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Investor Bulletin: 

Say-on-Pay and Golden Parachute Votes

The Office of Investor Education and Advocacy 

is issuing this Investor Bulletin to help investors 

understand new rules about shareholder votes on Say

on-Pay and golden parachutes. The rules concern 

three separate non-binding shareholder votes on 

executive compensation:

•	 Say-on-Pay Votes. The new rule requires 

public companies subject to the proxy 

rules to provide their shareholders with an 

advisory vote on the compensation of the 

most highly compensated executives. Sayon-Pay votes must be held at least once 

every three years. 

•	 Frequency Votes. These companies also 

are required to provide their shareholders 

with an advisory vote on how often they 

would like to be presented with the Sayon-Pay votes - every year, every second 

year, or every third year. 

•	 Golden Parachute Disclosures and 

Votes. These companies are required 

to disclose compensation arrangements 

and understandings with those executive 

officers in connection with an acquisition 

or merger. In certain circumstances, these 

companies also are required to conduct 

a shareholder advisory vote to approve 

the golden parachute compensation 

arrangements. 

The new rules, which the Securities and Exchange 

Commission adopted on Jan. 25, 2011, implement 

requirements in Section 951 of the Dodd-Frank Wall 

Street Reform and Consumer Protection Act, which 

the President signed into law in July 2010. The Sayon-Pay and frequency votes appear as separate items 

on company ballots, or forms of proxy, for the annual 

meeting of shareholders.

What are Say-on-Pay Votes?

The Say-on-Pay vote asks investors to vote on the 

compensation of the top executives of the company 

– the CEO, the Chief Financial Officer, and at least 

three other most highly compensated executives. 

(These are called the “named executive officers.”) 

Companies are not required to use any specific 

language in asking for shareholder approval. Instead, 

each company has the flexibility to craft the exact 

language of the non-binding resolution that its 

shareholders will vote on. 

The resolution could simply ask shareholders to 

approve the compensation of its named executive 

officers. For example, a resolution might say:

The Say-on-Pay vote asks investors 

to vote on the compensation of the 

top executives of the company.

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RESOLVED, that the compensation paid to 

the company’s named executive officers, as 

disclosed pursuant to Item 402 of Regulation 

S-K, including the Compensation Discussion 

and Analysis, compensation tables and 

narrative discussion, is hereby APPROVED. 

What are frequency votes?

Companies are also required to provide an advisory 

shareholder vote on the frequency of the Say-on-Pay 

vote. Shareholders will be able to cast a non-binding 

vote on how often the Say-on-Pay vote should occur: 

once a year, once every two years, or once every 

three years. Shareholders may also choose to abstain 

on the frequency vote. Thus, including abstentions, 

shareholders have four choices. Frequency votes must 

take place at least once every six years. For example, 

a company could choose to hold Say-on-Pay votes 

annually and hold frequency votes every six years. In 

that case, shareholders would vote in 2011 on both the 

company’s executive compensation (the Say-on-Pay 

vote) and on the frequency of future votes. In 2012, 

shareholders in this example would vote again on 

Say-on-Pay, but would not vote on the frequency of 

Say-on-Pay votes until 2017.

When do the rules on Say-on-Pay and 

frequency votes take effect? 

All public companies subject to the proxy rules, 

except smaller ones, must hold Say-on-Pay and 

frequency votes at shareholder meetings starting on 

Jan. 21, 2011. The rules are delayed by two years for 

companies with a public float of less than $75 million. 

These smaller companies must hold Say-on-Pay and 

frequency votes at annual meetings starting on Jan. 21, 

2013. 

Haven’t we seen Say-on-Pay votes before? 

So what’s new? 

Companies that received TARP1

 money are required 

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to annually hold a Say-on-Pay vote at shareholder 

meetings until they pay back all the money they 

borrowed from the government. In addition, a 

number of non-TARP companies have voluntarily 

held Say-on-Pay votes in recent years. 

What are the new rules on golden 

parachutes? 

The term “golden parachute” generally refers to 

compensation arrangements with named executive 

officers concerning any type of compensation 

(whether present, deferred, or contingent) that is 

based on or relates to an acquisition, merger, or similar 

transaction. 

The new rules require companies to disclose any 

agreements or understandings that the target company 

has with its own named executive officers or those 

of the company that is acquiring the target company 

(called the acquiring company), as well as any 

relationships between the acquiring company and 

its named executive officers and those of the target 

company. Such disclosures must include the total of 

all compensation that may be paid or become payable 

to, or on behalf of, the named executive officer, and 

the conditions upon which it may be paid or become 

payable. The disclosures must be made clearly and 

simply in the form of both narrative and tables.

When companies seek shareholder approval of a 

merger or acquisition, they will be required to 

conduct a separate shareholder advisory vote to 

approve, in the typical scenario, the disclosed golden 

parachute compensation arrangements between the 

target company and its own named executive officers 

or those of the acquiring company. There is one 

exception to this. The company is not required to 

conduct such a vote if the golden parachute disclosures 

were included in executive compensation disclosures 

subject to a prior Say-on-Pay vote.

