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A Fresh Take

Insights on M&A, litigation, and corporate governance in the US.

| 7 minutes read

When Do We Say What On Pay?

It’s that time again. For companies that are required to hold advisory shareholder “say-on-pay” votes on their executive compensation, SEC rules impose another easy-to-forget requirement: the “say-on-pay frequency” or “say-when-on-pay” vote. This vote must be held at least once every six years—just long enough to fall off some checklists.

This post provides a brief overview of the say-on-pay frequency vote, explains what companies need to do to comply with the rules and discusses options in the event a say-on-pay frequency proposal is inadvertently omitted from a company’s proxy statement.

What is a say-on-pay frequency vote?

A say-on-pay frequency vote is a non-binding, advisory vote that enables shareholders to express their preference as to how often they would like companies to hold an advisory vote on executive compensation. Rule 14a-21(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which came into effect in 2011 and implements the requirements of Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, requires companies to hold a say-on-pay frequency vote at least once every six years, providing shareholders the opportunity to vote on whether the say-on-pay vote should be held every one, two or three years.

What’s the big deal about 2023?

For the many “on-cycle” companies that were public prior to 2011 and became subject to this rule and first held this vote at their 2011 (or were otherwise subject to this rule for their 2017) annual meetings, a say-on-pay frequency vote must again be on the ballot in 2023. A best practice for all companies is to maintain checklists and other reminders to ensure this requirement does not fall off the radar, but maintaining such reminders can be particularly helpful for companies that have historically held their say-on-pay frequency votes in “off-cycle” years.

What companies must hold a say-on-pay frequency vote?

Unless a U.S. public company falls into limited exemptions afforded under SEC rules, it must hold both say-on-pay and say-on-pay frequency votes. Companies exempt from this requirement include the following:

  • Emerging Growth Companies. Companies that qualify as emerging growth companies (“EGCs”) may take advantage of numerous disclosure and other accommodations under SEC rules, including an exemption from the requirement to hold say-on-pay and say-on-pay frequency votes. Once a company grows or ages out of EGC status, it must hold its first say-on-pay vote within one year of losing EGC status. If a company qualified as an EGC for fewer than two years, the vote must be held by the third anniversary of the company’s IPO.

  • Newly Public Companies. A newly public company that does not qualify as an EGC is generally not required to solicit proxies for an annual meeting in the year in which it completes its IPO, but it must then include say-on-pay and say-on-pay frequency proposals in the proxy statement for its first annual meeting following an IPO.

  • Foreign Private Issuers. Public companies that are classified as foreign private issuers are exempt from the SEC’s proxy rules, including the rules requiring say-on-pay and say-on-pay frequency votes.

What do we say about say-on-pay frequency?

When a say-on-pay frequency vote is required, a company must include it as a separate voting item in their annual proxy statement. The proposal and proxy card should provide shareholders with four voting options: every one year, every two years, every three years or abstain. Along with standard disclosure about the effect of abstentions and broker non-votes, disclosure relating to say-on-pay frequency votes must inform shareholders of the vote’s general effects, including the fact that the results of the vote are not binding on the company or its board of directors.

What is market practice and what do investors expect?

Today, most companies hold annual say-on-pay votes, which are generally considered a corporate governance best practice and align with the voting policies and recommendations of leading institutional investors and proxy advisors, including BlackRock, Vanguard, State Street Global Advisors, Institutional Shareholder Services and Glass Lewis. Investors expect annual say-on-pay votes at most companies and proposing a less frequent voting cycle is likely to be met with skepticism. As a result, most companies are proposing annual say-on-pay votes, with significant investor support.

Don’t forget the 8-K disclosure!

As with other matters submitted to a shareholder vote, a company must disclose the results of the say-on-pay frequency vote on Form 8-K within four business days after the annual meeting. However, because say-on-pay frequency votes are advisory, a company is not bound by majority or even supermajority approval. Therefore, it is also a requirement that companies disclose their decisions regarding the frequency of future say-on-pay votes. This critical disclosure must occur within 150 calendar days after the annual meeting (but no later than 60 calendar days before the deadline for shareholder proposals for the subsequent annual meeting). If disclosure is not included in the initial 8-K disclosing meeting results, it is permitted to be disclosed by filing an amendment to the Form 8-K within the 150-day window. Failure to comply with this requirement can have severe consequences, including loss of S-3 eligibility. For this reason and in order to avoid another trap for the unwary, companies generally should include their decision regarding say-on-pay frequency in the Form 8-K disclosing voting results filing following the annual meeting.

What if a company forgets to include a say-on-pay frequency proposal in its proxy statement?

If a company inadvertently omits the say-on-pay frequency proposal from the definitive proxy statement for its annual meeting, there may be a simple way to rectify the oversight so long as the meeting has not yet occurred. Assuming the company does not consider the addition of the say-on-pay frequency proposal a material change to the proxy statement, a company should be able to prepare a short proxy statement supplement and an amended proxy card, filed with the SEC as definitive additional soliciting materials, without the time and expense of a full proxy statement update. In addition to amending or supplementing proxy materials, a company should also be sure to update any electronic voting platforms or portals to include the previously omitted proposal. If the addition of a say-on-pay frequency proposal is considered a material revision, then the company will need to prepare a full amended proxy statement and proxy card.

One key question in evaluating options is timing:

  • For a company that relies on the SEC’s “e-proxy” rules to avoid printing and mailing a full set of proxy materials to shareholders, are you already in the 40-day period before the annual meeting is scheduled to be held? If so, it will no longer be sufficient to file the amendment or supplement with the SEC and circulate a Notice of Internet Availability to shareholders. In such a situation, in order to avoid delaying or adjourning the meeting, the amendment or supplement must instead be printed and mailed, assuming there is sufficient time for the materials to be received by shareholders as discussed below. Otherwise, the company will need to set a new meeting date, which may also necessitate fixing a new record date and conducting another broker search.

  • Is there sufficient time before the meeting to comply with the notice requirements under the company’s governing documents and the laws of its jurisdiction of organization? If there is not, there may be no choice but to set a new meeting date or adjourn the meeting, which may also necessitate fixing a new record date and conducting another broker search—themselves additional sources of delay.

  • Was the company required to file a preliminary proxy statement due to the inclusion of “non-routine” proposals, such as a charter amendment? If a preliminary proxy statement was required, a company should consider whether the addition of the omitted proposal to the proxy statement would be considered a fundamental change in the proxy materials that would require another 10-day waiting period before amended definitive materials can be provided to shareholders pursuant to Rule 14a-6(a). Formal guidance on what constitutes a fundamental change is limited, and the determination for any company will depend on its specific facts and circumstances. However, because a say-on-pay frequency proposal would not itself have required a preliminary proxy statement to be filed and is advisory in nature, we believe there are often reasonable grounds to conclude that adding a say-on-pay frequency proposal would not constitute a fundamental change to a company’s proxy statement.

If a company chooses to file a proxy statement supplement, a few matters should be covered. In addition to providing the omitted say-on-pay frequency proposal and an amended form of proxy card, the supplement should also include an amended notice of annual meeting that includes the new proposal, instructions on how to vote and how to revoke or modify previously cast votes in light of the change, what happens to previously cast votes that are not revoked and disclosure about the effects of votes on the new proposal, such as the effect of abstentions and broker non-votes.

An inadvertently omitted say-on-pay frequency proposal can cause consternation, and fixing the issue requires a company to act quickly under pressure. Nevertheless, with thoughtful analysis and consultation with counsel, a company can often address a slip-up with minimal delay and expense.


capital markets and securities, corporate, corporate governance, m&a, executive compensation