​​Say on Golden Parachutes
(abbreviated as SOGP)

Annual Proxy Statement (sample) including Say on Parachute Table:

SEC Disclosure Rules:

  • Item 402(t) of Reg. S-K -- implements the SOGP vote required by Section 951 of Dodd-Frank Act. SEC Release 33-9178 with final rules.
  • Newly-hired PEO?  CD&I Question 128B.01, provides as follows:
  • Question: Instruction 1 to Item 402(t)(2) provides that Item 402(t) disclosure will be required for those executive officers who were included in the most recently filed Summary Compensation Table. If a company files its annual meeting proxy statement in March 2011 (including the 2010 Summary Compensation Table), hires a new principal executive officer in May 2011 and prepares a merger proxy in September 2011, may the company rely on this instruction to exclude the new principal executive officer from the merger proxy's say on golden parachute vote and Item 402(t) disclosure?
  • Answer: No. Instruction 1 to Item 402(t) specifies that Item 402(t) information must be provided for the individuals covered by Items 402(a)(3)(i), (ii) and (iii) of Regulation S-K. Instruction 1 to Item 402(t)(2) applies only to those executive officers who are included in the Summary Compensation Table under Item 402(a)(3)(iii), because they are the three most highly compensated executive officers other than the principal executive officer and the principal financial officer. Under Items 402(a)(3)(i) and (ii), the principal executive officer and the principal financial officer are, per se, named executive officers, regardless of compensation level. Consequently, Instruction 1 to Item 402(t)(2) is not instructive as to whether the principal executive officer or principal financial officer is a named executive officer. This position also applies to Instruction 2 to Item 1011(b), which is the corresponding instruction in Regulation M-A. [Feb. 11, 2011]
  • Disclosure of Vested Options - What if Cashed out in Transaction?
  • Here are relevant provisions from SEC Release 33-9178 (issuing final say on pay and say on parachute rules:
    •    As proposed, Item 402(t) would not . . . require disclosure of previously vested equity and pension benefits.   . . . Most commentators agreed with the proposed approach to omit previously vested equity and pension benefits from the table,206 as including such amounts in the table could lead to confusion by overstating the total compensation. [see paragraphs with footnotes 203 and 207]
    •    The table will quantify . . .  equity awards that are accelerated or cashed out [see paragraph ending with footnote 235]
    •    We agree with the views expressed by some commentators that previously vested equity awards are not compensation “that is based on or otherwise relates to” the transaction. [see paragraph ending with footnote 248]
    •    Compute the dollar value of in-the-money option awards for which vesting would be accelerated by determining the difference between this price and the exercise or base price of the options. Include only compensation that is based on or otherwise relates to the subject transaction. [see Instruction 1 to Item 402(t)(2)]


Voting Results:

  • 2016.Feb  Survey Data for 2012-2015 SOGP Voting. This excellent report by Pearl Meyer provides significant data, followed by this conclusion: "Since inception of the [SOGP] rules, about 70% of the companies reporting results have received upwards of 80% approval (excluding abstentions), and only 5% have received less than majority support."

  • 2014.June.09 Failed Say on Parachute Votes  The Wall Street Journal's article titled "Investors Close Golden Parachutes" discusses four companies whose shareholders voted unfavorably with respect to merger-related executive compensation packages. Because the votes were non-binding, the parachutes seem more tainted than closed. Failed say on parachute votes seem most likely to sharpen board concern about executive severance levels, which require annual proxy statement disclosure - and which could trigger an unfavorable say on pay vote independently of a merger. Boards should closely monitor their executive severance structures, because no one wants to be an outlier for seeming to approve excessive or unjustifiable benefits.
  • 2013.Mar.20  Shareholder Voting Disparities Shown in Pearl Meyer's Survey. When the test is achieving 90% or more shareholder support, that occurred for 86% of corporate merger votes, but for only 45% of say on golden parachute votes - per the following Pearl Meyer's report of 192 say on parachute votes since 2011. The implications of adverse votes remain an open question, although the smartest directors will take measures to position for a favorable shareholder vote.  
  • 2013.Jan.30  "Nearly half of Ralcorp shareholders voted against golden parachute" (eWallstreeter article).  What a contrast - 99% of Ralcorp shareholders approved its sale to Conagra, but a majority of its shareholders did not vote favorably on the "say-on-parachute" advisory vote that the Dodd-Frank Act requires with respect to the extra compensation that executives receive from the transaction. Described as "futile" by the St. Louis Post-Dispatch (because the vote is advisory and does not affect the merger or the amounts payable to executives), this is the seventh failed vote . . . per the list that follows.
  • 2012.04.21  Say on "Parachute" Disclosure Sparks Bank Shareholders to Sue -- 1st Failed Vote.  With bank M&A heating up, the complaint against Encore Bancshares could be symptomatic of what to expect from the new "Say on Parachute" disclosure requirement. Encore filed its special meeting proxy statement on April 12th, and the complaint soon followed with allegations drawn directly from the Say on Parachute disclosure. The complaint basically alleges breaches of fiduciary duties by officers and directors due to the compensation they receive from Encore's sale. This litigation is a healthy reminder that, although the Dodd-Frank Act's Say on Parachute disclosure and vote are not expected to derail transactions, they involve sensitive disclosures that warrant up-front diligence and thoughtful presentations to shareholders. Meanwhile, Advance America became the first selling company to fail to receive majority shareholder support for its say on parachute vote - receiving only 48% in favor. See8-K for voting results, and 14A for merger proxy (disclosing over $8 million in CEO's parachute payments, with "single trigger" equity payouts).