
[Federal Register: July 8, 2009 (Volume 74, Number 129)]
[Proposed Rules]               
[Page 32474-32479]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08jy09-26]                         

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SECURITIES AND EXCHANGE COMMISSION

17 CFR PART 240

[Release No. 34-60218; File No. S7-12-09]
RIN 3235-AK31

 
Shareholder Approval of Executive Compensation of TARP Recipients

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: We are proposing amendments to the proxy rules under the 
Securities Exchange Act of 1934 to set forth certain requirements for 
U.S. registrants subject to Section 111(e) of the Emergency Economic 
Stabilization Act of 2008. Section 111(e) of the Emergency Economic 
Stabilization Act of 2008 requires companies that have received 
financial assistance under the Troubled Asset Relief Program (``TARP'') 
to permit a separate shareholder advisory vote to approve the 
compensation of executives, as disclosed pursuant to the compensation 
disclosure rules of the Commission, during the period in which any 
obligation arising from financial assistance provided under the TARP 
remains outstanding. The proposed amendments are intended to help 
implement this requirement by specifying and clarifying it in the 
context of the federal proxy rules.

DATES: Comments should be received on or before September 8, 2009.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/proposed.shtml );
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number S7-12-09 on the subject line; or
     Use the Federal Rulemaking Portal (http://
www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number S7-12-09. This file number 
should be included on the subject line if e-mail is used. To help us 
process and review your comments more efficiently, please use only one 
method. The Commission will post all comments on the Commission's 
Internet Web site (http://www.sec.gov/rules/proposed.shtml ). Comments 
are also available for public inspection and copying in the 
Commission's Public Reference Room, 100 F Street, NE, Washington, DC 
20549, on official business days between the hours of 10 a.m. and 3 
p.m. All comments received will be posted without change; we do not 
edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly.

FOR FURTHER INFORMATION CONTACT: John Harrington, Attorney-Adviser, or 
N. Sean Harrison, Special Counsel, Division of Corporation Finance, at 
(202) 551-3430, or Division of Corporation Finance, at (202) 551-3430, 
U.S. Securities and Exchange Commission, 100 F Street, NE., Washington, 
DC 20549-3628.

SUPPLEMENTARY INFORMATION: We are proposing a new Rule 14a-20 and 
amendments to Schedule 14A\1\ under the Securities Exchange Act of 1934 
(``Exchange Act'').\2\
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    \1\ 17 CFR 240.14a-101.
    \2\ 15 U.S.C. 78a et seq.
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I. Background

