As we recently reported in our January 28, 2011 blog “Some Interesting New Developments as SEC Adopts Final Say-On-Pay Rules the Securities and Exchange Commission last week approved final rules which regulate how public company’s shareholders can render advisory votes on their company’s executive compensation (“Say-on-Pay”). These rules were promulgated under the Dodd-Frank Wall Street Reform and Consumer Protection Act  (the “Reform Act”).

One element of these final rules is that shareholders also get to vote on how frequently the Say-on-Pay vote will be conducted at their company (“Say-on-Frequency”). In particular, shareholders can provide an advisory vote that states their wishes as to whether the Say-on-Pay vote should occur every one, two or three years.

As we noted in our January 28, 2011 blog, companies and their board of directors should consider what frequency, if any, to recommend shareholders to approve. We wanted to provide this update on Say-on-Frequency developments as the 2011 proxy season gets into gear and the initial round of Say-on-Pay/Say-on-Frequency votes are solicited.

The Early Returns Show a Clear Preference for Annual Say-on-Pay Votes

While Say-on-Pay/Say-on-Frequency is still in its infancy in the USA, it does appear that certain groups are strongly advocating for holding annual Say-on-Pay votes. Institutional Shareholder Services Inc. (ISS), which provides shareholder advisory voting services, has publicly recommended annual Say-on-Pay votes in their 2011 U.S. Proxy Voting Guidelines Concise Summary, dated January 3, 2011 based on their view that annual votes will provide the “most consistent and clear communication channel for shareholder concerns about companies’ executive pay programs.

Last week, Monsanto Company, a well-known seasoned issuer, was one of the first companies to conduct Say-on-Pay/Say-on-Frequency votes under the Reform Act at its annual shareholder meeting that was held on January 25, 2011. By close to a 2-1 margin, Monsanto shareholders approved the company’s Say-on-Pay vote. With respect to the Say-on-Frequency vote, the Monsanto board of directors had recommended that the company “shareowners select a frequency of three years, or a triennial vote.” However, the same shareholders that had approved the company’s Say-on-Pay proposal rejected the board’s recommendation for triennial voting and instead by a clear majority voted for annual Say-on-Pay voting. In response to the Say-on-Frequency voting results, the Monsanto board of directors stated that it had determined to implement an annual advisory vote on executive compensation.

Similarly, at its annual meeting on January 27, 2011, the shareholders of Jacobs Engineering Group Inc. rejected the board’s recommendation for triennial Say-on-Pay and strongly voted in favor of holding an annual vote. Separately, we also note that the Jacobs Engineering Group shareholders rejected the company’s Say-on-Pay proposal thereby providing tangible evidence that obtaining an affirmative Say-on-Pay vote may not just be a foregone conclusion.

Most recently, on January 31, 2011, thirty-nine institutional investors, representing more than $830 billion in assets, jointly issued a statement  in which they advocated an annual Say-on-Pay vote and urged “company Boards to support an annual vote as best practice and investors to rally behind holding an Advisory Vote each year.” Their statement noted the Monsanto Say-on-Frequency vote results and provided their rationale for why companies should conduct Say-on-Pay votes on an annual basis.


Given this initial and seemingly rising sentiment toward holding annual Say-on-Pay votes, companies may want to factor this in when determining what Say-on-Frequency recommendation (if any) to provide to its shareholders. A company’s board of directors is of course free to recommend a frequency other than annual Say-on-Pay. However, companies that do recommend either biennial or triennial Say-on-Pay may want to include some clear and compelling reasons in their proxy statement explaining why holding Say-on-Pay votes less frequently than every year is preferred for their company and its shareholders.

If you have any questions regarding this information, please contact Greg Schick at (415) 774-2988.


This update has been prepared by Sheppard, Mullin, Richter & Hampton LLP for informational purposes only and does not constitute advertising, a solicitation, or legal advice, is not promised or guaranteed to be correct or complete and may or may not reflect the most current legal developments. Sheppard, Mullin, Richter & Hampton LLP expressly disclaims all liability in respect to actions taken or not taken based on the contents of this update.