On January 25, 2011, the Securities and Exchange Commission (the “SEC”) adopted final rules implementing the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) relating to shareholder approval of executive compensation and “golden parachute” compensation by public companies (the “Final Rules”).

The Final Rules contain minor modifications to the proposed rules, which were issued by the SEC on October 18, 2010 (the “Proposed Rules”). The Final Rules provide for a shareholder advisory vote to approve named executive officer compensation, as disclosed pursuant to Item 402 of Regulation S-K (the “say-on-pay vote”), as well as a shareholder advisory vote addressing how often a public company should conduct say-on-pay votes (the “frequency vote”). In addition, the Final Rules require public companies soliciting votes to approve a merger or similar acquisition transaction to provide golden parachute disclosure and to conduct a separate advisory vote to approve golden parachute compensation arrangements (the “golden parachute vote”).

SHAREHOLDER ADVISORY VOTE ON EXECUTIVE COMPENSATION (SAY-ON-PAY)

In connection with its first annual meeting of shareholders occurring on or after January 21, 2011, a public company must include a nonbinding vote in its proxy statement to approve the compensation of its named executive officers, as disclosed pursuant to Item 402 of Regulation S-K. In the Final Rules, the SEC clarified that the say-onpay vote is required at least once every three calendar years. The SEC tweaked its proposed language in response to concerns that the three-year period might be measured from the date of the first annual meeting and, if the annual meeting in year three were later in the year, a company might be forced to have a vote before the third annual meeting to fit within the prescribed period.

Although the Final Rules do not require companies to use specific language for the say-on-pay vote, the SEC added to the proxy instructions the following, non-exclusive example of a say-on-pay vote:

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.

The SEC also clarified that a company’s Compensation Discussion and Analysis (“CD&A”) in future proxy statements should discuss whether and, if so, how, a company considered the results of the most recent say-on-pay vote in determining compensation policies and decisions. Although a discussion of say-on-pay votes from earlier years is not mandated under the Final Rules, such a discussion would be required in CD&A to the extent material to an investor’s understanding of current compensation.

SHAREHOLDER ADVISORY VOTE ON THE FREQUENCY OF SAY-ON-PAY VOTES

The Final Rules also provide that, for the first annual meeting of shareholders occurring on or after January 21, 2011, a public company must include a nonbinding vote in its proxy statement seeking shareholder advice on whether the say-onpay vote should occur every one, two or three years. The frequency vote must be put before the shareholders at least once during the six calendar years following the prior frequency vote.

With the frequency vote, shareholders must be given the option to choose one, two or three years or to abstain. Although the SEC expects companies to make a frequency recommendation, the shareholders will not be voting “for” or “against” the board’s recommendation but will be selecting the actual number of years (or abstaining). In the Final Rules, the SEC noted that companies may vote uninstructed proxy cards in accordance with management’s frequency recommendation only if the company includes a frequency recommendation in its proxy statement, permits abstentions on the proxy card, and includes bold language on the proxy card regarding how uninstructed shares will be voted.

In future proxy statements, companies will need to disclose the “current” frequency of say-on-pay votes and when the next scheduled say-on-pay vote will occur.

DISCLOSURE ON FORM 8-K OF THE COMPANY’S DECISION ON THE FREQUENCY OF SAY-ON-PAY VOTES

Under the Final Rules, each public company must disclose how often it will hold a say-on-pay vote in light of the most recent shareholder frequency vote. The SEC initially proposed that such disclosure would be in the Form 10-Q (or Form 10-K for a fourth-quarter meeting) for the period in which the meeting addressing the shareholder frequency vote occurred. In the Final Rules, however, the SEC moved the disclosure to Item 5.07 of Form 8-K, which currently requires issuers to disclose annual meeting voting results within four business days of the meeting. However, the SEC believes issuers should have enough time to assess the shareholder frequency vote and adopted rules requiring issuers to file an amendment to the Item 5.07 Form 8-K no later than 150 calendar days after the meeting, but in no event later than 60 calendar days prior to the deadline for submission of Rule 14a-8 shareholder proposals for the next year’s annual meeting. Thus, each issuer should amend its 2011 annual meeting timetable to provide for an 8-K/A filing as well as discussions by the board and compensation committee of the final frequency decision.

