For most public companies, the 2017 proxy season marks the sixth year since they last held a shareholder advisory vote to determine how often to hold their say-on-pay vote (also known as a "say-on-frequency" vote). Under Rule 14a-21(b) of the Securities Exchange Act of 1934 (Exchange Act), public companies subject to the proxy rules of the U.S. Securities and Exchange Commission (SEC) are required, at least once every six years, to hold a shareholder advisory vote on whether their say-on-pay vote should be held every one, two or three years. As most public companies were required to hold their initial say-on-frequency vote during the 2011 proxy season, they are required to hold another say-on-frequency vote during the 2017 proxy season.
After holding their initial say-on-frequency vote in 2011, many public companies inadvertently failed to comply with Item 5.07(d) of Form 8-K, which requires disclosure of the company's decision, in light of say-on-frequency vote results, on whether the say-on-pay vote should occur every one, two or three years. Because the say-on-frequency vote is merely an "advisory" vote, public companies are effectively required to take the additional step of deciding on the frequency of their say-on-pay vote after considering say-on-frequency vote results. While Item 5.07(d) of Form 8-K provides that disclosure of the company's frequency decision must be made no later than 150 calendar days after the annual meeting and no later than 60 calendar days prior to the deadline for submission of shareholder proposals for the next annual meeting, most companies opt to include disclosure of their frequency decision in the Form 8-K disclosing annual meeting voting results pursuant to Item 5.07(b) that is filed within four business days of the meeting. If the company does not include its frequency decision in the Item 5.07(b) Form 8-K that is filed within four business days of the meeting, then the company would be required to disclose its frequency decision either in a separate amendment to the Item 5.07(b) Form 8-K or in a periodic Exchange Act report that is filed on or before the date that disclosure of the frequency decision would otherwise be due.
A company's failure to timely comply with the disclosure requirements under Item 5.07(d) can result in that company becoming ineligible to file "short-form" registration statements on Form S-3 for a period of twelve months. Accordingly, public companies should consider arranging for the board to make a decision on the frequency of the say-on-pay vote immediately following the annual meeting and including disclosure of its frequency decision in the Item 5.07(b) Form 8-K that is filed within four business days of the meeting so as to avoid the risk of later non-compliance with Item 5.07(d).
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