The Dodd-Frank Wall Street Reform and Consumer Protection Act, will have an impact on public companies.
The bill, if passed, calls for shareholder votes (PDF) on executive compensation. The “say-on-pay” provision of the bill may alter the annual proxy process. The bill calls for hareholder votes on executive pay to take place within six months of the bill’s enactment. The SEC will have to act quickly to implement the bill.
A “say-on-pay” rule already applies to recipients of government aid under the Troubled Asset Relief Program. The current bill extends it to all public companies; however, it does allow the SEC to exempt an issuer or class of issuers.
The bill also require public companies to:
- hold shareholder votes every three years on executive compensation
- consider increasing the frequency to annual or bi-annual votes every six years
Shareholders may make proposals, independent of management, on executive compensation practices. These proposals may be off-cycle; that is, they don’t have to fall within the three year and six year cycles noted above.
The bill also requires that compensation committee members be independent.
