Dodd-Frank Act
On July 15, 2010, the Dodd Frank Wall Street Reform and Consumer Protection Act was approved by the Senate and expected to be signed into law by President Obama. The Act provides for financial and regulatory reform.
The Act will impose executive compensation and corporate governance requirements on public companies and public and some private financial institutions. New powers for public company shareholders include:
• Nonbinding shareholder say-on-pay vote at least once every three years. The Act requires public companies with securities registered under the Securities Exchange Act of 1934 to give shareholders a "say-on-pay" by including a separate, non-binding proposal allowing shareholders to vote on the compensation of executive officers.
• Nonbinding shareholder vote on golden parachutes in change of control transactions, separate from a vote approving the transaction. The Act requires every proxy statement seeking a shareholder vote to approve an acquisition, merger, consolidation or proposed sale of assets to include any agreements with any named executive officer of the seller concerning compensation based on or relates to the transaction and the aggregate total compensation.
• Shareholder access to issuer proxy materials for nominating director candidates.
• Prohibition against broker voting of securities without instruction from the beneficial owner in election of directors.
New disclosure requirements for public companies include:
• Relationship of executive compensation to shareholder return in proxy materials. The Act requires the SEC to amend its disclosure rules for proxy statements to require a disclosure of the relationship between compensation actually paid to named executive officers and the financial performance of the issuer.
• Ratio of chief executive officer pay to the median compensation of other employees in securities filings such as prospectuses, annual reports, proxy statements. The Act requires the SEC to amend its regulations to require that any prospectus, proxy statement or annual report filed with the SEC include a disclosure of (a) median of the annual total compensation of all employees of the issuer (other than the chief executive officer), (b) annual total compensation of the chief executive officer, and (c) relationship between the foregoing amounts.
• Issuer's policy on separation of the roles of chairman and chief executive officer.
• Compensation consultants' conflicts of interest.
