to the subject transaction. Apply
Instruction 1 to Item 402(t) with respect to those executive officers
for whom disclosure was required in the issuer's most recent filing
with the Commission

[[Page 6044]]

under the Securities Act (15 U.S.C. 77a et seq.) or Exchange Act (15
U.S.C. 78a et seq.) that required disclosure pursuant to Item 402(c).
2. If this disclosure is included in a proxy solicitation for the
annual meeting at which directors are elected for purposes of
subjecting the disclosed agreements or understandings to a shareholder
vote under section 14A(a)(1) of the Exchange Act (15 U.S.C. 78n-
1(a)(1)), the disclosure provided by this table shall be quantified
assuming that the triggering event took place on the last business day
of the registrant's last completed fiscal year, and the price per share
of the registrant's securities is the closing market price as of that
date. Compute the dollar value of in-the-money option awards for which
vesting would be accelerated by determining the difference between this
price and the exercise or base price of the options.
3. In the event that uncertainties exist as to the provision of
payments and benefits or the amounts involved, the registrant is
required to make a reasonable estimate applicable to the payment or
benefit and disclose material assumptions underlying such estimates in
its disclosure. In such event, the disclosure would require forward-
looking information as appropriate.
4. For each of columns (b) through (g), include a footnote
quantifying each separate form of compensation included in the
aggregate total reported. Include the value of all perquisites and
other personal benefits or property. Individual perquisites and
personal benefits shall be identified and quantified as required by
Instruction 4 to Item 402(c)(2)(ix) of this section. For purposes of
quantifying health care benefits, the registrant must use the
assumptions used for financial reporting purposes under generally
accepted accounting principles.
5. For each of columns (b) through (h), include a footnote
quantifying the amount payable attributable to a double-trigger
arrangement (i.e., amounts triggered by a change-in-control for which
payment is conditioned upon the executive officer's termination without
cause or resignation for good reason within a limited time period
following the change-in-control), specifying the time-frame in which
such termination or resignation must occur in order for the amount to
become payable, and the amount payable attributable to a single-trigger
arrangement (i.e., amounts triggered by a change-in-control for which
payment is not conditioned upon such a termination or resignation of
the executive officer).
6. A registrant conducting a shareholder advisory vote pursuant to
Sec. 240.14a-21(c) of this chapter to cover new arrangements and
understandings, and/or revised terms of agreements and understandings
that were previously subject to a shareholder advisory vote pursuant to
Sec. 240.14a-21(a) of this chapter, shall provide two separate tables.
One table shall disclose all golden parachute compensation, including
both the arrangements and amounts previously disclosed and subject to a
shareholder advisory vote under section 14A(a)(1) of the Exchange Act
(15 U.S.C. 78n-1(a)(1)) and Sec. 240.14a-21(a) of this chapter and the
new arrangements and understandings and/or revised terms of agreements
and understandings that were previously subject to a shareholder
advisory vote. The second table shall disclose only the new
arrangements and/or revised terms subject to the separate shareholder
vote under section 14A(b)(2) of the Exchange Act and Sec. 240.14a-
21(c) of this chapter.
7. In cases where this Item 402(t)(2) requires disclosure of
arrangements between an acquiring company and the named executive
officers of the soliciting target company, the registrant shall clarify
whether these agreements are included in the separate shareholder
advisory vote pursuant to Sec. 240.14a-21(c) of this chapter by
providing a separate table of all agreements and understandings subject
to the shareholder advisory vote required by section 14A(b)(2) of the
Exchange Act (15 U.S.C. 78n-1(b)(2)) and Sec. 240.14a-21(c) of this
chapter, if different from the full scope of golden parachute
compensation subject to Item 402(t) disclosure.
(3) Provide a succinct narrative description of any material
factors necessary to an understanding of each such contract, agreement,
plan or arrangement and the payments quantified in the tabular
disclosure required by this paragraph. Such factors shall include, but
not be limited to a description of:
(i) The specific circumstances that would trigger payment(s);
(ii) Whether the payments would or could be lump sum, or annual,
disclosing the duration, and by whom they would be provided; and
(iii) Any material conditions or obligations applicable to the
receipt of payment or benefits, including but not limited to non-
compete, non-solicitation, non-disparagement or confidentiality
agreements, including the duration of such agreements and provisions
regarding waiver or breach of such agreements.