    The American Recovery and Reinvestment Act of 2009 (``ARRA'') was 
enacted on February 17, 2009.\3\ Section 7001 of the ARRA amended the 
executive compensation and corporate governance provisions of Section 
111 of the Emergency Economic Stabilization Act of 2008 (``EESA'').\4\ 
Section 111(e) of the EESA,\5\ as amended, requires any entity that has 
received or will receive financial assistance under the Troubled Asset 
Relief Program (``TARP'') to ``permit a separate shareholder vote to 
approve the compensation of executives, as disclosed pursuant to the 
compensation disclosure rules of the Commission (which disclosure shall 
include the compensation discussion and analysis, the compensation 
tables, and any related material).'' \6\ Companies that have received 
financial assistance under the TARP are required to provide this 
separate shareholder vote during the period in which any obligation 
arising from financial assistance provided under the TARP remains 
outstanding.\7\ The shareholder vote required by Section 111(e) of the 
EESA is not binding on the board of directors of a TARP recipient, and 
such vote will not be construed as overruling a board decision or as 
creating or implying any additional fiduciary duty by the board.\8\ The 
vote also will not be construed to restrict or limit the ability of 
shareholders to make proposals for inclusion in proxy materials related 
to executive compensation.\9\
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    \3\ Pub. L. 111-5, Title II, 110 Stat. (2009).
    \4\ 12 U.S.C. 5221.
    \5\ Section 111(e) of the EESA, as amended, states--
    (1) ANNUAL SHAREHOLDER APPROVAL OF EXECUTIVE COMPENSATION--Any 
proxy or consent or authorization for an annual or other meeting of 
the shareholders of any TARP recipient during the period in which 
any obligation arising from financial assistance provided under the 
TARP remains outstanding shall permit a separate shareholder vote to 
approve the compensation of executives, as disclosed pursuant to the 
compensation disclosure rules of the Commission (which disclosure 
shall include the compensation discussion and analysis, the 
compensation tables, and any related material).
    (2) NONBINDING VOTE--A shareholder vote described in paragraph 
(1) shall not be binding on the board of directors of a TARP 
recipient, and may not be construed as overruling a decision by such 
board, nor to create or imply any additional fiduciary duty by such 
board, nor shall such vote be construed to restrict or limit the 
ability of shareholders to make proposals for inclusion in proxy 
materials related to executive compensation.
    (3) DEADLINE FOR RULEMAKING--Not later than 1 year after the 
date of enactment of the American Recovery and Reinvestment Act of 
2009, the Commission shall issue any final rules and regulations 
required by this subsection.
    \6\ We do not believe this provision changes the Commission's 
rules for a smaller reporting company that is a TARP recipient under 
the EESA with respect to the compensation discussion and analysis 
(``CD&A'') disclosure. Our compensation disclosure rules, as set 
forth in Item 402 of Regulation S-K [17 CFR 229.402], permit smaller 
reporting companies to provide scaled disclosure that does not 
include CD&A.
    \7\ Section 111 of the EESA defines this period to not include 
any period during which the Federal Government ``only holds warrants 
to purchase common stock of the TARP recipient.'' See 12 U.S.C. 
5221(a)(5).
    \8\ Section 111(e)(2) of the EESA [12 U.S.C. 5221(e)(2)].
    \9\ Rule 14a-8 under the Exchange Act will continue to apply to 
shareholder proposals that relate to executive compensation. Rule 
14a-8 provides shareholders with an opportunity to place a proposal 
in a company's proxy materials for a vote at an annual or special 
meeting of shareholders. Under this rule, a company generally is 
required to include the proposal unless the shareholder has not 
complied with the rule's procedural requirements or the proposal 
falls within one of the rule's 13 substantive bases for exclusion. 
To date, the staff of the Division of Corporation Finance has 
considered two requests in which TARP recipients requested the 
staff's concurrence that, given the shareholder advisory vote 
provision in Section 111(e) of the EESA, the companies could rely on 
Rule 14a-8(i)(9) [17 CFR 240.14a-8(i)(9)] or Rule 14a-8(i)(10) [17 
CFR 240.14a-8(i)(10)] to exclude from their proxy materials 
shareholder proposals that requested policies of holding annual 
shareholder advisory votes on executive compensation. The staff of 
the Division of Corporation Finance declined to concur with either 
request. See Bank of America Corp. (Mar. 11, 2009); CoBiz Financial 
Inc. (Mar. 25, 2009) (available at http://www.sec.gov/divisions/
corpfin/cf-noaction/2009_14a-8.shtml).

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[[Page 32475]]

