(The article featured below is a selection from SEC No-Action Letter Weekly, which is available to subscribers of that publication.)

SEC Approves Proposals on Proxy Disclosure and "Say on Pay" for TARP Participants

The SEC voted unanimously to issue for comment proposed rule amendments to enhance compensation and corporate governance disclosures and to implement "say on pay" provisions for companies participating in the Troubled Asset Relief Program ("TARP"). The Commission also approved, by a 3-to-2 vote, an amendment to NYSE Rule 452 that would eliminate broker discretionary voting for the election of directors , except for registered investment companies.

Companies that have received financial assistance under TARP are required by Section 111(e) of the Emergency Economic Stabilization Act of 2008 to include an advisory shareholder vote on executive compensation in proxy solicitations during any period in which any obligation under TARP remains outstanding. The rule proposals are designed to implement the Section 111(e) requirements.

In addition to requiring the shareholder vote on compensation, the proposals would clarify that the separate shareholder vote would only be required on a proxy solicited for an annual meeting --or a special meeting in lieu of the annual meeting --of shareholders for which proxies will be solicited for the election of directors. Registrants would be required to disclose in the proxy statement that they are providing a separate shareholder vote on executive compensation and to briefly explain the general effect of the vote. The proposed rules would not require smaller reporting companies to include a compensation discussion and analysis section in their proxy statements.

Commissioner Elisse Walter asked why the staff chose not to include the specific language that companies should include in their proxy solicitations. New Corporation Finance Division Director Meredith Cross said the staff wanted to give companies maximum flexibility by only setting forth a few specific requirements. She noted that the proposals ask for feedback on whether the SEC should mandate more specific disclosure.

The second set of rule proposals is a broad package of corporate disclosure improvements and enhancements to proxy solicitations. Chair Mary Schapiro noted that the proposals resulted from the recent market turmoil and the SEC asking itself whether investors are being provided with the right information.

The proposed rule changes include information about the the relationship of a company's overall compensation policies to risk, the qualifications of directors, executive officers and nominees, company leadership structure and potential conflicts of interests of compensation consultants. The proposals also would improve the reporting of annual stock and option awards to company executives and directors, and require quicker reporting of election results.

Commissioner Troy Paredes supported this group of proposals, but cautioned that the SEC should be careful not to dampen the willingness of companies and individuals to take prudent risks that drive innovation and competition. As reforms are proposed to address excessive risk taking, he said, it is important to note that just as a company can assume too much risk, a company also can be overly cautious.

Commissioner Kathleen Casey supported the issuance of both the "say on pay" and disclosure enhancement proposals, but expressed the general concern about the number of changes scheduled to take effect in the 2010 proxy season. She asked if the staff had considered the impact on companies of all of the new requirements that will take effect at the same time.

Cross replied that the staff had considered the issue and would like to get feedback on it during the comment period. She added that all of the proposed changes are within the core competencies of companies and should not be that difficult for companies to handle.