Executive Compensation

 
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A Guide to Executive Compensation in the Dodd-Frank Act


Shareholder Votes


DFA requires US corporations to submit three exec comp matters to a shareholder vote. These votes will take place at shareholder meetings (annual and special) that take place on or after January 21, 2011.


Exec Comp Vote (Say-on-Pay)

Shareholders will vote on the compensation of the named executive officers (NEOs) of the company.


  1. ❖The NEOs are the top five executives, including the CEO and CFO, and the next three most highly-compensated employees. Corporations already disclose extensive compensation information for them.

  2. ❖The vote is advisory, and thus does not obligate the company to respond to the outcome of the vote in any way.

  3. ❖The vote will take place every one, two or three years, depending on the outcome of the say-on-frequency vote (below).

  4. ❖The “pay” or compensation on which shareholders vote includes all tabular compensation information, narrative explanations of this information, and the compensation disclosure and analysis (CD&A), which corporations disclose in the proxy materials for annual and special meetings.


Frequency of Exec Comp Vote (Say-on-Frequency)

Shareholders will vote on the frequency of the say-on-pay vote.


  1. ❖Shareholders will choose from among every one, two, or three years.

  2. ❖Shareholders vote at least every six years.

  3. ❖The vote is advisory, as with the say-on-pay vote.


Employee Severance Comp (Say-on-Parachutes)

Shareholders will vote on employee severance agreements of NEOs.


  1. ❖Applies to votes on various transactions, such as merger, acquisition, consolidation, or asset sale.

  2. ❖Corporation must disclose all severance-related comp agreements with NEOs, including present, deferred or contingent.

  3. ❖When shareholders vote on the transaction, they will vote separately on severance comp.

  4. ❖The vote is advisory, as with the say-on-pay vote.

  5. ❖If shareholders voted previously on severance comp, typically as part of the annual say-on-pay vote, the corporation need not submit severance comp to the separate vote with the vote on the transaction.


Investors obviously should research exec comp before voting. Click here for guidance about how to evaluate company executive compensation plans.