II. Discussion of the Proposed Amendments

    We are proposing new Rule 14a-20 under the Exchange Act to help 
implement the requirement under Section 111(e)(1) of the EESA that 
``TARP recipients'' under Section 111(a)(3) of the EESA \10\ provide a 
separate shareholder vote to approve the compensation of the company's 
executives.\11\ Under proposed Rule 14a-20, registrants that are TARP 
recipients would be required to provide this separate shareholder vote 
in proxies solicited during the period in which any obligation arising 
from financial assistance provided under the TARP remains outstanding. 
Proposed Rule 14a-20 would clarify that the separate shareholder vote 
required by Section 111(e)(1) of the EESA would only be required on a 
proxy solicited for an annual (or special meeting in lieu of the 
annual) meeting of security holders for which proxies will be solicited 
for the election of directors.\12\ We are proposing an instruction to 
new Rule 14a-20 to clarify that smaller reporting companies would not 
be required to provide a compensation discussion and analysis in order 
to comply with the requirements of Rule 14a-20.\13\
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    \10\ Section 111(a)(3) of the EESA defines TARP recipient as 
``any entity that has received or will receive financial assistance 
under the financial assistance provided under the TARP.'' See 12 
U.S.C. 5221(a)(3).
    \11\ Section 111(e)(3) of the EESA requires the Commission to 
issue any final rules required by Section 111(e) within one year 
after the enactment of the ARRA. See 12 U.S.C. 5221(e)(3).
    \12\ The Commission agrees with the view previously expressed by 
the Division of Corporation Finance that a separate shareholder vote 
on executive compensation is required only with respect to an annual 
meeting of shareholders for which proxies will be solicited for the 
election of directors or a special meeting in lieu of such annual 
meeting. See Compliance and Disclosure Interpretations: American 
Recovery and Reinvestment Act of 2009 (Updated February 26, 2009), 
Question 1, available at http://www.sec.gov/divisions/corpfin/
guidance/arrainterp.htm. Although Section 111(e)(1) of the EESA 
refers to an annual ``or other meeting of the shareholders,'' the 
subsection is titled ``Annual Shareholder Approval of Executive 
Compensation.'' Proposed Rule 14a-20 is intended to result in TARP 
recipients conducting the required advisory vote annually in 
connection with the election of directors, in which case our rules 
call for disclosure of executive compensation.
    \13\ See note 6 above.
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    We are also proposing an amendment to Item 20 of Schedule 14A that 
would be applicable to registrants that are TARP recipients and are 
required to provide a separate shareholder vote on executive 
compensation pursuant to Section 111(e)(1) of the EESA and proposed 
Rule 14a-20. Pursuant to this amendment, such registrants would be 
required to disclose in the proxy statement that they are providing a 
separate shareholder vote on executive compensation pursuant to the 
requirements of the EESA, and to briefly explain the general effect of 
the vote, such as whether the vote is non-binding.\14\ Under our 
current disclosure rules, a company is required to report the results 
of the vote in its periodic report for the period in which the vote is 
taken.\15\ This includes the results of the vote required under the 
EESA and proposed Rule 14a-20. We are proposing in a separate release 
also considered by the Commission today to accelerate the filing 
schedule for reporting results of shareholder votes generally by moving 
the requirement from Forms 10-Q and 10-K to Form 8-K.\16\ If that 
proposal is adopted, it would apply to reporting results of the vote 
required by Rule 14a-20.\17\
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    \14\ We are not proposing to require registrants to use any 
specific language or form of resolution. However, as stated in 
Section 111(e)(1) of the EESA, the vote must be to approve ``the 
compensation of executives, as disclosed pursuant to the 
compensation disclosure rules of the Commission (which disclosure 
shall include the compensation discussion and analysis, the 
compensation tables, and any related material).'' We believe that a 
vote to approve a proposal on a different subject matter, such as a 
vote to approve only compensation policies and procedures, would not 
satisfy the requirements of Section 111(e)(1) of the EESA or 
proposed Rule 14a-20.
    Likewise, a shareholder proposal that asks the company to adopt 
a policy providing for periodic, non-binding shareholder votes on 
executive compensation in the future would not satisfy the 
requirement of Section 111(e) of the EESA or proposed Rule 14a-20. 
Section 111(e) requires a vote to approve the compensation of 
executives. A vote to request a voting policy that would apply at 
future meetings would not satisfy the EESA or proposed Rule 14a-20.
    \15\ See Item 4 of Part II of Exchange Act Form 10-Q [17 CFR 
249.308a] and Item 4 of Part I of Exchange Act Form 10-K [17 CFR 
249.310].
    \16\ 17 CFR 249.308.
    \17\ In the Proxy Disclosure and Solicitation Enhancements 
Release, the Commission is proposing amendments that would require 
reporting companies to disclose on Form 8-K the results of a 
shareholder vote, and to file that information within four business 
days after the end of the meeting at which the vote was held.
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    It is our intent that the proposed Rule 14a-20 and the proposed 
amendments to Schedule 14A afford registrants that are TARP recipients 
adequate flexibility to meet their obligations under Section 111(e) of 
the EESA. At the same time, we believe that the proposed amendments, by 
helping to implement the requirements of Section 111(e) of the EESA in 
our proxy rules, would provide clarity for registrants that are TARP 
recipients regarding how they must comply with their obligations under 
Section 111(e) of the EESA. We also believe that a discussion of the 
reason why the registrant is providing a separate shareholder vote on 
the compensation of executives and an explanation of the effect of that 
vote would provide investors with information that would help them to 
make informed voting decisions.
    Rule 14a-6 under the Exchange Act generally requires registrants to 
file proxy statements in preliminary form at least ten calendar days 
before definitive proxy materials are first sent to shareholders, 
unless the items included for a shareholder vote in the proxy statement 
are limited to specified matters.\18\ During the time before final 
proxy materials are filed, our staff has the opportunity to comment on 
the disclosures and registrants are able to incorporate the staff's 
comments in their final proxy materials. The matters that do not 
require filing of preliminary materials include various items that 
regularly arise at annual meetings, such as the election of directors, 
ratification of the selection of auditors, approval or ratification of 
certain employee benefits plans, and shareholder proposals under Rule 
14a-8.
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    \18\ 17 CFR 240.14a-6(a).
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    Absent an amendment to Rule 14a-6, a proxy statement that includes 
the vote on executive compensation required by Section 111(e) of EESA 
and proposed Rule 14a-20 must be filed in preliminary form. We are not 
proposing to amend Rule 14a-6 at this time to add the vote required for 
TARP recipients to the list of items that do not trigger a preliminary 
filing. In light of the early stage of the development of disclosures 
under these requirements and the special policy considerations relating 
to this shareholder vote for TARP recipients, we believe it is 
appropriate to provide our staff the opportunity to comment on the 
disclosure before final proxy materials are filed. However, as 
indicated below, we are requesting comment on this issue.

