Litigation: What will courts say about “say-on-pay”?

Early court decisions concerning say-on-pay votes will be important as shareholders file more derivative suits.

Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act amended the Securities Exchange Act of 1934 by adding Section 14A, which requires public companies subject to proxy rules to provide shareholders with an advisory vote on executive compensation. Following the SEC’s adoption of these rules earlier this year, all publicly traded companies, except smaller reporting companies with a public float of less than $75 million, were required to hold say-on-pay votes at annual shareholder meetings held on or after January 21.

Pursuant to the Dodd-Frank Act and the rules adopted by the SEC, shareholders of publicly traded companies must be permitted to vote on non-binding resolutions regarding executive compensation for the company’s top executives, including the CEO and CFO. At least once every three years, shareholders are required to vote either yes or no on the entirety of the compensation packages as described in the proxy statement. 

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Matthew Ingber

Matthew Ingber is a litigation partner at Mayer Brown.

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