
[Federal Register Volume 75, Number 11 (Tuesday, January 19, 2010)]
[Rules and Regulations]
[Pages 2789-2795]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-756]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-61335; File No. S7-12-09]
RIN 3235-AK31


Shareholder Approval of Executive Compensation of TARP Recipients

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: The Commission is adopting 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 amendments are intended to help 
implement this requirement by specifying and clarifying it in the 
context of the Federal proxy rules.

DATES: Effective Date: February 18, 2010.

FOR FURTHER INFORMATION CONTACT: John Harrington, Attorney-Adviser, or 
N. Sean Harrison, Special Counsel, 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 adopting new Rule 14a-20 and 
amendments to Schedule 14A \1\ and Rule 14a-6 \2\ under the Securities 
Exchange Act of 1934 (``Exchange Act'').\3\
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    \1\ 17 CFR 240.14a-101.
    \2\ 17 CFR 240.14a-6.
    \3\ 15 U.S.C. 78a et seq.
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I. Background

    In July 2009, we published for public comment \4\ proposed 
amendments to the proxy rules under the Exchange Act to set forth 
certain requirements for U.S. registrants subject to Section 111(e) of 
the Emergency Economic Stabilization Act of 2008 (``EESA'').\5\
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    \4\ Shareholder Approval of Executive Compensation of TARP 
Recipients, Release No. 34-60218 (July 1, 2009) [74 FR 32474] 
(hereinafter, the ``Proposing Release'').
    \5\ 12 U.S.C. 5221(e).
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    Section 111(e) of the EESA, as amended by Section 7001 of the 
American Recovery and Reinvestment Act of 2009 \6\ on February 17, 
2009, requires any entity that is a recipient of 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).'' \7\ 
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.\8\ 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.\9\ 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.\10\
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    \6\ Public Law 111-5, 123 Stat. 115 (2009).
    \7\ 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.
    \8\ Section 111 of the EESA defines this period not to 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).
    \9\ Section 111(e)(2) of the EESA [12 U.S.C. 5221(e)(2)].
    \10\ Id. 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)] (the 
exclusion for proposals that directly conflict with one of the 
company's own proposals) or Rule 14a-8(i)(10) [17 CFR 240.14a-
8(i)(10)] (the exclusion for proposals that have been substantially 
implemented) 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 2790]]

    We received approximately 50 comment letters in response to the 
proposed amendments.\11\ The respondents included business 
organizations, law firms and attorneys, investment firms, investor 
groups and many individuals. Most commenters expressed general support 
for the proposed amendments.\12\ A few of these commenters expressed 
general support for the amendments, but also suggested certain changes 
or improvements on specific issues, as discussed more fully below.\13\ 
Several other commenters only addressed specific aspects of the 
proposed amendments, such as the requirement to file a preliminary 
proxy statement as a consequence of the required vote, but did not 
express a viewpoint on the overall proposals.\14\ One commenter argued 
that we should revise our proposals so that TARP recipients are not 
required to provide a mandatory annual advisory shareholder vote on 
executive compensation.\15\
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    \11\ The public comments we received are available online at 
http://www.sec.gov/comments/s7-12-09/s71209.shtml.
    \12\ See, e.g., letters from California Public Employees' 
Retirement System (``CalPERS''), Calvert Group, Ltd. (``Calvert''), 
General Board of Pension and Health Benefits of the United Methodist 
Church (``UMC''), Northwest & Ethical Investments L.P., Sisters of 
Saint Francis of Philadephia, United Brotherhood of Carpenters and 
Joiners of America (``UBCJA'') and Walden Asset Management 
(``Walden'').
    \13\ See, e.g., letters from CalPERS, UBCJA and Pax World 
Management Corp.
    \14\ See, e.g., letters from Cleary Gottlieb Steen & Hamilton 
LLP (``Cleary''), Mary K. Blasy, Esq. (``Blasy''), and Sullivan & 
Cromwell LLP (``S&C'').
    \15\ See letter from Center for Capital Markets Competitiveness, 
U.S. Chamber of Commerce (``CCMC''). CCMC advocated a triennial vote 
with an opt-out provision for small and mid-size companies. However, 
as discussed below, Section 111(e)(1) of the EESA requires an annual 
vote and does not include opt-out provisions.
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    More generally, many commenters expressed support for a requirement 
that all public companies permit an annual advisory vote on executive 
compensation.\16\ Other commenters expressed opposition to mandatory 
``say on pay'' for all public companies.\17\ While we note these 
comments, the purpose of this rulemaking is limited to helping to 
implement the requirements of Section 111(e) of the EESA with respect 
to TARP recipients. Therefore, these comments are beyond the scope of 
this rulemaking.
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    \16\ See, e.g., letters from CalPERS, Calvert, Midwest Coalition 
for Responsible Investments and Walden.
    \17\ See, e.g., letters from The Center on Executive 
Compensation and UBCJA.
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    We have carefully considered the comments we received regarding the 
proposed amendments and are adopting new Rule 14a-20 and an amendment 
to Item 20 of Schedule 14A substantially as proposed with slight 
modifications to provide further clarity. In response to comments we 
received, we are also amending Rule 14a-6(a) under the Exchange Act so 
that TARP recipients required to provide a separate shareholder vote on 
executive compensation pursuant to Section 111(e)(1) of the EESA will 
not be required to file a preliminary proxy statement as a consequence 
of providing the required vote.

