2010 DODD-FRANK ACT EXECUTIVE COMPENSATION REFORM Presented by Andrew B. Coburn Wyche Burgess Freeman & Parham, P.A. August 25, 2010 Copyright 2010 Wyche Burgess Freeman & Parham, P.A. All rights reserved.

What Companies Are Affected? The Dodd-Frank executive compensation reforms apply to public companies, subject to SEC exemptions Certain Dodd-Frank concepts have been or are likely to be adopted by private companies, for example, clawback policies 2

Say on Pay Non-binding shareholder vote at least every 3 years Compensation of public company “named executive officers” Shareholder vote at least every 6 years to determine if “say on pay” vote will occur every one, two or three years First vote required at first shareholder meeting after January 21,

Say on Pay “Golden Parachutes” Disclosure to shareholders of “golden parachute” payments required for mergers, acquisitions and asset sales Non-binding shareholder vote required for such “golden parachute” payments Applies for shareholder meetings on or after January 21,

Say on Pay SEC may create exemptions for classes of issuers, such as small issuers Institutional investment managers subject to 13f of Exchange Act must report annually how they voted on “say on pay” 5

Compensation Committee Independence Securities exchange listing standards will require an independent compensation committee SEC may create exemptions, e.g., for small issuers and subsidiaries 6

Compensation Committee Independence Committee members must be board members and “independent” Determination of independence must consider compensation and fees received from the issuer and any affiliations with the issuer and related companies Requirements are substantially similar to existing audit committee independence requirements 7

Compensation Advisor Independence Public company compensation committees have the right to hire compensation consultants or legal counsel at company expense For annual shareholder meetings on or after July 21, 2011, companies must disclose: o if the compensation committee used a compensation consultant; o if the work of the consultant raised any conflict of interest, and if so, the nature of the conflict and how it was addressed. 8

Compensation Advisor Independence In hiring a compensation consultant or legal counsel, the committee must consider factors including : o other services provided to the company; o fees received from the company as a percentage of the advisor’s total revenue; o conflict of interest policies of the advisor; o any business or personal relationship between the company and the advisor; and, o any company stock owned by the advisor. 9

Clawback Policies Securities exchange listing standards will require disclosure of compensation policies related to incentive compensation based on financial information reported under securities laws Issuers must enact clawback policies to recover incentive compensation from current or former executive officers for the prior three years when financials are restated due to material noncompliance with any securities law financial reporting requirement 10

Broker Voting NYSE currently prohibits broker discretionary voting on director elections Securities exchange listing standards will now prohibit broker discretionary voting with respect to executive compensation and “any other significant matter” 11

New Proxy Disclosure Disclosure of: Relationship between executive compensation “actually paid” and the issuer’s “financial performance” Comparison of CEO pay to the median pay of all other employees Hedging activities by insiders – expanded to cover all employees 12

Shareholder Proxy Access SEC is authorized to issue rules permitting shareholders to use an issuer’s proxy solicitation materials for board nominations SEC may create exemptions, e.g., for small issuers 13

Copyright 2010 Wyche Burgess Freeman & Parham, P.A. All rights reserved.