Exemptions Proposed for Canadian and Other Foreign Private
The U.S. Securities and Exchange Commission has proposed new
rules to require U.S. companies to provide their shareholders with
non-binding votes on executive compensation
("say-on-pay") and compensation in connection with
changes in control ("golden parachute" compensation). The
rules were mandated by the recently enacted Dodd-Frank Wall
Street Reform and Consumer Protection Act. Voting on executive
compensation will begin with shareholder meetings held on or after
January 21, 2011 (six months after the enactment of the Dodd-Frank
Act), and voting on golden parachute compensation will begin after
the SEC's proposals become final (expected in the first quarter
The say-on-pay and golden parachute votes will be advisory in
nature so they will not bind the issuer's board of directors to
any particular course of action. However, issuers will have to
disclose in their annual compensation discussion and analysis
whether and how they have taken previous voting results into
account in formulating compensation policies and making
Before the enactment of the Dodd-Frank Act, say-on-pay was
already mandatory for U.S. companies receiving federal bailout
funds, and approximately 50 U.S. companies had adopted the practice
voluntarily. The SEC's new rules will extend the requirement to
all U.S. issuers by requiring them to hold a separate shareholder
advisory vote to approve the compensation of executive officers at
least once every three years. Shareholders will also vote at least
every six years on whether the say-on-pay vote should occur every
one, two or three years. Foreign private issuers, including
Canadian companies eligible for the Multijurisdictional Disclosure
System, will not have to comply since they are generally exempt
from the U.S. proxy rules.
Although say-on-pay is not mandatory under Canadian law, it has
already been adopted voluntarily by approximately 25 Canadian
companies, including the major financial institutions. The practice
is also supported by Canadian institutional investors and the
Canadian Coalition for Good Governance, whose shareholder
engagement policy includes a model say-on-pay resolution. Given
these developments, and with say-on-pay becoming mandatory in the
United States, we expect more Canadian companies to consider
adopting say-on-pay as they prepare for the upcoming proxy
Golden Parachute Compensation
For an M&A transaction, a separate, non-binding shareholder
vote on executive compensation arrangements may be required. The
SEC is proposing that the vote cover every type of compensation
relating to the transaction, including present, deferred and
contingent compensation, except for bona fide post-transaction
Shareholders will only get to vote on compensation arrangements
if an M&A transaction is otherwise subject to their approval.
Specifically, the following:
Tender offers will not require any vote on executive
If a transaction is subject to approval by the target's
shareholders, those shareholders will get a non-binding vote on
compensation arrangements between the target and its own named
executive officers (NEOs) (and arrangements, if any, between the
target and the acquiror's NEOs).
If a transaction is subject to approval by the acquiror's
shareholders, those shareholders will get a non-binding voting on
compensation arrangements between the acquiror and its own NEOs as
well as the target's NEOs.
As a result, if a transaction is subject to approval by the
target's but not the acquiror's shareholders, there will be
no requirement for a vote on the compensation arrangements between
the acquiror and the target's NEOs.
A vote will also not be required in respect of compensation
arrangements such as those between a company and its own NEOs, if
those arrangements were fully disclosed and quantified in the proxy
materials for an earlier shareholders' meeting, and a general
say-on-pay vote was conducted. Only new or amended compensation
arrangements connected to an M&A transaction will be subject to
the voting requirements.
A general exemption from the voting requirements will be
available if the compensation arrangements in an M&A
transaction involve NEOs of a foreign private issuer.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).