II. Discussion of the Amendments

    We are adopting substantially as proposed new Rule 14a-20 under the 
Exchange Act to help implement Section 111(e) of the EESA. Under Rule 
14a-20, registrants that are ``TARP recipients'' \18\ will be required 
to provide the separate shareholder vote to approve the compensation of 
executives, as required by Section 111(e)(1) of the EESA, in proxies 
solicited during the period in which any obligation arising from 
financial assistance provided under the TARP remains outstanding. Rule 
14a-20 clarifies that the separate shareholder vote required by Section 
111(e)(1) of the EESA will 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.\19\
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    \18\ 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).
    \19\ As noted in the Proposing Release, 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.'' Rule 14a-20 is intended to 
result in TARP recipients conducting the required advisory vote 
annually in connection with the election of directors, with respect 
to which our rules call for disclosure of executive compensation.
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    We are making one modification to the proposed instruction to Rule 
14a-20 in order to clarify its meaning. The purpose of the instruction 
remains, as proposed, to clarify that smaller reporting companies will 
not be required to provide a compensation discussion and analysis in 
order to comply with the requirements of Rule 14a-20.\20\ As proposed, 
the instruction referenced the compensation of executives as disclosed 
pursuant to Item 402(m) through (r) of Regulation S-K.\21\ Items 402(m) 
through (r) are the entire scaled compensation disclosure applicable to 
smaller reporting companies. However, paragraph (r) refers only to 
director compensation. As suggested by one commenter, we are revising 
the instruction to eliminate the reference to paragraph (r) in order to 
avoid the implication that the required vote relates to director 
compensation.\22\ Other than this modification, we are adopting the 
instruction as proposed.
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    \20\ Several commenters expressed support for the proposed 
instruction clarifying that smaller reporting companies that are 
TARP recipients are not obligated to provide a compensation 
discussion and analysis. See, e.g., letters from Calvert, UBCJA and 
Ursuline Sisters of Tildonk. One commenter did not believe smaller 
reporting companies in general should be entitled to provide scaled 
compensation disclosure. See letter from CalPERS. Another commenter 
believed smaller reporting companies that are TARP recipients should 
provide a limited compensation discussion and analysis of at least 
100 words. See letter from Phil Nicholas (``Nicholas''). As 
described above, we do not believe the EESA alters the disclosure 
obligations of smaller reporting companies pursuant to our existing 
rules regarding scaled disclosure. See note 7 above.
    \21\ 17 CFR 229.402(m)-(r).
    \22\ See letter from S&C.
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    We are also adopting substantially as proposed an amendment to Item 
20 of Schedule 14A that will 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 
Rule 14a-20. Pursuant to this amendment, such registrants will 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. In response to a comment we received requesting 
clarification, we are adding the phrase ``such as whether the vote is 
non-binding'' to the end of the text of the amended Item 20 in order to 
provide an example of a type of disclosure that is required.\23\
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    \23\ See letter from Davis Polk & Wardwell LLP (``Davis Polk'').
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    As adopted, Item 20 will not require any additional disclosures by 
TARP recipients beyond those discussed above. Although a few commenters 
advocated additional disclosure requirements,\24\ we believe the 
existing

