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As I wrote in the November-December 2022 issue of The Corporate Counsel, the Say-on-Frequency vote is the “Halley’s Comet” of the securities laws. Per the Dodd-Frank Act, the Say-on-Frequency vote only comes around once every six years, which means that we really don’t retain the “muscle memory” from including it in past proxy statements. As a result, this year we are busy revisiting decisions made in long ago proxy seasons for those issuers who were first required to conduct a Say-on-Frequency vote in 2011, after the Dodd-Frank Act was enacted. I thought it might be helpful to review some of the common questions that come up every time the Say-on-Frequency vote rolls around.

Do I have to include the Say-on-Frequency Vote if the issuer conducts annual Say-on-Pay votes and the issuer has never changed the frequency of Say-on-Pay Votes?

Yes. Exchange Act Rule 14a-21(b) requires that companies provide a separate shareholder advisory vote in proxy statements for annual meetings to determine whether the vote on the compensation of executives required by Section 14A(a)(1) of the Exchange Act “will occur every 1, 2, or 3 years,” and this advisory vote must occur “no later than the annual or other meeting of shareholders held in the sixth calendar year after the immediately preceding vote.” The Say-on-Frequency vote must occur even if the company does not intend to change the frequency with which it seeks to conduct its Say-on-Pay votes.

Is there a specific form of resolution that issuers must use for the Say-on-Frequency vote?

No. Rule 14a-21(b) does not require that issuers use a specific form of resolution for the Say-on-Frequency vote. Unlike the Say-on-Pay vote requirement in Rule 14a-21(a), the rule does not specify a nonexclusive example of a Say-on-Frequency resolution. Exchange Act Rules Compliance and Disclosure Interpretations Question 169.04 indicates the Staff’s view that the Say-on-Frequency vote need not be set forth as a resolution. Separately, the Staff has informally cautioned that the Say-on-Frequency vote must be clearly stated, in that it must be clear that shareholders can vote on the options of every one, two or three years (or abstain from voting), rather than solely following management’s recommendation as to the frequency, if one is provided.

Companies have relied on this Staff guidance to provide Say-on-Frequency votes in a “proposal” format, such as by simply referencing the four choices that are available on the proxy card, rather than using a “resolution” approach. The Staff indicates in Exchange Act Rules Compliance and Disclosure Interpretations Question 169.06 that it is permissible for the Say-on-Frequency vote to include the words “every year, every other year, or every three years, or abstain” in lieu of “every 1, 2, or 3 years, or abstain.”

Does the inclusion of a Say-on-Frequency vote proposal require the filing of a preliminary proxy statement?

No. The inclusion of a Say-on-Frequency vote proposal does not necessitate the filing of a preliminary proxy statement under Exchange Act Rule 14a-6.

Does the board of directors have to make a recommendation to shareholders on the Say-on-Frequency vote?

No. Rule 14a-21(b) does not require that the board of directors make a recommendation as to the frequency of Say-on-Pay votes, but the SEC has noted that uninstructed proxy cards may be voted in accordance with management’s recommendation only if the company follows the requirements of Rule 14a-4, which include specifying how proxies will be voted (i.e., in accordance with management’s recommendations) in the absence of an instruction from the shareholder. Historically, most companies have provided shareholders with a recommendation as to the frequency of Say-on-Pay votes, and that recommendation has usually been to conduct a Say-on-Pay vote annually.

How do I determine which frequency “wins” the vote?

The Say-on-Frequency proposal is unusual because the issuer is not asking the shareholders to “approve” a specific proposal or resolution. Instead, shareholders are being to select one of three frequency options or abstain from voting. In footnote 121 of the adopting release from 2011, the Commission stated: “Because the shareholder vote on the frequency of voting on executive compensation is advisory, we do not believe that it is necessary to prescribe a standard for determining which frequency has been ‘adopted’ by the shareholders.”

– Dave Lynn