Instructions to Item 402(t).

1. A registrant that does not qualify as a ``smaller reporting
company,'' as defined by Sec. 229.10(f)(1) of this chapter, must
provide the information required by this Item 402(t) with respect to
the individuals covered by Items 402(a)(3)(i), (ii) and (iii) of this
section. A registrant that qualifies as a ``smaller reporting
company,'' as defined by Sec. 229.10(f)(1) of this chapter, must
provide the information required by this Item 402(t) with respect to
the individuals covered by Items 402(m)(2)(i) and (ii) of this section.
2. The obligation to provide the information in this Item 402(t)
shall not apply to agreements and understandings described in paragraph
(t)(1) of this section with senior management of foreign private
issuers, as defined in Sec. 240.3b-4 of this chapter.

0
3. Amend Sec. 229.1011 by redesignating paragraph (b) as paragraph (c)
and adding new paragraph (b) to read as follows:

Sec. 229.1011 (Item 1011) Additional information.

* * * * *
(b) Furnish the information required by Item 402(t)(2) and (3) of
this part (Sec. 229.402(t)(2) and (3)) and in the tabular format set
forth in Item 402(t)(1) of this part (Sec. 229.402(t)(1)) with respect
to each named executive officer
(1) Of the subject company in a Rule 13e-3 transaction; or
(2) Of the issuer whose securities are the subject of a third-party
tender offer, regarding any agreement or understanding, whether written
or unwritten, between such named executive officer and the subject
company, issuer, bidder, or the acquiring company, as applicable,
concerning any type of compensation, whether present, deferred or
contingent, that is based upon or otherwise relates to the Rule 13e-3
transaction or third-party tender offer.

Instructions to Item 1011(b).

1. The obligation to provide the information in paragraph (b) of
this section shall not apply where the issuer whose securities are the
subject of the Rule 13e-3 transaction or tender offer is a foreign
private issuer, as defined in Sec. 240.3b-4 of this chapter.
2. For purposes of Instruction 1 to Item 402(t)(2) of this part: If
the disclosure is included in a Schedule 13E-3 (Sec. 240.13e-100 of
this chapter) or Schedule 14D-9 (Sec. 240.14d-101 of this chapter),
the disclosure provided by this table shall be quantified assuming that
the triggering event took place on the latest practicable date and that
the price per share of the securities of the subject

[[Page 6045]]

company in a Rule 13e-3 transaction, or of the issuer whose securities
are the subject of the third-party tender offer, shall be determined as
follows: If the shareholders are to receive a fixed dollar amount, the
price per share shall be that fixed dollar amount, and if such value is
not a fixed dollar amount, the price per share shall be the average
closing market price of such securities over the first five business
days following the first public announcement of the transaction.
Compute the dollar value of in-the-money option awards for which
vesting would be accelerated by determining the difference between this
price and the exercise or base price of the options. Include only
compensation that is based on or otherwise relates to the subject
transaction. Apply Instruction 1 to Item 402(t) with respect to those
executive officers for whom disclosure was required in the most recent
filing by the subject company in a Rule 13e-3 transaction or by the
issuer whose securities are the subject of a third-party tender offer,
with the Commission under the Securities Act (15 U.S.C. 77a et seq.) or
Exchange Act (15 U.S.C. 78a et seq.) that required disclosure pursuant
to Item 402(c).
* * * * *

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934

0
4. The general authority citation for part 240 is revised to read as
follows:

Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i,
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 78p, 78q,
78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37,
80b-3, 80b-4, 80b-11, and 7201 et seq., 18 U.S.C. 1350, and 12
U.S.C. 5221(e)(3), unless otherwise noted.
* * * * *

0
5. Amend Sec. 240.13e-100 by revising Item 15 to read as follows:
* * * * *

Sec. 240.13e-100 Schedule 13E-3, Transaction statement under section
13(e) of the Securities Exchange Act of 1934 and Rule 13e-3 (Sec.
240.13e-3) thereunder.

* * * * *

Item 15. Additional Information

Furnish the information required by Item 1011(b) and (c) of
Regulation M-A (Sec. 229.1011(b) and (c) of this chapter).
* * * * *

0
6. Amend Sec. 240.14a-4 by:
0
a. Adding the phrase ``and votes to determine the frequency of
shareholder votes on executive compensation pursuant to Sec. 240.14a-
21(b) of this chapter'' at the end of the first sentence of paragraph
(b)(1);
0
b. Adding paragraph (b)(3).
The addition reads as follows:

Sec. 240.14a-4 Requirements as to proxy.