[[Page 2791]]

compensation disclosure requirements of Item 402 of Regulation S-K 
should result in sufficient disclosure about TARP recipients' 
compensation policies and decisions to enable an informed vote on the 
compensation of executives.\25\ We note in this connection that, under 
our existing rules, a TARP recipient must consider various disclosures 
regarding its participation in TARP. For example, a TARP recipient must 
consider whether the impact of TARP participation on compensation is 
required to be discussed in its CD&A in order to provide investors with 
material information that is necessary to an understanding of the 
company's compensation policies and decisions regarding named executive 
officers.\26\
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    \24\ See letters from CalPERS (suggesting that TARP recipients 
should detail in the CD&A how receipt of TARP funds will affect 
executive compensation), The Value Alliance (``Value Alliance'') 
(suggesting that required disclosures should include information on 
how receipt of TARP funds impacted compensation policies), Blasy 
(advocating for disclosure requirements related to EESA incentive 
compensation claw-back provisions), Jonathan Graf (commenting that 
CD&A should discuss key financial and risk decisions) and Jasim 
Haider (also expressing the view that CD&A should discuss 
significant financial and risk decisions).
    \25\ We also note that, on December 16, 2009, we approved 
certain amendments intended to improve our proxy disclosure 
requirements. See Proxy Disclosure Enhancements, Release No. 33-9089 
(December 16, 2009). As part of this rulemaking, we approved 
amendments accelerating the reporting of shareholder vote results by 
moving the reporting requirement from the Exchange Act periodic 
reports to Form 8-K [17 CFR 249.308]. These amendments will apply to 
reporting results of the vote required by Section 111(e) of the 
EESA. This will help to address the concerns of commenters who 
stressed the importance of timely reporting of the shareholder vote 
on executive compensation. See, e.g., letter from CalPERS.
    \26\ See Item 402(b), (e) and (o) of Regulation S-K [17 CFR 
229.402(b), (e) and (o)].
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    As we indicated in the Proposing Release, we believe Rule 14a-20 
and the amendment to Schedule 14A will afford registrants that are TARP 
recipients adequate flexibility to meet their obligations under Section 
111(e) of the EESA.\27\ At the same time, the amendments, by helping to 
implement the requirements of Section 111(e) of the EESA in our proxy 
rules, should 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 this disclosure will provide 
investors with information that will help them to make informed voting 
decisions.
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    \27\ Several commenters expressed support for the flexibility 
provided by the proposed rules and did not believe we should 
designate the specific language to be used by TARP recipients when 
presenting the required vote to shareholders. See, e.g., letters 
from Blasy, Davis Polk, UMC, UBCJA and Walden. On the other hand, 
two commenters suggested that we mandate the specific language to be 
used. See letters from S&C (proposing a standard form of resolution) 
and Value Alliance.
    Consistent with the proposal, we are not requiring registrants 
to use any specific language or form of resolution in order to 
afford registrants that are TARP recipients some flexibility in how 
they present the required vote. 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).'' As we indicated in 
the Proposing Release, 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 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 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 Rule 14a-20. See also note 10 above.
