SOP, SOF, SOGP (Say on Pay, Say on Frequency, Say on Golden Parachute) Clarified

Lifshey, who is Managing Director at the New York Office of Pearl Meyer & Partners offered her “say on” tips at a recent webinar sponsored by BLR and HR Hero.

Say on Pay requires non-binding advisory vote on compensation of Named Executive Officers. says Lifshey. The requirement is effective for any shareholder meeting occurring after January 21, 2011.

Generally, Say on Pay covers five people: the CEO, CFO, and the next three highest paid officers.

It is a non-binding vote that cannot be construed to:

• Overrule a decision by the Board
• Create any change in the fiduciary duty of the Board
• Limit shareholders’ right to make executive compensation proposals

The SEC’s final rules provide that the vote must be on the pay of the Named Executive Officers as disclosed in the Compensation Discussion & Analysis, the compensation tables, and related narrative disclosures.

The Big Problem with Say on Pay

One big problem, says Lifshey, is that shareholders are voting on the whole pay package, which is amorphous. If you get a negative vote, you can’t tell if it’s a particular executive’s pay, or a particular payment, or what.

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Say on Frequency (SOF)

Effective for any shareholder meeting occurring on or after January 21, 2011,
Say on Frequency requires a separate resolution subject to shareholder vote on whether the Say on Pay vote should be held every one, two, or three years.

This must be included in the first proxy statement including the Say on Pay vote, and at least every six years thereafter.

SEC final rules provide:

• Four choices are required on ballot: every 1, 2, or 3 years, or abstain
• A plurality vote represents outcome
• Companies adopting the SOF approved by majority of shareholders may exclude subsequent SOP and SOF proposals until next required SOF vote
• Company decisions regarding the SOF vote must be reported in 8-K no later than 150 calendar days following meeting date
• 2012 proxies must disclose the SOF adopted by company and date of next SOP vote
• Uninstructed shares (broker votes) are counted in favor of management’s recommended SOF only if three requirements met:
1. An SOF recommendation is included in the proxy
2. The proxy card includes an “abstain” option and
3. The proxy card includes a statement in bold as to how the company will vote uninstructed proxies

At the beginning, most companies recommended 3 years, but most shareholder votes went for annual, so now most companies are recommending annual, Lifshey says.

Say on Golden Parachute (SOGP)

Effective for transactions occurring on or after April 25, 2011, SOGP requires companies to provide a separate shareholder advisory vote in proxy statements for meetings at which shareholders are asked to approve an acquisition, merger, consolidation or proposed sale or other disposition of all or substantially all of the company’s assets.

A new table (Item 402(t)) requires information regarding amounts payable to Named Executive Officers (NEOs) upon a transaction, including:

• Cash, equity (value of accelerating equity), pension/NQDC enhancements, perks, tax reimbursements, and “other”
• Footnote if payment is “single” or “double” trigger (that is, whether payment is made if action takes place, or if executive must also be terminated as a result of the action)

There is an exception where SOGP vote is covered by annual proxy vote, says Lifshey.

To date, most companies have received at least 80% approval on SOGP votes, with only one company not garnering majority support, Lifshey reports. Generally, she says, if shareholders are in favor of the transaction, they tend to vote in favor of the SOGP.

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