Request for Comment

    We request and encourage any interested person to submit comments 
regarding the proposed amendments described above. In particular, we 
solicit comment on the following questions:

[[Page 32476]]

     Should we include more specific requirements regarding the 
manner in which registrants that are TARP recipients should present the 
shareholder vote on executive compensation? For example, should we 
designate the specific language to be used and/or require TARP 
recipients to frame the shareholder vote to approve executive 
compensation in the form of a resolution?
     Should we require registrants that are TARP recipients to 
disclose the reasons why they are providing for a separate shareholder 
vote on executive compensation and an explanation of the effect of that 
vote, as proposed?
     Should we require any additional disclosures about TARP 
recipients or the requirements of Section 111(e) of the EESA to be 
included with the vote to approve executive compensation? If so, what 
disclosures should we consider?
     Should we require any additional disclosures to be 
included with a TARP recipient's compensation discussion and analysis 
or other disclosures provided under Item 402 of Regulation S-K?
     Should we clarify by instruction, as proposed, that 
smaller reporting companies that are TARP recipients are not required 
to include a compensation discussion and analysis in their proxy 
statements in order to comply with our proposed amendments?
     Should language be added to proposed Rule 14a-20 to 
indicate explicitly that, as required by Section 111(e) of the EESA, 
the separate shareholder vote on the compensation of executives would 
be a non-binding advisory vote, or is the statutory reference 
sufficient for this purpose?
     Should we amend Rule 14a-6(a) under the Exchange Act so 
that registrants that are TARP recipients are not required to file a 
preliminary proxy statement as a consequence of providing a separate 
shareholder vote on executive compensation?

III. Paperwork Reduction Act

A. Background

    The proposed amendments contain ``collection of information'' 
requirements within the meaning of the Paperwork Reduction Act of 1995 
(``PRA'').\19\ We are submitting the proposed amendments to the Office 
of Management and Budget (``OMB'') for review in accordance with the 
PRA.\20\ The title for the collection of information is:
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    \19\ 44 U.S.C. 3501 et seq.
    \20\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
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    ``Schedule 14A'' (OMB Control No. 3235-0059).
    Schedule 14A was adopted under the Exchange Act and sets forth the 
disclosure requirements for proxy statements filed by U.S. issuers to 
help shareholders make informed voting decisions. The hours and costs 
associated with preparing, filing and sending the form constitute 
reporting and cost burdens imposed by each collection of information. 
An agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless it displays a currently 
valid OMB control number. Compliance with the proposed amendments by 
affected U.S. issuers would be mandatory. Responses to the information 
collections would not be kept confidential and there would be no 
mandatory retention period for the information disclosed.
    As discussed in more detail above, we are proposing a new Rule 14a-
20 under the Exchange Act and an amendment to Item 20 of Schedule 14A. 
Rule 14a-20 would help implement the requirement under Section 
111(e)(1) of the EESA to provide a separate shareholder vote to approve 
the compensation of executives. Pursuant to the proposed amendment to 
Item 20 of Schedule 14A, registrants required to provide a separate 
shareholder vote pursuant to new Rule 14a-20 would be required to 
disclose the EESA requirement to provide such a vote and the general 
effect of the vote.