* * * * *
(b) * * *
(3) A form of proxy which provides for a shareholder vote on the
frequency of shareholder votes to approve the compensation of
executives required by section 14A(a)(2) of the Securities Exchange Act
of 1934 (15 U.S.C. 78n-1(a)(2)) shall provide means whereby the person
solicited is afforded an opportunity to specify by boxes a choice among
1, 2 or 3 years, or abstain.
* * * * *

0
7. Amend Sec. 240.14a-6 by:
0
a. Revising paragraph (a)(7); and
0
b. Adding the phrase ``to paragraph (a)'' following the words ``Note
1'', ``Note 2'', ``Note 3'' and ``Note 4''.
The revision reads as follows:

Sec. 240.14a-6 Filing requirements.

(a) * * *
(7) A vote to approve the compensation of executives as required
pursuant to section 14A(a)(1) of the Securities Exchange Act of 1934
(15 U.S.C. 78n-1(a)(1)) and Sec. 240.14a-21(a) of this chapter, or
pursuant to section 111(e)(1) of the Emergency Economic Stabilization
Act of 2008 (12 U.S.C. 5221(e)(1)) and Sec. 240.14a-20 of this
chapter, a vote to determine the frequency of shareholder votes to
approve the compensation of executives as required pursuant to Section
14A(a)(2) of the Securities Exchange Act of 1934 (15 U.S.C. 78n-
1(a)(2)) and Sec. 240.14a-21(b) of this chapter, or any other
shareholder advisory vote on executive compensation.
* * * * *

0
8. Amend Sec. 240.14a-8 by adding Note to paragraph (i)(10) to read as
follows:

Sec. 240.14a-8 Shareholder proposals.

* * * * *
(i) * * *
(10) * * *

Note to paragraph (i)(10): A company may exclude a shareholder
proposal that would provide an advisory vote or seek future advisory
votes to approve the compensation of executives as disclosed
pursuant to Item 402 of Regulation S-K (Sec. 229.402 of this
chapter) or any successor to Item 402 (a ``say-on-pay vote'') or
that relates to the frequency of say-on-pay votes, provided that in
the most recent shareholder vote required by Sec. 240.14a-21(b) of
this chapter a single year (i.e., one, two, or three years) received
approval of a majority of votes cast on the matter and the company
has adopted a policy on the frequency of say-on-pay votes that is
consistent with the choice of the majority of votes cast in the most
recent shareholder vote required by Sec. 240.14a-21(b) of this
chapter.

* * * * *

0
9. Add Sec. 240.14a-21 to read as follows:

Sec. 240.14a-21 Shareholder approval of executive compensation,
frequency of votes for approval of executive compensation and
shareholder approval of golden parachute compensation.

(a) If a solicitation is made by a registrant and the solicitation
relates to an annual or other meeting of shareholders at which
directors will be elected and for which the rules of the Commission
require executive compensation disclosure pursuant to Item 402 of
Regulation S-K (Sec. 229.402 of this chapter), the registrant shall,
for the first annual or other meeting of shareholders on or after
January 21, 2011, or for the first annual or other meeting of
shareholders on or after January 21, 2013 if the registrant is a
smaller reporting company, and thereafter no later than the annual or
other meeting of shareholders held in the third calendar year after the
immediately preceding vote under this subsection, include a separate
resolution subject to shareholder advisory vote to approve the
compensation of its named executive officers, as disclosed pursuant to
Item 402 of Regulation S-K.

