New CDIs from the SEC Regarding Say on Pay, Say on Frequency and Golden Parachutes

By Cydney Posner

Some new CDIs from the SEC regarding say on pay, say on frequency and golden parachutes:

Exchange Act Rules

Rule 14a-21

• According to the SEC release, an issuer that is a smaller reporting company as of January 21, 2011 is entitled to rely on the delayed phase-in period for smaller reporting companies. Based on its $30 million public float as of the last business day of the second quarter in 2010, an issuer with a December 31 fiscal year end is permitted to begin filing reports as a smaller reporting company with its Form 10-Q for the second quarter in 2010. The issuer has decided not to early adopt and instead has opted to continue complying with the reporting requirements for larger companies until its Form 10-Q for the first quarter in 2011 and, therefore, will not check the "Smaller Reporting Company" box on the cover of any periodic report until that Form 10-Q. In this example, on January 1, 2011, the issuer is a smaller reporting company and is entitled to rely on the delayed phase-in period for smaller reporting companies for compliance with Rule 14a-21, even though it has not indicated its status as a smaller reporting company by checking the "Smaller Reporting Company" box on a periodic report before January 21, 2011.
• Based on its $100 million public float as of the last business day of the second quarter in 2010, an issuer with a December 31 fiscal year end will be required to report under non-smaller reporting company disclosure provisions beginning with the Form 10-Q for the first quarter in 2011 (and will not be permitted to check the "Smaller Reporting Company" box on the cover of its Form 10-Q for the first quarter of 2011). This issuer does not qualify as a smaller reporting company as of January 21, 2011, which would have allowed it to rely on the delayed phase-in period for smaller reporting companies for compliance with Rule 14a-21. If an issuer with a December 31 fiscal year end is no longer eligible to be a smaller reporting company, it loses that status on the first day of 2011, even though it is permitted to file its Form 10-K for 2010 in 2011 as a smaller reporting company. Accordingly, in this example, on January 1, 2011, the issuer is no longer a smaller reporting company, even though it can check the "Smaller Reporting Company" box on the cover of its Form 10-K for fiscal year 2010.
• Based on its $100 million public float as of September 30, 2010, which is the last business day of its second fiscal quarter in 2010, an issuer with a March 31 fiscal year end that has been reporting as a smaller reporting company will be required to report under non-smaller reporting company disclosure provisions beginning with the Form 10-Q for its first fiscal quarter in 2011, which begins on April 1, 2011. This issuer would continue to qualify as a smaller reporting company until April 1, 2011 (the first day of its next fiscal year) and, as of January 21, 2011, would be a smaller reporting company eligible for the delayed phase-in period.
• The say-on-frequency vote proposal, as required by Rule 14a-21(b), does not need to be in the form of a "resolution."
• The say-on-pay proposal may omit the words, "pursuant to Item 402 of Regulation S-K," and may replace them with a plain English equivalent, such as "pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the compensation discussion and analysis, the compensation tables and any related material disclosed in this proxy statement."
• The say-on-frequency proposal may use the words "every year, every other year, or every three years, or abstain" in lieu of "every 1, 2, or 3 years, or abstain."

Regulation S-K

Item 402(t) Golden Parachute Compensation

• Instruction 1 to Item 402(t) specifies that Item 402(t) information must be provided for the individuals covered by Items 402(a)(3)(i), (ii) and (iii) of Reg S-K. Instruction 1 to Item 402(t)(2) provides that Item 402(t) disclosure will be required for those executive officers who were included in the most recently filed Summary Compensation Table. However, this latter Instruction applies only to the three most highly compensated executive officers (under Item 402(a)(3)(iii)), not the principal executive officer and the principal financial officer (covered by Items 402(a)(3)(i) and (ii)). The PEO and PFO are, per se, NEOs, regardless of compensation level. Consequently, Instruction 1 to Item 402(t)(2) is not instructive as to whether the PEO or PFO is an NEO. This position also applies to Instruction 2 to Item 1011(b), which is the corresponding instruction in Reg M-A. Therefore, if a company files its annual meeting proxy statement in March 2011 (including the 2010 SCT), hires a new PEO in May 2011 and prepares a merger proxy in September 2011, the company may not rely on Instruction 1 to exclude the new PEO from the merger proxy's say-on-parachute vote and Item 402(t) disclosure.