B. Burden and Cost Estimates Related to the Proposed Amendments

    We believe that the proposed Rule 14a-20 and amendments to Schedule 
14A will result in only a modest increase in the burden and cost of 
preparing and filing a Schedule 14A because they will not cause TARP 
recipients to collect or disclose any significant additional 
information. Section 111(e) of the EESA already increased the burdens 
and costs for registrants that are TARP recipients by requiring a 
separate shareholder vote on executive compensation and already applied 
during the 2009 proxy season. Our proposed amendments address the EESA 
requirement in the context of the federal proxy rules, thereby creating 
only an incremental increase in the burdens and costs for such 
registrants. We believe the proposed amendments will remove uncertainty 
while still providing registrants that are TARP recipients adequate 
flexibility to comply with Section 111(e) of the EESA.
    For purposes of this analysis, we estimate the burden of disclosing 
the general effect of the vote and otherwise ensuring conformity with 
the federal proxy rules when complying with Section 111(e)(1) of the 
EESA will increase by one hour per registrant that is a TARP recipient. 
We estimate there are approximately 275 registrants that are TARP 
recipients with outstanding obligations that would be subject to our 
proposed amendments.\21\ Therefore, the total annual PRA burden 
attributable to the proposed rules is 275 hours. For proxy statements, 
consistent with our customary assumptions, we estimate that 75% of the 
burden of preparation is carried by the company internally and that 25% 
of the burden is carried by outside professionals retained by the 
company to review corporate disclosure at an average cost of $400 per 
hour.\22\ The portion of the burden carried by outside professionals is 
reflected as a cost, while the portion of the burden carried by the 
company internally is reflected in hours. Based on the foregoing, we 
calculated the additional annual compliance burdens resulting from the 
proposed amendments at 206.5 hours (this is 75% of the total 275 hours 
in increased burden carried by the company internally) and $27,500 
(this is 25% of the total increased hourly burden carried by outside 
professionals and reflected as a cost). The current total annual burden 
hours and cost of Schedule 14A approved by the OMB is 555,683 hours and 
$63,709,987. Giving effect to the incremental increases in burden hours 
and costs as a result of the proposed amendments, the total annual 
burden hours and cost of Schedule 14A would be 555,889.5 hours and 
$63,737,487.
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    \21\ Our staff made this estimate from publicly-available 
information about TARP recipients. The estimate is based on the 
number of TARP recipients that are subject to our proxy rules and 
that have not repaid their TARP obligations.
    \22\ We estimate an hourly cost of $400 per hour for the service 
of outside professionals based on our consultations with several 
registrants and law firms and other persons who regularly assist 
registrants in preparing and filing proxy statements and related 
disclosures with the Commission.
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C. Request for Comment

    Pursuant to 44 U.S.C. 3506(c)(2)(B), we request comment in order 
to:
     Evaluate whether the proposed collections of information 
are necessary for the proper performance of the functions of the 
Commission, including whether the information will have practical 
utility;
     Evaluate the accuracy of our estimate of the burden of the 
proposed collections of information;
     Determine whether there are ways to enhance the quality, 
utility, and clarity of the information to be collected;
     Evaluate whether there are ways to minimize the burden of 
the collections