Instruction to paragraph (a):
The registrant's resolution shall indicate that the shareholder
advisory vote under this subsection is to approve the compensation of
the registrant's named executive officers as disclosed pursuant to Item
402 of Regulation S-K (Sec. 229.402 of this chapter). The following is
a non-exclusive example of a resolution that would satisfy the
requirements of this subsection: ``RESOLVED, that the compensation paid
to the company's named executive officers, as disclosed pursuant to
Item 402 of Regulation S-K, including the Compensation Discussion and
Analysis, compensation tables and narrative discussion is hereby
APPROVED.''
(b) If a solicitation is made by a registrant and the solicitation
relates to an annual or other meeting of shareholders at which
directors will be elected and for which the rules of the Commission
require executive compensation disclosure pursuant to Item 402 of
Regulation S-K (Sec. 229.402 of this chapter), the registrant shall,
for the first annual or other meeting of shareholders on or after
January 21, 2011, or for the first annual or other

[[Page 6046]]

meeting of shareholders on or after January 21, 2013 if the registrant
is a smaller reporting company, and thereafter no later than the annual
or other meeting of shareholders held in the sixth calendar year after
the immediately preceding vote under this subsection, include a
separate resolution subject to shareholder advisory vote as to whether
the shareholder vote required by paragraph (a) of this section should
occur every 1, 2 or 3 years. Registrants required to provide a separate
shareholder vote pursuant to Sec. 240.14a-20 of this chapter shall
include the separate resolution required by this section for the first
annual or other meeting of shareholders after the registrant has repaid
all obligations arising from financial assistance provided under the
TARP, as defined in section 3(8) of the Emergency Economic
Stabilization Act of 2008 (12 U.S.C. 5202(8)), and thereafter no later
than the annual or other meeting of shareholders held in the sixth
calendar year after the immediately preceding vote under this
subsection.
(c) If a solicitation is made by a registrant for a meeting of
shareholders at which shareholders are asked to approve an acquisition,
merger, consolidation or proposed sale or other disposition of all or
substantially all the assets of the registrant, the registrant shall
include a separate resolution subject to shareholder advisory vote to
approve any agreements or understandings and compensation disclosed
pursuant to Item 402(t) of Regulation S-K (Sec. 229.402(t) of this
chapter), unless such agreements or understandings have been subject to
a shareholder advisory vote under paragraph (a) of this section.
Consistent with section 14A(b) of the Exchange Act (15 U.S.C. 78n-
1(b)), any agreements or understandings between an acquiring company
and the named executive officers of the registrant, where the
registrant is not the acquiring company, are not required to be subject
to the separate shareholder advisory vote under this paragraph.

Instructions to Sec. 240.14a-21:

1. Disclosure relating to the compensation of directors required by
Item 402(k) (Sec. 229.402(k) of this chapter) and Item 402(r) of
Regulation S-K (Sec. 229.402(r) of this chapter) is not subject to the
shareholder vote required by paragraph (a) of this section. If a
registrant includes disclosure pursuant to Item 402(s) of Regulation S-
K (Sec. 229.402(s) of this chapter) about the registrant's
compensation policies and practices as they relate to risk management
and risk-taking incentives, these policies and practices would not be
subject to the shareholder vote required by paragraph (a) of this
section. To the extent that risk considerations are a material aspect
of the registrant's compensation policies or decisions for named
executive officers, the registrant is required to discuss them as part
of its Compensation Discussion and Analysis under Sec. 229.402(b) of
this chapter, and therefore such disclosure would be considered by
shareholders when voting on executive compensation.
2. If a registrant includes disclosure of golden parachute
compensation arrangements pursuant to Item 402(t) (Sec. 229.402(t) of
this chapter) in an annual meeting proxy statement, such disclosure
would be subject to the shareholder advisory vote required by paragraph
(a) of this section.
3. Registrants that are smaller reporting companies entitled to
provide scaled disclosure in accordance with Item 402(l) of Regulation
S-K (Sec. 229.402(l) of this chapter) are not required to include a
Compensation Discussion and Analysis in their proxy statements in order
to comply with this section. For smaller reporting companies, the vote
required by paragraph (a) of this section must be to approve the
compensation of the named executive officers as disclosed pursuant to
Item 402(m) through (q) of Regulation S-K (Sec. 229.402(m) through (q)
of this chapter).

0
10. Amend Sec. 240.14a-101 by:
0
a. Removing the dash that appears before paragraph (a) of Item 5 and
adding in its place an open parenthesis;
0
b. Adding paragraph (a)(5) of Item 5;
0
c. Adding the phrase ``to paragraph (a)'' following the word
``Instruction'' that follows new paragraph (a)(5) of Item 5;
0
d. Adding paragraph (b)(3) of Item 5;
0
e. Adding the phrase ``to paragraph (b)'' following the word
``Instruction'' that follows new paragraph (b)(3) of Item 5;
0
f. Adding Item 24.
The additions read as follows:

Sec. 240.14a-101 Schedule 14A. Information required in proxy
statement.