EXCLUDING RULE 14A-8 SHAREHOLDER PROPOSALS ON SAY-ON-PAY

The SEC initially proposed, and largely adopted, a rule allowing issuers to exclude under certain circumstances Rule 14a-8 shareholder proposals relating to say-on-pay, future say-on-pay or the frequency of say-on-pay votes. Under the initial proposal, an issuer could exclude such shareholder proposals if it adopted a policy on the frequency of say-on-pay votes that was consistent with the plurality of votes cast in the most recent frequency vote. However, commentators noted that a plurality may not necessarily reflect the true sentiment of shareholders. If a plurality (e.g., 40%) chooses a frequency of every third year, but 60% choose either every year or every other year, is the 40% really representative of shareholder sentiment? Thus, in the Final Rules, issuers will be permitted to exclude shareholder proposals relating to say-on-pay only if, in the most recent frequency vote, a single frequency (i.e., one, two or three years) received the support of a majority of the votes cast1 and the issuer has adopted a frequency policy consistent with that vote.

DISCLOSURE AND VOTE ON GOLDEN PARACHUTE COMPENSATION

The SEC also adopted rules requiring public companies, in connection with proxy or consent solicitations that relate to an acquisition, merger or similar transaction, to disclose golden parachute compensation arrangements.2 These include any agreements or understandings with any named executive officers3 of the company (or of the acquiring company) concerning any type of compensation (whether present, deferred or contingent) that is based on or otherwise relates to the acquisition, merger or similar transaction. The proxy statement must disclose such arrangements and the aggregate total of all compensation that may (and the conditions upon which it may) be paid or become payable to or on behalf of such executive officer.

The required golden parachute disclosure, which is in tabular and narrative form, is contained in Item 402(t) of Regulation S-K. The SEC adopted the tabular disclosure substantially as proposed but, under the Final Rules, is permitting issuers to add additional named executive officers and additional columns and rows, such as to distinguish “singletrigger” and “double-trigger” arrangements, so long as the disclosure is not misleading. The Item 402(t) disclosure, which is fairly detailed, is not required in annual meeting proxy statements.

Merger proxy statements must contain not only the golden parachute disclosure but a nonbinding vote on the golden parachute compensation.4 If an issuer’s shareholders previously approved the golden parachute compensation by a say-on-pay vote, the shareholders would not need to reapprove the compensation in connection with the merger transaction. However, any new arrangements or understandings or revised terms that were not subject to a prior say-on-pay vote must be approved in connection with the merger transaction.5 Moreover, the issuer must present two golden parachute tables: one disclosing all golden parachute compensation, including the compensation previously subject to a say-on-pay vote, and a second table disclosing only the new arrangements and revised terms that are subject to a vote in connection with the merger. Given the strong potential that some form of shareholder advisory vote may be needed at the time of a merger, public companies may not gain much by approving golden parachute compensation as part of the annual meeting say-on-pay votes.

SMALLER REPORTING COMPANIES EXEMPT FROM SAYON-PAY AND FREQUENCY VOTES FOR TWO YEARS

In the Proposed Rules, the SEC did not propose any exemptions from “smaller reporting companies,” which are generally companies with public floats of less than $75 million. However, in response to comments and exercising its discretion under the Dodd-Frank Act, the SEC adopted rules that exempt smaller reporting companies as of January 21, 2011, as well as newly public companies that qualify as smaller reporting companies after January 21, 2011, from the say-on-pay and frequency votes until the first annual meeting occurring on or after January 21, 2013. However, due to the significance of mergers and comparable acquisition transactions, smaller reporting companies are not exempt from the golden parachute disclosure and vote requirements.

COMPLIANCE DATES

Under the Dodd-Frank Act, by Congressional mandate and regardless of the status of the SEC’s rulemaking, public companies must submit say-on-pay and frequency votes for the first annual meetings occurring on or after January 21, 2011. Although the Final Rules relating to say-on-pay and frequency votes do not take effect until April 4, 2011, the SEC has indicated it would not object if public companies omit to file preliminary proxy statements relating to say-on-pay and frequency votes (currently required under SEC rules but being eliminated under the Final Rules) prior to the effectiveness of the Final Rules. The SEC will also not object if smaller reporting companies omit say-on-pay and frequency votes from proxy statements filed before the Final Rules take effect.

Under the Dodd-Frank Act, the golden parachute rules do not automatically take effect but require an SEC rulemaking. In accordance with the Final Rules, public companies must begin complying with the golden parachute disclosure and vote requirements for initial preliminary proxy and information statements (or Schedules TO, 13E-3 and 14D-9 and Forms S-4 and F-4) filed on or after April 25, 2011.