[[Page 32477]]

of information on those who respond, including through the use of 
automated collection techniques or other forms of information 
technology; and
     Evaluate whether the proposed amendments will have any 
effects on any other collections of information not previously 
identified in this section.
    Any member of the public may direct to us any comments concerning 
the accuracy of these burden estimates and any suggestions for reducing 
the burdens. Persons who desire to submit comments on the collection of 
information requirements should direct their comments to the OMB, 
Attention: Desk Officer for the Securities and Exchange Commission, 
Office of Information and Regulatory Affairs, Washington, DC 20503, and 
send a copy of the comments to Elizabeth M. Murphy, Secretary, 
Securities and Exchange Commission, 100 F Street, NE., Washington, DC 
20549-1090, with reference to File No. S7-12-09. Requests for materials 
submitted to the OMB by us with regard to these collections of 
information should be in writing, refer to File No. S7-12-09 and be 
submitted to the Securities and Exchange Commission, Office of Investor 
Education and Advocacy, 100 F Street, NE., Washington, DC 20549-0213. 
Because OMB is required to make a decision concerning the collections 
of information between 30 and 60 days after publication, your comments 
are best assured of having their full effect if OMB receives them 
within 30 days of publication.

IV. Cost-Benefit Analysis

    We are sensitive to the costs and benefits of the proposed 
amendments. In this section, we examine the benefits and costs of our 
proposed amendments. We request that commenters provide views and 
supporting information as to the benefits and costs associated with the 
proposals. We seek estimates of these costs and benefits, as well as 
any costs and benefits not already identified.\23\
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    \23\ The cost-benefit analysis in this section addresses the 
costs and benefits of the proposed amendments. The analysis does 
not, however, address the costs and benefits of the requirement in 
Section 111(e)(1) of the EESA that TARP recipients conduct a 
separate shareholder vote on executive compensation. While the 
proposed amendments set forth the manner in which registrants that 
are TARP recipients would implement this requirement when complying 
with the federal proxy rules, such registrants are already subject 
to the provisions of Section 111(e)(1) of the EESA and thus we are 
only addressing the incremental costs and benefits of the proposed 
amendments.
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A. Benefits

    We are proposing amendments to the federal proxy rules to help 
implement the requirement in Section 111(e)(1) of the EESA that TARP 
recipients provide a separate shareholder vote to approve the 
compensation of executives. Under the proposed amendments, this 
separate shareholder vote would be required when registrants that are 
TARP recipients solicit proxies during the period in which any 
obligation arising from financial assistance provided under the TARP 
remains outstanding, and the solicitation relates to an annual meeting 
(or a special meeting in lieu of an annual meeting) for which proxies 
will be solicited for the election of directors. Companies required to 
provide such a separate shareholder vote would also be required to 
disclose in their proxy statements the EESA requirement to provide such 
a vote, and to briefly explain the general effect of the vote.
    We believe the proposed amendments will benefit registrants that 
are TARP recipients by clarifying how they must comply with the 
requirements of Section 111(e)(1) of the EESA in the context of the 
federal proxy rules. The proposed amendments eliminate uncertainty that 
may exist among TARP recipients and other market participants regarding 
what is necessary under the Commission's proxy rules when conducting a 
shareholder vote required under Section 111(e) of the EESA. In addition 
to these benefits, we believe the proposed amendments allow TARP 
recipients adequate flexibility under the proxy rules to comply with 
the requirements of the EESA. By providing clarity while maintaining 
adequate flexibility, we believe the proposed amendments could reduce 
the amount of management time and legal expenses necessary to ensure 
that registrants that are TARP recipients comply with their obligations 
under both the EESA and the federal proxy rules. This would benefit 
TARP recipients and their shareholders.
    We believe the proposed amendments will benefit investors by 
resulting in clear disclosure about the requirements of Section 
111(e)(1) of the EESA as applied to Exchange Act registrants. When a 
separate shareholder vote on the compensation of executives is required 
by the EESA, proposed Rule 14a-20 would specify and clarify that 
requirement in the context of the federal proxy rules. By doing so, we 
believe Rule 14a-20 would promote better compliance with the 
requirements of Section 111(e)(1) of the EESA when registrants that are 
TARP recipients conduct solicitations subject to our proxy rules. The 
proposed amendments to Schedule 14A would require disclosure about the 
EESA requirement to provide a separate shareholder vote and the general 
effects of such a vote. Together, the proposed amendments are intended 
to provide useful, comparable and consistent information to assist an 
informed voting decision when registrants that are TARP recipients 
present to investors the advisory vote on executive compensation 
required pursuant to Section 111(e)(1) of the EESA. The specification 
and clarification of the requirement in our proposed rule would also 
help provide certainty about the nature of the TARP recipient's 
responsibility to hold the advisory vote, making it easier for 
companies to comply.