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    In the Proposing Release, we solicited comment on whether we should 
amend Rule 14a-6(a) under the Exchange Act so that registrants that are 
TARP recipients would not be required to file a preliminary proxy 
statement as a consequence of providing the required shareholder vote 
on executive compensation. In response to comments received and after 
further consideration of this issue, we are adopting an amendment to 
Rule 14a-6(a) under the Exchange Act to add the vote required for TARP 
recipients to the list of items that do not trigger a preliminary 
filing requirement.
    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 matters specified in the rule.\28\ 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 are 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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    \28\ 17 CFR 240.14a-6(a).
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    We noted in the Proposing Release that, in light of the early stage 
of development of disclosures and the special policy considerations 
related to this required vote for TARP recipients, we thought it would 
be appropriate to provide the staff with the opportunity to comment on 
the disclosure before final proxy materials were filed. Some commenters 
agreed with that approach.\29\ Other commenters who were opposed to a 
preliminary filing requirement generally argued that the burdens to 
TARP recipients and Commission staff would not be justified by the 
benefits of a preliminary filing requirement.\30\ These commenters 
noted that a preliminary filing requirement would be unduly burdensome 
and amplify the already difficult timing and scheduling issues 
surrounding annual meetings. According to the commenters, the need to 
make a preliminary filing would require accelerated timelines and 
result in additional costs. Commenters also noted additional timing 
difficulties related to ``notice and access'' requirements under Rule 
14a-16.\31\ At the same time, the commenters argued that the disclosure 
provided in response to Item 20 of Schedule 14A as amended would be 
straightforward and unlikely to require staff intervention.\32\ 
Therefore, these commenters asserted, the benefits to investors of a 
preliminary filing requirement would be limited. Overall, these 
commenters noted, an advisory vote on executive compensation of TARP 
recipients is similar to the other items specified in Rule 14a-6(a) 
that routinely arise at annual meetings and therefore should not 
trigger a preliminary filing requirement.\33\
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    \29\ See letters from CalPERS, Calvert and Nicholas. See also 
letter from UMC (acknowledging that a preliminary filing many be 
beneficial to staff and some investors, but noting that a 
preliminary filing would be of limited value to the commenter).
    \30\ See letters from Cleary, Davis Polk and S&C. See also 
letter from UBCJA.
    \31\ 17 CFR 240.14a-16. See letters from Cleary and Davis Polk.
    \32\ See letter from Cleary.
    \33\ See letters from Davis Polk and S&C.
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    After further consideration of this issue, we agree that a 
preliminary filing requirement is not necessary and are adopting an 
amendment to Rule 14a-6 accordingly. We agree with commenters that this 
item is similar to the other items specified in Rule 14a-6(a) that do 
not require a preliminary filing, and that the burdens of requiring a 
preliminary filing outweigh the potential benefits in this context. We 
note also that the staff is not precluded from providing an issuer with 
comments on the disclosure in a proxy statement after it has been filed 
in definitive form if the staff determines that to be appropriate in 
the circumstances.

