The NASPP Blog

The Restoring American Financial Stability Act of 2010, passed by U.S. Senate on May 20th, contains provisions that apply to all public companies. Fortunately, you won’t need to read the daunting almost 1500 pages of the bill to weed out the pieces that could impact stock plan managers because we’ve posted the corporate governance and executive compensation portions, courtesy of Davis Polk. Here are the main sections that I think you should be aware of.

Say on Pay and Majority Voting

This bill, like the corresponding House bill, does include a required non-binding shareholder vote to approve executive compensation. Unlike the House bill, this legislation does not require a shareholder advisory vote on golden parachute payments. This provision would take effect six months after enactment of the bill. This does mean that say on pay for all public companies is eminent. Additionally, there is a provision that requires majority voting by shareholders in uncontested board elections that would require any board member who does not receive a majority vote to submit his or her resignation.

These two provisions mean that companies will need to prepare for the voting process, but also get a game plan together on how to address the possibility that shareholders will reject either uncontested board members or executive compensation. In both scenarios, the company can still choose to do what it wants–the executive compensation vote is non-binding and the board can reject a resignation letter. On that note, the CorporateCounsel.net blog this week covers three companies that are already grappling with how to respond to a shareholder rejection of executive pay packages; Motorola, Occidental Petroleum, and KeyCorp. I’ll definitely be tracking this blog to see how say on pay pans out! If you’re looking for more help with executive compensation, don’t forget that the 7th Annual Executive Compensation Conference is included with your 18th Annual NASPP Conference Registration.

Proxy Disclosures

Although this version of the bill does not require the chairman of the board and the CEO to be separate individuals, it does require companies to disclose the reasons they have chosen to keep these positions separate or combine them. In addition, there are a host of required disclosures regarding the company’s compensation committee and executive compensation. This includes a discussion of the relationship between executive compensation and financial performance as well as how the amount of executive compensation compares to the company’s financial performance or investor-return.

Clawbacks

The bill requires the SEC to direct exchanges to prohibit the listing of any company that does not adopt certain clawback policies. This provision is not included in the House bill. Stock plan managers should pay particular attention to this part of the bill. If it is enacted, you will need to work with your legal team to determine if your grant agreements need to be updated and nail down a policy on how to respond to financial restatements that trigger compensation recovery.

Get Smart

As you know, we’ve rolled out our NASPP Question of the Week. I’m really excited about this new challenge for NASPP members! What you may not know is that if you missed out on our first announcement, you still have the unique and never-to-come-again opportunity to catch up. The first four quiz questions will remain available at the full point value until the second month of our contest. So, don’t feel like you’re starting at a disadvantage–you can still work toward that number one position. Create your screen name and get started now!

-Rachel