SCHEDULE 14A. INFORMATION

* * * * *
Item 5. Interest of Certain Persons in Matters to Be Acted Upon.
(a) * * *
(5) If the solicitation is made on behalf of the registrant,
furnish the information required by Item 402(t) of Regulation S-K
(Sec. 229.402(t) of this chapter).
* * * * *
(b) * * *
(3) If the solicitation is made on behalf of the registrant,
furnish the information required by Item 402(t) of Regulation S-K
(Sec. 229.402(t) of this chapter).
* * * * *
Item 24. Shareholder Approval of Executive Compensation.
Registrants required to provide any of the separate shareholder votes
pursuant to Sec. 240.14a-21 of this chapter shall disclose that they
are providing each such vote as required pursuant to section 14A of the
Securities Exchange Act (15 U.S.C. 78n-1), briefly explain the general
effect of each vote, such as whether each such vote is non-binding,
and, when applicable, disclose the current frequency of shareholder
advisory votes on executive compensation required by Rule 14a-21(a) and
when the next such shareholder advisory vote will occur.
0
11. Amend Sec. 240.14c-101 by adding paragraph (c) of Item 3 to read
as follows:

Sec. 240.14c-101 Schedule 14C. Information required in information
statement.

SCHEDULE 14C. INFORMATION

* * * * *
Item 3. * * *
(c) Furnish the information required by Item 402(t) of Regulation
S-K (Sec. 229.402(t) of this chapter).
* * * * *

0
12. Amend Sec. 240.14d-100 by revising Item 11 to read as follows:

Sec. 240.14d-100 Tender offer statement pursuant to section 14(d)(1)
of the Securities Exchange Act of 1934.

* * * * *
Item 11. Additional Information.
Furnish the information required by Item 1011(a) and (c) of
Regulation M-A (Sec. 229.1011 of this chapter).
* * * * *

0
13. Amend Sec. 240.14d-101 by amending Item 8 to add the words ``and
(c)'' after ``Item 1011(b)''.

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

0
14. The general authority citation for part 249 continues to read as
follows:

Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; and 18 U.S.C.
1350, unless otherwise noted.
* * * * *

0
15. Amend Form 8-K (referenced in Sec. 249.308), Item 5.07, by
revising paragraph (b), adding paragraph (d), and revising Instruction
1 to read as follows:

Note: The text of Form 8-K does not, and this amendment will
not, appear in the Code of Federal Regulations.

[[Page 6047]]

Form 8-K

* * * * *
Item 5.07. Submission of Matters to a Vote of Security Holders
* * * * *
(b) If the meeting involved the election of directors, the name of
each director elected at the meeting, as well as a brief description of
each other matter voted upon at the meeting; and state the number of
votes cast for, against or withheld, as well as the number of
abstentions and broker non-votes as to each such matter, including a
separate tabulation with respect to each nominee for office. For the
vote on the frequency of shareholder advisory votes on executive
compensation required by section 14A(a)(2) of the Securities Exchange
Act of 1934 (15 U.S.C. 78n-1) and Sec. 240.14a-21(b), state the number
of votes cast for each of 1 year, 2 years, and 3 years, as well as the
number of abstentions.
* * * * *
(d) 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
as required by section 14A(a)(2) of the Securities Exchange Act of 1934
(15 U.S.C. 78n-1), but in no event later than sixty calendar days prior
to the deadline for submission of shareholder proposals under Sec.
240.14a-8, as disclosed in the registrant's most recent proxy statement
for an annual or other meeting of shareholders relating to the election
of directors at which shareholders voted on the frequency of
shareholder votes on the compensation of executives as required by
section 14A(a)(2) of the Securities Exchange Act of 1934 (15 U.S.C.
78n-1(a)(2)), by amendment to the most recent Form 8-K filed pursuant
to (b) of this Item, 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.
* * * * *
Instruction 1 to Item 5.07. The four business day period for
reporting the event under this Item 5.07, other than with respect to
Item 5.07(d), shall begin to run on the day on which the meeting ended.
* * *
* * * * *

By the Commission.

Dated: January 25, 2011.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-1971 Filed 2-1-11; 8:45 am]
BILLING CODE 8011-01-P