United States: The Dodd-Frank Act: Provisions Affecting Corporate Governance And Executive Compensation Disclosures For All Public Companies

Last Updated: July 23 2010
Article by Scott P. Spector, Blake W. Martell and Horace Nash

On July 21, 2010, President Barack Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. This legislation is primarily focused on bank reform — regulation and resolution of financial companies that pose systemic risk, banking regulatory reform, regulation of derivatives, and consumer financial protection. However, the Act also makes significant changes to corporate governance and executive compensation rules for public companies in all industries. In this client alert we summarize these new requirements, their effective dates, and early impacts on companies in the technology, life sciences and clean tech industries.

Dodd-Frank Act Provisions

Executive Compensation Say-on-Pay

At least once every three years, public company shareholders must have a separate nonbinding vote on the Company's executive compensation, as disclosed in the proxy statement.

At least once every six years, the shareholders must vote to determine whether the say-on-pay vote should occur every one, two or three years.

Institutional investment managers must report, at least annually, their actions on say-on-pay votes.

The SEC is empowered to exempt small issuers from this provision of the Act.

Effective Date: Effective for annual shareholder meetings starting January 2011.


  • Management should assess the likely results of a Company say-on-pay vote next year, and advise the Board of Directors.
  • Consider what frequency of shareholder say-on-pay vote to recommend to shareholders in 2011.
  • Even if no changes to executive compensation arrangements are contemplated, a review of the company's current executive compensation disclosures, with say-on-pay in mind, is advisable.
  • If executive compensation changes are contemplated, early attention to positioning for shareholder approval is advisable.
  • Consider ways to make executive compensation disclosure more clear and concise, as it now has a persuasion function as well as a compliance function.
  • The SEC may need to propose rules on whether preliminary proxy statement filings for say-on-pay votes are required, and any required content of the resolution for shareholder approval.

Golden Parachute Say-on-Pay

Shareholders must have a separate say-on-pay vote on the compensation paid to executives in connection with a change in control transaction (i.e., "golden parachute" compensation) if that compensation has not previously been subject to a shareholder say-on-pay vote. Even if no vote is required, acquisition proxy statements must include disclosure of golden parachute compensation arrangements.

Institutional investment managers must report, at least annually, their actions on golden parachute sayon- pay votes.

The SEC is empowered to exempt small issuers from this provision of the Act.

Effective Date: Effective for shareholder meetings starting January 2011.


  • The SEC is likely to propose rules about what disclosure of golden parachute compensation is required.
  • Generally expect to need a shareholder vote only for new agreements or modifications entered into in connection with the acquisition transaction.
  • Executive compensation arrangements generally remain contractual commitments of the Company even if shareholders vote to disapprove them.

Broker Voting

National securities exchanges must adopt rules prohibiting brokers from voting shares of which they are not the beneficial owner with respect to election of directors, executive compensation (including say-on-pay votes) or any other "significant matter" unless specifically instructed by the beneficial owner with respect to such vote.

Effective Date: As soon as national securities exchanges (e.g., NYSE) revise their rules as directed (probably 2011).


  • Continued attention to the optics of shareholder voting totals.
  • Additional emphasis on shareholder outreach.
  • SEC rule-making required to identify other "significant matters" where uninstructed broker voting is prohibited.

Compensation Committee Independence

The SEC and stock exchanges must require listed companies to have a Compensation Committee composed solely of independent directors. The SEC will promulgate rules about how to determine independence, including consideration of the following factors:

  • The source of compensation of the directors, including any consulting, advisory or other fees paid by the Company to such director; and
  • Whether the director is affiliated with the Company, a subsidiary of the Company, or an affiliate of a subsidiary.

The SEC is empowered to exempt small issuers from this provision of the Act.

Effective Date: SEC to issue rules within 360 days of enactment (July 2011).


  • Assess independence of Compensation Committee members assuming that standards similar to the current SEC Rule 10A-3 (audit committee independence) will apply.
  • Nominating and Governance Committee to consider potential changes to Compensation Committee members in light of new requirements.
  • Review committee charter and corporate governance principles.