B. Costs

    We believe the proposed amendments would not add any significant 
costs to those already created by the requirements of Section 111(e)(1) 
of the EESA and our proxy rules. The proposed amendments are intended 
to help implement the existing substantive EESA requirement in the 
context of the federal proxy rules. While our proposed amendments to 
Schedule 14A would require certain disclosures not explicitly required 
by EESA, we believe any incremental costs imposed by our proposed 
amendments would be minimal. For purposes of the PRA, we estimate the 
total annual incremental cost of the amendments to be 275 hours. We 
request comment on the amount of any additional costs issuers may incur 
as a result of the proposed amendments.

V. Small Business Regulatory Enforcement Fairness Act

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996, or ``SBREFA,'' \24\ we solicit data to determine whether 
the proposals constitute a ``major'' rule. Under SBREFA, a rule is 
considered ``major'' where, if adopted, it results or is likely to 
result in:
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    \24\ 5 U.S.C. 603.
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     An annual effect on the economy of $100 million or more 
(either in the form of an increase or a decrease);
     A major increase in costs or prices for consumers or 
individual industries; or
     Significant adverse effects on competition, investment or 
innovation.
    We request comment on the potential impact of the proposed 
amendments on the U.S. economy on an annual basis, any potential 
increase in costs or prices for consumers or individual industries, and 
any potential effect on competition, investment or innovation. 
Commenters are requested to provide empirical data

[[Page 32478]]

and other factual support for their views if possible.

VI. Consideration of Impact on the Economy, Burden on Competition and 
Promotion of Efficiency, Competition and Capital Formation

    Section 23(a)(2) of the Exchange Act \25\ also requires us, when 
adopting rules under the Exchange Act, to consider the impact that any 
new rule would have on competition. Section 23(a)(2) prohibits us from 
adopting any rule that would impose a burden on competition not 
necessary or appropriate in furtherance of the purposes of the Exchange 
Act. In addition, Section 3(f) \26\ of the Exchange Act requires us, 
when engaging in rulemaking where we are required to consider or 
determine whether an action is necessary or appropriate in the public 
interest, to also consider whether the action will promote efficiency, 
competition, and capital formation.
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    \25\ 15 U.S.C. 78w(a).
    \26\ 15 U.S.C. 78c(f).
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    We believe the proposed amendments would benefit registrants that 
are TARP recipients and their shareholders by providing certainty 
regarding how registrants that are TARP recipients must comply with the 
EESA requirement to hold an advisory vote on executive compensation in 
the context of the federal proxy rules, while maintaining adequate 
flexibility to comply with this requirement. The certainty should 
promote efficiency. The proposed amendments also would help ensure that 
shareholders receive disclosure regarding the required vote and the 
nature of a registrant's responsibilities to hold the vote under the 
EESA. As discussed in greater detail above, we believe these benefits 
would be achieved without imposing any significant additional burdens 
on registrants that are TARP recipients. We do not anticipate any 
effect on competition or capital formation. We do believe the rules 
will make compliance with EESA more efficient.
    We request comment on whether the proposed amendments, if adopted, 
would impose a burden on competition. We also request comment on 
whether the proposed amendments, if adopted, would promote efficiency, 
competition, and capital formation. Commenters are requested to provide 
empirical data and other factual support for their view to the extent 
possible.