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III. Paperwork Reduction Act

A. Background

    The final amendments contain ``collection of information'' 
requirements within the meaning of the Paperwork Reduction Act of 1995 
(``PRA'').\34\ As discussed in the Proposing Release, we submitted the 
proposed amendments to the Office of Management and Budget (``OMB'') 
for review in accordance with the PRA.\35\ The title for the collection 
of information is:
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    \34\ 44 U.S.C. 3501 et seq.
    \35\ 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 amendments by affected 
U.S. issuers will be mandatory. Responses to the information 
collections will not be kept confidential and there will be no 
mandatory retention period for the information disclosed.
    As discussed in more detail above, we are adopting a new Rule 14a-
20 under the Exchange Act and an amendment to Item 20 of Schedule 14A. 
Rule 14a-20 will 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 amendment to Item 20 of 
Schedule 14A, registrants required to provide a separate shareholder 
vote pursuant to Section 111(e) of the EESA and new Rule 14a-20 will be 
required to disclose the EESA requirement to provide such a vote and 
the general effect of the vote. In addition, we are adopting an 
amendment to Rule 14a-6(a) under the Exchange Act so that TARP 
recipients will not be required to file a preliminary proxy statement 
as a consequence of providing the required vote on executive 
compensation.
    We published a notice requesting comment on the collection of 
information requirements in the Proposing Release and submitted these 
requirements to OMB for review in accordance with the PRA. Although we 
received many comment letters on the proposed rule amendments, no 
commenter specifically mentioned the estimated effects of these 
proposed amendments on the collection of information requirements.\36\
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    \36\ We note that one commenter indicated that the additional 
burdens of a preliminary filing far outweigh any potential benefit 
of prior staff review. See letter from Cleary. As discussed above, 
we are amending Rule 14a-6 and, therefore, a TARP recipient will not 
be required to file a preliminary proxy statement as a consequence 
of providing the required vote.
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    Since we are adopting Rule 14a-20 and the amendment to Item 20 of 
Schedule 14A substantially as proposed, we are not changing the PRA 
burden estimates originally submitted to OMB. In addition, for the 
reasons discussed below, we are not revising our PRA burden estimates 
as a result of the amendment to Rule 14a-6(a).

B. Burden and Cost Estimates Related to the Amendments

    We believe that Rule 14a-20 and the amendment 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 was already in effect 
during the 2009 proxy season. Our 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 amendments will remove uncertainty while 
still providing registrants that are TARP recipients adequate 
flexibility in complying with Section 111(e) of the EESA. For purposes 
of this analysis, we estimate the burden of disclosing the general 
effect of the vote pursuant to Item 20 of Schedule 14A and ensuring 
conformity with Rule 14a-20 when complying with Section 111(e)(1) of 
the EESA will be approximately one hour per year per registrant that is 
a TARP recipient. We do not believe the minor modifications that we are 
making to the proposed Rule 14a-20 and amendment Item 20 of Schedule 
14A in response to comments will impact this estimated burden.
    However, as a result of our amendment to Rule 14a-6(a), TARP 
recipients will no longer be required to file a preliminary proxy 
statement as a consequence of providing the required vote. The 
amendment to Rule 14a-6(a) does not change the substance of the 
information that must be collected and disclosed in Schedule 14A, but 
it does eliminate an additional filing requirement. As discussed in 
greater detail below in the Cost-Benefit Analysis, we believe this 
amendment will benefit many TARP recipients, primarily by easing some 
of the timing challenges that can result from a requirement to prepare 
and file preliminary proxy materials in connection with an annual 
meeting. However, we do not believe the average paperwork burden will 
change as a result of the amendment to Rule 14a-6(a).
    A requirement to file a preliminary proxy statement accelerates the 
time in which registrants must complete a Schedule 14A and creates the 
possibility that the filing could be subject to staff review before a 
definitive filing is made. A filer may incur additional paperwork 
burden if it changes its disclosure in the definitive proxy statement 
in response to staff comments. However, the staff does not review every 
preliminary proxy statement that is filed with the Commission and is 
not precluded from commenting on proxy materials filed in definitive 
form if the staff deems that to be appropriate under the circumstances. 
In addition, the amendment to Rule 14a-6(a) that we are adopting today 
does not necessarily eliminate the potential burdens associated with a 
preliminary filing requirement because any TARP recipient that presents 
an additional proposal to shareholders in its proxy materials that is 
not among the matters enumerated in Rule 14a-6(a) as amended will still 
be required to file a preliminary proxy statement. On balance, 
therefore, we do not believe that eliminating the requirement to file a 
preliminary proxy statement is likely to change the overall disclosure 
provided by TARP recipients with respect to the required vote on 
executive compensation, so we are not reducing our average PRA burden 
estimate.
    We estimate there are approximately 275 registrants that are TARP 
recipients with outstanding obligations that would be subject to the 
final amendments.\37\ Since we estimate that the rules we are adopting 
will result in an increased burden of one hour per year for each 
registrant that is a TARP recipient, the total annual PRA burden 
increase attributable to the final rules is 275 hours. For proxy 
statements, consistent with our customary assumptions, we

