Compensation and Corporate Governance Bill Passes the Senate

 It looks like Senator Dodd's bill entitled "Restoring American Financial Stability Act of 2010" (PDF, pages 1056-1090) finally got its legs in that it was approved by the Senate on May 20, 2010 (though a copy of the bill did not become available to us until last week).  The purpose of this Post is to highlight some of the compensation and corporate governance changes within the Senate bill that would affect public companies. 


In July 2009 the House of Representatives passed the Corporate and Financial Institution Compensation Fairness Act of 2009, which was introduced by Representative Frank (the "Frank Bill").  In December 2009 the House passed the Wall Street Reform and Consumer Protection Act of 2009, which incorporated a variety of bills, including the Frank Bill.  The Senate bill will have to be reconciled with the House bill.  It may be a few months before legislation is enacted. 

Overview of the Senate Bill

As discussed in a prior post (Prior Post), the compensation and corporate governance provisions of the Senate bill and House bill are similar in many respects.  Thus, the following is intended to highlight the more significant provisions under the Senate bill: 

  • Say-on-Pay.  Say-on-pay provides shareholders of public companies with a non-binding vote on the compensation of named executive officers.  This is not a new development in terms of proposed legislation and is similar to the House bill. 
  • Discretionary Voting by Brokers.  Discretionary voting by brokers in connection with executive compensation matters (including say-on-pay) and other "significant matters" would be eliminated absent specific instructions from the beneficial owner.  This provision is not present in the House bill.  If this provision survives reconciliation, it is likely to result in fewer shares of retail shareholders being voted absent a specific effort by issuers to educate their shareholders that voting is necessary.
  • Majority Voting.  This provision would generally require a board member to tender his resignation if his election was uncontested and he failed to receive a majority of the votes cast. 
  • Pay v. Performance.  The annual proxy statement would have to describe the relationship between compensation actually paid and the financial performance of the company.  This could be disclosed in a graph or pictorial.
  • Clawbacks.  Continued listing on a national securities exchange would require the issuer to develop a clawback policy more robust than currently required under Section 304 of Sarbanes-Oxley.  The more robust clawback policy would (i) include all executive officers (not just the CEO and CFO), (ii) eliminate the requirement that a clawback be triggered due to "misconduct," and (iii) expand the period covered from 12 months to 3 years. 

More posts will follow as this legislation develops.  Till then, if you would like to learn more about the differences between the House and Senate bills, you can sign up for our free webinar entitled "Hot Topics in Executive Pay," to be held at 10:00 am (CST) on June 9, 2010.  Sign up can be found at

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