VII. Regulatory Flexibility Act Certification

    The Commission hereby certifies pursuant to 5 U.S.C. 605(b), that 
the amendments contained in this release, if adopted, would not have a 
significant economic impact on a substantial number of small entities. 
Rule 0-10 under the Exchange Act defines small entities for these 
purposes as those with total assets of $5 million or less on the last 
day of their most recent fiscal year.\27\ The proposed amendments would 
only impact TARP recipients with a class of securities registered 
pursuant to Section 12 of the Exchange Act and thus subject to the 
federal proxy rules.\28\ We believe no TARP recipients that are 
required to comply with our proxy rules are small entities. In 
addition, if any small entities become subject to our proposed 
amendments, we do not believe the proposed amendments would have a 
significant economic impact on them. Any small entity subject to our 
proposed amendments would already be subject to the requirements of 
Section 111(e)(1) of the EESA. Further, we do not believe the EESA 
requires ``smaller reporting companies'' to provide a compensation 
discussion and analysis. As discussed in greater detail above, we do 
not believe our proposed rules impose a significant additional cost. 
For these reasons, the proposed amendments should not have a 
significant economic impact on a substantial number of small entities.
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    \27\ 17 CFR 240.0-10.
    \28\ See 17 CFR 240.14a-2.
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    We solicit written comments regarding this certification. We 
request that commenters describe the nature of any impact on small 
entities and provide empirical data to support the extent of the 
impact.

VIII. Statutory Authority and Text of the Proposed Amendments

    The amendments described in this release are being proposed under 
the authority set forth in Section 111(e) of the Emergency Economic 
Stabilization Act of 2008 (12 U.S.C. 5221(e)) and Sections 14(a) and 
23(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78n(a) and 
78w(a)).

List of Subjects in 17 CFR Part 240

    Reporting and recordkeeping requirements, Securities.

Text of the Proposed Amendments

    For the reasons set out in the preamble, the Commission proposes to 
amend title 17, chapter II, of the Code of Federal Regulations as 
follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

    1. The general authority citation for Part 240 is revised to read 
as follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 
78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 
80b-11, and 7201 et seq., 18 U.S.C. 1350, and 12 U.S.C. 5221(e)(3), 
unless otherwise noted.
* * * * *
    2. Add Sec.  240.14a-20 to read as follows:


Sec.  240.14a-20  Shareholder Approval of Executive Compensation of 
TARP Recipients.

    If a solicitation is made by a registrant that is a TARP recipient, 
as defined in section 111(a)(3) of the Emergency Economic Stabilization 
Act of 2008 (12 U.S.C. 5221(a)(3)), during the period in which any 
obligation arising from financial assistance provided under the TARP, 
as defined in section 3(8) of the Emergency Economic Stabilization Act 
of 2008 (12 U.S.C. 5202(8)), remains outstanding and the solicitation 
relates to an annual (or special meeting in lieu of the annual) meeting 
of security holders for which proxies will be solicited for the 
election of directors, as required pursuant to section 111(e)(1) of the 
Emergency Economic Stabilization Act of 2008 (12 U.S.C. 5221(e)(1)), 
the registrant shall provide a separate shareholder vote to approve the 
compensation of executives, as disclosed pursuant to Item 402 of 
Regulation S-K (Sec.  229.402 of this chapter), including the 
compensation discussion and analysis, the compensation tables, and any 
related material.

    Note to Sec.  240.14a-20: TARP recipients that are smaller 
reporting companies entitled to provide scaled disclosure pursuant 
to Item 402(l) of Regulation S-K are not required to include a 
compensation discussion and analysis in their proxy statements in 
order to comply with this section. In the case of these smaller 
reporting companies, the required vote must be to approve the 
compensation of executives as disclosed pursuant to Item 402(m) 
through (r) of Regulation S-K.

    3. Amend Sec.  240.14a-101 by adding a sentence at the end of Item 
20 to read as follows:


Sec.  240.14a-101  Schedule 14A. Information required in Proxy 
Statement.

Schedule 14A Information
* * * * *
    Item 20. Other proposed action. * * * Registrants required to 
provide a

[[Page 32479]]

separate shareholder vote pursuant to section 111(e)(1) of the 
Emergency Economic Stabilization Act of 2008 (12 U.S.C. 5221(e)(1)) and 
Sec.  240.14a-20 shall disclose that they are providing such a vote as 
required pursuant to the Emergency Economic Stabilization Act of 2008, 
and briefly explain the general effect of the vote.
* * * * *

    July 1, 2009.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-16037 Filed 7-7-09; 8:45 am]