Companies are required to comply with the golden 

parachute shareholder advisory vote and disclosure 

requirements in proxy statements to approve a merger 

or acquisition and similar forms initially filed on or 

after April 25, 2011.

In response to the financial crisis, Congress enacted 

legislation in 2008 that created the Troubled Asset Relief 

Program, or TARP.

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Broker non-votes

In another change starting this year, brokers may 

no longer cast votes on behalf of clients who do 

not instruct their brokers how to vote on executive 

compensation matters. 2 This means that brokers will 

not be able to cast votes on the Say-on-Pay, frequency, 

or golden parachute proposals if clients do not provide 

voting instructions on these proposals. 

What information is available to shareholders 

when they are deciding how to vote?

Companies are required to disclose named executive 

officers’ compensation information in the proxy 

statement for an annual meeting at which directors 

are elected. In the Compensation Discussion and 

Analysis (“CD&A”), the company must explain all 

material elements of the compensation for named 

executive officers. The CD&A is meant to be a 

narrative overview that gives shareholders a context 

for the company’s executive compensation policies 

and practices. 

The proxy statement also includes a Summary 

Compensation Table that presents all elements of 

named executive officers’ compensation and totals 

for the three most recent fiscal years, and additional 

tables providing more detailed disclosure of separate 

elements of their compensation for the last completed 

fiscal year: the Grants of Plan-Based Awards Table, 

Outstanding Equity Awards at Fiscal Year-End Table, 

» 2 This follows a similar ban on uninstructed broker votes in 

the election of board directors. In a rule that took effect Jan. 1, 

2010, brokers no longer have the discretion to vote their 

customers’ shares held in companies without receiving voting 

instructions from those customers about how to vote in an 

election of directors. For more information see our publication, 

“New Shareholder Voting Rules for the 2010 Proxy Season.”

Option Exercises and Stock Vested Table, and Pension 

Benefits Table.

Smaller companies are exempt from providing 

CD&As, but are required to provide other 

compensation disclosures.

How will investors learn of the vote results?

Companies are required to disclose preliminary vote 

results within four business days of the completion 

of the shareholder meeting and final voting results 

within four business days after those results are known. 

Companies make these disclosures in a document 

called a Current Report on Form 8-K, which is filed 

with the SEC.

The new rules also require companies to make two 

more disclosures. First, companies are required to 

address in the CD&A whether and, if so, how their 

compensation policies and decisions have taken into 

account the results of the most recent Say-on-Pay 

vote. 

Second, each company must disclose in a Form 8-K 

its decision about the frequency of future Say-onPay votes. This disclosure must be made within 150 

calendar days after the shareholder meeting, but no 

later than 60 calendar days before the deadline for 

shareholders to submit proposals for the next annual 

meeting. This deadline allows companies additional 

time to consider carefully the results of the frequency 

vote, including through board and committee 

deliberations and discussions with shareholders, before 

the company is required to disclose its decision on the 

frequency of Say-on-Pay votes.

Are the compensation votes advisory or 

binding? 

The Say-on-Pay, frequency, and golden parachute 

votes are advisory rather than binding. The DoddFrank Act specifies that the shareholder vote to 

approve executive compensation “shall not be binding 

on the issuer or the board of directors of an issuer.” 

(An issuer in this context is a public company subject 

to the proxy rules.) 

2

Companies are required to address in 

the CD&A whether and, if so, how their 

compensation policies and decisions 

have taken into account the results of 

the most recent Say-on-Pay vote. 

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It is up to the company’s board of directors 

to determine what it considers to be the best 

compensation policies and practices for the company. 

Unlike a binding vote, advisory votes do not require 

the company or its board of directors to take a specific 

action. The company’s board of directors may 

consider advisory votes and may follow up with other 

communications or dialogue with shareholders as part 

of its deliberative process in making policy decisions. 

Additional Resources

•	 SEC Final Rule, Shareholder Approval 

of Executive Compensation and Golden 

Parachute Compensation

•	 Dodd-Frank Wall Street Reform and 

Consumer Protection Act

(See Sec. 951, Shareholder Vote on Executive 

Compensation Disclosures.)

Related Information

•	 For more information on proxy voting, see 

our Spotlight on Proxy Matters.

•	 For more on the rule prohibiting uninstructed 

broker votes in an election of directors, see 

our publication, “New Shareholder Voting 

Rules for the 2010 Proxy Season.”

•	 For additional educational information for 

investors, see the SEC Office of Investor 

Education and Advocacy’s website for 

investors, Investor.gov.

The Office of Investor Education and Advocacy has 

provided this information as a service to investors. It is 

neither a legal interpretation nor a statement of SEC 

policy. If you have questions concerning the meaning 

or application of a particular law or rule, please 

consult with an attorney who specializes in securities 

law.

Investor Assistance (800) 732-0330 March 2011

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