March 01, 2009
Say on Pay and the TARP
Posted by David Zaring

One corporate governance change that is being tested on the TARP money recipients is "say on pay," or nonbinding shareholder referenda on executive compensation.  The SEC has released a Q&A that suggests that say on pay resolutions will be mandatory for those who didn't file their preliminary proxy materials before February 18th:

Question: EESA Section 111(e)(1), as amended, states that the TARP recipient "shall permit a separate shareholder vote to approve the compensation of executives." Does this mean that the TARP recipient only needs to permit a shareholder vote if it receives a shareholder proposal on approving executive compensation?

Answer: No. The statute does not condition the requirement for a vote on the receipt of a shareholder proposal on approving executive compensation. Senator Dodd stated in his letter to Chairman Schapiro, "The law is intended to require a yearly vote by shareholders."

Says Corp Counsel: "Over 400 companies will now be doing "say-on-pay" this year!"  They think it's big, but though say on pay isn't really my area, corporate governance reform must be really difficult if nonbinding votes count as the cutting edge.  Still, maybe we have something of an experiment here; event studies await, I presume.

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