[[Page 2793]]

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.\38\ 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 final 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 
final amendments, the total annual burden hours and cost of Schedule 
14A will be approximately 555,889.5 hours and $63,737,487.
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    \37\ 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 as of November 6, 2009.
    \38\ We estimate an hourly rate of $400 as the average cost for 
the service of outside professionals that assist in preparing and 
filing proxy statements and related disclosures with the Commission.
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IV. Cost-Benefit Analysis

    We are sensitive to the costs and benefits of our rules. In this 
section, we examine the benefits and costs of the final amendments we 
are adopting today.\39\
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    \39\ The cost-benefit analysis in this section addresses the 
costs and benefits of the 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 
amendments set forth the manner in which registrants that are TARP 
recipients must 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 amendments.
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    In the Proposing Release, we requested that commenters provide 
views, supporting information and estimates on the benefits and costs 
that may result from adoption of the proposed amendments. No commenter 
expressly addressed the cost-benefit analysis in the Proposing Release. 
Some commenters cited certain benefits and costs of the proposed 
amendments in the course of making a variety of suggestions and 
observations. We discuss these comments throughout the release as 
applicable.

A. Benefits

    We are adopting 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 amendments, this separate 
shareholder vote will 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 will 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 are also amending 
Rule 14a-6(a) under the Exchange Act so that TARP recipients are not 
required to file a preliminary proxy statement as a consequence of 
providing the required vote on executive compensation.
    We believe the 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 amendments eliminate uncertainty that may have existed 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 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 amendments will 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 should benefit 
TARP recipients and their shareholders.
    The amendment to Rule 14a-6(a) will also benefit many TARP 
recipients. During the 2009 proxy season, TARP recipients were required 
to file preliminary proxy statements because the vote on executive 
compensation required by the EESA was not among the matters enumerated 
in Rule 14a-6(a) that do not trigger a preliminary filing requirement. 
Because a preliminary proxy statement must be filed at least 10 days 
prior to the date definitive copies are first sent or given to 
shareholders, registrants subject to a preliminary filing requirement 
must complete their materials on an accelerated basis. This can create 
costs and burdens, especially in conjunction with the scheduling and 
timing issues surrounding annual meetings. In addition, a preliminary 
filing requirement may make it more difficult for a registrant to 
achieve the cost savings possible under the ``notice and access'' model 
because a registrant must send shareholders a Notice of Internet 
Availability of Proxy Materials (and those materials must be available) 
at least 40 days prior to the meeting date unless the registrant relies 
on the ``full set delivery'' option.\40\ By amending Rule 14a-6 so that 
TARP recipients are not required to file a preliminary proxy statement 
as a consequence of providing the required vote, we believe these costs 
may be avoided or lessened and thus the amendment will benefit many 
TARP recipients.
---------------------------------------------------------------------------

    \40\ 17 CFR 240.14a-16.
---------------------------------------------------------------------------

    We believe the 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, Rule 14a-20 specifies and clarifies that requirement in the 
context of the Federal proxy rules. By doing so, we believe Rule 14a-20 
should 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 amendment to Schedule 14A 
requires disclosure about the EESA requirement to provide a separate 
shareholder vote and the general effects of such a vote. Together, the 
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 Rule 14a-20 will 
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 amendments will not add any significant costs for 
TARP recipients to those already created by the requirements of Section 
111(e)(1) of the EESA and our proxy rules. The

