15 U.S.C. § 78n–1 — Shareholder approval of executive compensation

submitted 92 years ago by Pub. L. 111-203 to r/title-15-COMMERCE-AND-TRADE · 832 words · no verdicts yet

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Companies must let shareholders vote on executive pay at least every three years. Every six years, shareholders also vote on how often that pay vote should happen. In big mergers, companies must also let shareholders vote on golden parachute pay.

(a) Separate resolution required. (1) In general. At least once every 3 years, a company's proxy materials for a shareholder meeting must include a separate item shareholders can vote on. This vote approves the executive pay the company already had to disclose to the SEC. (2) Frequency of vote. At least once every 6 years, the proxy materials must also include a separate item asking shareholders how often they want the pay vote in (1) to happen — every 1, 2, or 3 years. (3) Effective date. For the first shareholder meeting after the six-month period starting July 21, 2010, the proxy must include both the pay-approval vote from (1) and the frequency vote from (2). (b) Shareholder approval of golden parachute compensation. (1) Disclosure. When shareholders are asked to approve a merger, acquisition, or sale of substantially all the company's assets, the proxy materials must clearly disclose any pay deals with named executives tied to that deal. This includes the total amount that could be paid and the conditions for paying it. (2) Shareholder approval. The proxy must also include a separate vote to approve those golden-parachute pay deals — unless they were already approved in a vote under (a). (c) Rule of construction. The votes required by (a) and (b) do not bind the company or its board. They cannot be read as overruling a board decision, creating or changing the board's fiduciary duties, or limiting shareholders' right to submit their own pay-related proposals for the proxy. (d) Disclosure of votes. Institutional investment managers covered by section 78m(f) must report at least once a year how they voted on the (a) and (b) votes, unless a Commission rule already requires public reporting of that vote. (e) Exemption. (1) In general. The Commission may exempt any issuer or class of issuers from the (a) or (b) requirements by rule or order. In deciding, the Commission must consider whether those requirements place an unfair burden on small companies. (2) Treatment of emerging growth companies. (A) In general. An emerging growth company is automatically exempt from (a) and (b). (B) Compliance after termination of emerging growth company treatment. Once a company stops being an emerging growth company, it must include its first (a)(1) pay-approval vote by a deadline: if it was an emerging growth company for less than 2 years after its first stock sale under an effective registration statement, it gets 3 years from that sale date; every other company gets 1 year from the date it stopped being an emerging growth company.

the actual law source: uscode.house.gov ↗public domain

(a) Separate resolution required

(1) In general

Not less frequently than once every 3 years, a proxy or consent or authorization for an annual or other meeting of the shareholders for which the proxy solicitation rules of the Commission require compensation disclosure shall include a separate resolution subject to shareholder vote to approve the compensation of executives, as disclosed pursuant to section 229.402 of title 17, Code of Federal Regulations, or any successor thereto.

(2) Frequency of vote

Not less frequently than once every 6 years, a proxy or consent or authorization for an annual or other meeting of the shareholders for which the proxy solicitation rules of the Commission require compensation disclosure shall include a separate resolution subject to shareholder vote to determine whether votes on the resolutions required under paragraph (1) will occur every 1, 2, or 3 years.

(3) Effective date

The proxy or consent or authorization for the first annual or other meeting of the shareholders occurring after the end of the 6-month period beginning on July 21, 2010, shall include—

(A)

the resolution described in paragraph (1); and

(B)

a separate resolution subject to shareholder vote to determine whether votes on the resolutions required under paragraph (1) will occur every 1, 2, or 3 years.

(b) Shareholder approval of golden parachute compensation

(1) Disclosure

In any proxy or consent solicitation material (the solicitation of which is subject to the rules of the Commission pursuant to subsection (a)) for a meeting of the shareholders occurring after the end of the 6-month period beginning on July 21, 2010, at which shareholders are asked to approve an acquisition, merger, consolidation, or proposed sale or other disposition of all or substantially all the assets of an issuer, the person making such solicitation shall disclose in the proxy or consent solicitation material, in a clear and simple form in accordance with regulations to be promulgated by the Commission, any agreements or understandings that such person has with any named executive officers of such issuer (or of the acquiring issuer, if such issuer is not the acquiring issuer) concerning any type of compensation (whether present, deferred, or contingent) that is based on or otherwise relates to the acquisition, merger, consolidation, sale, or other disposition of all or substantially all of the assets of the issuer and the aggregate total of all such compensation that may (and the conditions upon which it may) be paid or become payable to or on behalf of such executive officer.

(2) Shareholder approval

Any proxy or consent or authorization relating to the proxy or consent solicitation material containing the disclosure required by paragraph (1) shall include a separate resolution subject to shareholder vote to approve such agreements or understandings and compensation as disclosed, unless such agreements or understandings have been subject to a shareholder vote under subsection (a).

The shareholder vote referred to in subsections (a) and (b) shall not be binding on the issuer or the board of directors of an issuer, and may not be construed—

(1)

as overruling a decision by such issuer or board of directors;

(2)

to create or imply any change to the fiduciary duties of such issuer or board of directors;

(3)

to create or imply any additional fiduciary duties for such issuer or board of directors; or

(4)

to restrict or limit the ability of shareholders to make proposals for inclusion in proxy materials related to executive compensation.

(d) Disclosure of votes

Every institutional investment manager subject to section 78m(f) of this title shall report at least annually how it voted on any shareholder vote pursuant to subsections (a) and (b), unless such vote is otherwise required to be reported publicly by rule or regulation of the Commission.

(e) Exemption

(1) In general

The Commission may, by rule or order, exempt any other issuer or class of issuers from the requirement under subsection (a) or (b). In determining whether to make an exemption under this subsection, the Commission shall take into account, among other considerations, whether the requirements under subsections (a) and (b) disproportionately burdens 1 small issuers.

(2) Treatment of emerging growth companies

(A) In general

An emerging growth company shall be exempt from the requirements of subsections (a) and (b).

(B) Compliance after termination of emerging growth company treatment

An issuer that was an emerging growth company but is no longer an emerging growth company shall include the first separate resolution described under subsection (a)(1) not later than the end of—

(i)

in the case of an issuer that was an emerging growth company for less than 2 years after the date of first sale of common equity securities of the issuer pursuant to an effective registration statement under the Securities Act of 1933 [15 U.S.C. 77a et seq.], the 3-year period beginning on such date; and

(ii)

in the case of any other issuer, the 1-year period beginning on the date the issuer is no longer an emerging growth company.

Source credit: (June 6, 1934, ch. 404, title I, § 14A, as added Pub. L. 111–203, title IX, § 951, July 21, 2010, 124 Stat. 1899; amended Pub. L. 112–106, title I, § 102(a)(1), Apr. 5, 2012, 126 Stat. 308.)

history & why it existsrecord from the source credit

1934Enacted · Pub. L. 111-203 · 124 Stat. 1899
2012Amended · Pub. L. 112-106 · 126 Stat. 308

A history note hasn’t been published yet. The record shows enactment by Pub. L. 111-203 on 1934-06-06.

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