July 29, 2010
Observers have noted that Section 951(a)(2)'s requirement to include in a proxy statement a resolution subject to shareholder vote on the frequency of "say-on-pay" votes (i.e., an annual, biennial or triennial vote) may present companies with potential legal concerns (i.e., Exchange Act Rule 14a-4(b)) and practical issues (i.e., how to assess the "winning" outcome under applicable state law or by-law shareholder voting standards). These observations are based on the view that the resolution must solicit a vote on whether a company's shareholders specifically want a 1 year, or a 2 year, or a 3 year "say-on-pay" vote.
If, however, under Section 951(c) this vote is non-binding and may not be construed as overruling a decision by the company or its board, it would seem consistent with Section 951 for a company to include a single resolution soliciting shareholder ratification of a decision by the company as to the frequency of a shareholder "say-on-pay" vote (so long as the decision is for an annual, biennial or triennial vote), similar in fashion to the way companies solicit ratification of their selection of outside auditors.
This approach would alleviate the legal/practical concerns noted and provide the company with shareholders' view on the preferred frequency. That is, shareholders would, under the company's applicable voting standard, support the company's decision or reject the ratification vote, likely prompting the company to reassess (and perhaps change) its initial frequency decision.