[[Page 2794]]

amendments are intended to help implement the existing substantive EESA 
requirement in the context of the Federal proxy rules. While our 
amendment to Schedule 14A would require certain disclosures not 
explicitly required by EESA, we believe any incremental costs imposed 
by our amendments would be minimal. For purposes of the PRA, we 
estimated the total annual increase in incremental burden as a result 
of the amendments to be 275 hours.
    There may be some costs to investors as a result of our amendment 
to Rule 14a-6(a). Because TARP recipients will no longer be required to 
file a preliminary proxy statement as a consequence of providing the 
required vote on executive compensation, Commission staff may not have 
the opportunity to review preliminary proxy materials before TARP 
recipients make definitive copies of these materials available to 
shareholders. Staff review of preliminary materials can benefit 
shareholders by helping to ensure that registrants comply with the 
Federal proxy rules and provide appropriate disclosure to shareholders. 
However, we do not believe the amendment to Rule 14a-6(a) will deprive 
investors of significant benefits. We believe that the rules we are 
adopting today, Rule 14a-20 and the amendment to Item 20 of Schedule 
14A, provide clear guidance to TARP recipients regarding their 
obligations under the Federal proxy rules when subject to the 
requirements of Section 111(e) of the EESA. In addition, the staff does 
not review every preliminary proxy statement that is filed with the 
Commission and is not precluded from commenting on proxy materials 
filed in definitive form if the staff deems that to be appropriate 
under the circumstances.

V. 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 \41\ 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) \42\ 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.
---------------------------------------------------------------------------

    \41\ 15 U.S.C. 78w(a).
    \42\ 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    We believe the final amendments will 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 final amendments also will 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. The amendment to Rule 14a-6(a) will benefit many TARP recipients 
by reducing the burdens associated with a preliminary filing 
requirement. As discussed in greater detail above, we believe these 
benefits will be achieved without imposing any significant additional 
burdens on registrants that are TARP recipients or costs to their 
shareholders. We do not anticipate any effect on competition or capital 
formation. We do believe the rules will make compliance with EESA more 
efficient.
    In the Proposing Release, we requested comment on whether the 
proposed amendments, if adopted, would impose a burden on competition. 
We also requested comment on whether the proposed amendments, if 
adopted, would promote efficiency, competition, and capital formation. 
We did not receive any comments directly responding to these requests.

VI. Regulatory Flexibility Act Certification

    In Part VII of the Proposing Release, the Commission certified 
pursuant to Section 605(b) of the Regulatory Flexibility Act \43\ that 
the proposed amendments to the Federal proxy rules would not have a 
significant economic impact on a substantial number of small entities. 
While the Commission encouraged written comments regarding this 
certification, no commenters responded to this request or indicated 
that the amendments as adopted would have a significant economic impact 
on a substantial number of small entities.
---------------------------------------------------------------------------

    \43\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------

VII. Statutory Authority and Text of the Final Amendments

    The amendments described in this release are being adopted 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 Exchange Act (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 Amendments

0
For the reasons set out in the preamble, the Commission hereby amends 
title 17, chapter II, of the Code of Federal Regulations as follows:

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

0
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.
* * * * *

0
2. Amend Sec.  240.14a-6 by:
0
a. Removing ``and/or'' from the end of paragraph (a)(5);
0
b. Removing the period from the end of paragraph (a)(6) and in its 
place adding ``; and/or''; and
0
c. Adding paragraph (a)(7) immediately following paragraph (a)(6).
    The addition reads as follows:


Sec.  240.14a-6  Filing requirements.

    (a) * * *
    (7) A vote to approve the compensation of executives as required 
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.
* * * * *

0
3. 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

[[Page 2795]]

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 (q) of Regulation S-K.


0
4. Amend Sec.  240.14a-101 to add 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 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, such as 
whether the vote is non-binding.
* * * * *

    By the Commission.

    Dated: January 12, 2010.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-756 Filed 1-15-10; 8:45 am]
BILLING CODE 8011-01-P


