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January 26, 2011
SEC Adopts Rules Concerning Executive Compensation

The Securities and Exchange Commission (SEC) has adopted rules concerning shareholder approval of executive compensation and "golden parachute" compensation arrangements. The provisions are part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

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The SEC's new rules apply to public companies, but provide a two-year deferral for small companies. Under the provisions, say-on-pay votes must occur at least once every three years beginning with the first annual shareholders' meeting taking place on or after Jan. 21, 2011.

The votes are nonbinding. However, while companies do not have act in the shareholders’ favor, the disclosure of executive pay is supposed to improve the relationship between chief executives and shareholders. Companies will also be required to disclose annual reports about how the firm has responded to the results of the vote.

The SEC's new rules also require companies to provide additional disclosure regarding "golden parachute" compensation arrangements with certain executive officers in connection with merger transactions.

The SEC also adopted a temporary exemption for smaller reporting companies (public float of less than $75 million). Companies who fall into this category are not required to conduct say-on-pay and frequency votes for another two years.

"The Dodd-Frank Act authorizes the Commission to exempt an issuer or class of issuers, but only after considering a number of factors including whether this disproportionate burden exists. The two-year deferral period is designed to assist the Commission in its consideration of these factors and will enable us to adjust the rule if appropriate before it applies to smaller issuers," said SEC Chairman Mary L. Schapiro.

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