Compensation Committee Advisers

The Company must provide funding and authority for the Compensation Committee to obtain the advice of independent compensation consultants, independent counsel and other advisers, at the discretion of the committee. In selecting advisers, the Compensation Committee must consider factors affecting adviser independence. The SEC will promulgate rules about these independence factors, which are to be competitively neutral.

Independence factors will include:

  • Other services provided to the Company by the adviser's employer;
  • Amount of fees that the adviser's employer received from the Company for such services, as a percentage of the total revenue of the adviser's employer;
  • Conflict of interest policies of the adviser's employer;
  • Business or personal relationships between the adviser and committee members; and
  • Company stock owned by the adviser.

The Company's proxy statement must disclose whether the Compensation Committee engaged a compensation consultant, any conflicts of interest that arose, and how any such conflicts were addressed.

Effective Date: The Act requires the SEC to issue rules within 360 days of enactment.


  • Make a preliminary assessment of application of adviser independence criteria to the Company's existing advisers.
  • Not required to retain an independent adviser, provided the Company considers the issue and addresses any potential conflicts.

Additional Proxy Disclosures

Company must disclose, in its annual proxy statement, the relationship between compensation actually paid to executives and the financial performance of the Company.

Executive compensation disclosure generally must include the ratio of the CEO's total compensation to the median total compensation of all other employees.

Effective Date: The SEC is required to issue rules, but no deadline is specified.

Impact: "

  • Review current stock price performance chart; make preliminary assessment of executive compensation relative to stock price over different time frames (SEC to specify time to be presented).
  • Calculation of the ratio of CEO pay to median employee pay is likely to be extremely complex.
  • Expect SEC rule-making to deal with complexities.

Recovery of Erroneously Awarded Compensation (Clawback)

Company must disclose incentive-based compensation policies that are based on reported financial information. SEC and exchanges must require listed companies to have a policy that requires repayment ("clawback") of incentive compensation (including stock options) that was paid to current or former Company executives over the three-year period prior to any restatement due to material noncompliance with financial reporting requirements.

Effective Date: SEC to issue rules, but no deadline is specified.


  • Compensation Committee may wish to determine what elements of executive compensation are subject to potential clawbacks, and affected officers.
  • Expect SEC rule-making to define incentive-based compensation, and calculation of recoverable excess compensation.

Employee and Director Hedging

Public companies must disclose whether any employee or director is permitted to purchase financial instruments that are designed to hedge or offset a decrease in market value of the Company's securities.

Effective Date: SEC to issue rules but no deadline is specified.


  • Implementation may be accomplished through insider trading policy or separately.

Additional Reporting Obligations for Financial Institutions

Certain financial institutions must disclose to appropriate federal regulators the details of incentive-based compensation arrangements, and limit incentives that could encourage inappropriate risks.

Leadership Structure

Company must disclose, in its annual proxy statement, why the same individual serves as chairman of the board and chief executive officer, or why different individuals serve in those capacities.

Effective Date: SEC to issue rules by within 180 days of enactment (January 2011).


  • Some minor changes to existing disclosure requirements may be necessary.

Proxy Access

The SEC is specifically authorized to prescribe rules and regulations that contemplate shareholder access to the proxy.

Effective Date: Immediate.


  • Expect SEC to adopt previously-proposed proxy access rules in coming months, likely effective for 2011 proxy season.

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.

Events from this Firm
22 Oct 2019, Other, New York, United States

DLaw will be hosting a two-day summit on Disruptive Innovations in Legal Services providing a meaningful exploration of digital technology for the legal services professionals from specific emerging tools to new business models to creative client acquisition and retention strategies.

29 Oct 2019, Webinar, California, United States

In the digitized world of the twenty-first century, it is more important than ever for every organization to know as much as possible about the information it creates, stores, received and maintains.

14 Nov 2019, Other, California, United States

LinkedIn, Facebook, YouTube, Twitter, and other social networking sites offer lawyers myriad avenues for communicating with each other and the public about a host of issues.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions