SEC Proposes Significant Changes to Executive Compensation Disclosure

I. Executive and Director Compensation Disclosure

A. Compensation Discussion and Analysis

Under the proposed rules, Item 402 of Regulation S-K would require a new Compensation Discussion and Analysis section. This section would provide a narrative disclosure explaining the material elements of compensation, the reason each element is being paid, the objectives of the company's compensation program, how the amount of each element is determined and how each element, and the company's decisions regarding that element, fits into the company's overall compensation objectives.

The purpose of the Compensation Discussion and Analysis is to provide material information, avoiding boilerplate disclosure. The scope of the Compensation Discussion and Analysis is comprehensive and principles-based: The proposed rule identifies general concepts and includes 13 examples of items that may warrant discussion, depending on the company's circumstances. The examples include policies for allocating between cash and non-cash compensation and among forms of non-cash compensation; what specific items of corporate performance are considered in making compensation decisions; how specific forms of compensation are structured to reflect the Named Executive Officers' individual performance; how amounts realizable from prior compensation (such as on exercise of options) are considered; and the company's security ownership requirements or guidelines. Proposed instructions concerning the Comprehensive Discussion and Analysis focus on disclosing the material principles underlying executive compensation policies and decisions. As under current rules, companies are not required to disclose specific quantitative or qualitative performance related targets, or any other factors involving confidential commercial or business information; however, to the extent that a performance target has otherwise been publicly disclosed, disclosure under Item 402 would be required.

The Compensation Discussion and Analysis would be deemed filed as part of the proxy statement, rather than "furnished" as is the Compensation Committee report under current rules. Thus, the Compensation Discussion and Analysis would be incorporated by reference into registration statements and be subject to the liabilities of Section 18 of the Securities Exchange Act, as well as covered by the certifications provided under the Sarbanes-Oxley Act of 2002. The Compensation Discussion and Analysis would replace the Compensation Committee Report, which the SEC views as a source of boilerplate disclosure, as well as the Performance Graph, which is outdated given the broad availability of similar information on the Internet.

B. Summary Compensation Table

A key feature of the SEC proposal is the reorganization and expansion of the existing tabular disclosure concerning executive compensation.1 The proposal reorganizes the Summary Compensation Table into three broad categories:

  • compensation with respect to the last fiscal year (as well as the two preceding years), presenting both compensation currently paid and deferred (including options, restricted stock and similar grants) and compensation consisting of current earnings and awards that are part of a plan (as supplemented by two additional tables);
  • ownership of equity-based interests related to compensation or that are potential sources of future compensation, including interests awarded in prior years (which are treated as current compensation for such prior periods) and which are "at risk," as well as recent realization on such interests, such as through vesting of restricted stock or the exercise of options or similar instruments; and
  • retirement and other post-employment compensation, including benefits that are payable in the event of a change in control.

The SEC recognized that its proposal may require the disclosure of both the amounts earned and the amounts subsequently paid out, and thus raises a risk of "double counting" the same compensation; however, the SEC believes that the narrative following the tables (or the Compensation Discussion and Analysis) can be used to explain how the disclosures relate to each other.

The SEC's proposal includes modifying the Summary Compensation Table to require that all compensation be disclosed in dollar amounts. This contrasts with existing requirements to disclose certain elements of compensation (such as stock awards) in numbers of shares rather than dollars.

In addition, the SEC proposes to add a column showing the total of all compensation for each Named Executive Officer.

While salary and bonus columns would retain their current form, the SEC proposes to require footnote disclosure of the amount of compensation that was deferred (whether at the executive's election or otherwise) to clarify the disclosures of deferred compensation that appear in the tables that follow the Summary Compensation Table. If an executive's salary and bonus cannot be calculated until after the date of the proxy statement or report, the company must disclose that in a footnote, indicating when the amount is expected to be determined, and file a report on Form 8-K when such amounts become calculable.2

Additional columns in the Summary Compensation Table would cover plan-based awards, including awards of stock options and non-equity-based incentive plan compensation. The columns for awards of stock and options would disclose in dollars the value of awards that derive their value from the company's equity securities or permit settlement by the issuance of equity securities. The value would generally be the fair value of the award on the grant date as determined under FAS 123R for financial reporting purposes; the disclosure would include a footnote referencing the disclosure of the relevant valuation assumptions in the notes to the company's financial statements or in the MD&A. Stock awards subject to performance-based conditions would also be included in the column for stock awards, in contrast to the current rules that allow such awards to be reported, at the company's election, as incentive plan awards. The proposal would eliminate the existing requirements to report the potential realizable value of each option grant at 5% or 10% increases in the market price of the underlying stock.

The Stock Awards and Option Awards columns of the Summary Compensation Table would require disclosure of earnings on outstanding awards in their respective categories, identifying whether such earnings were actually paid, payable but deferred or payable at a later date but earned during the year. Modifications or re-pricing of previous awards would require disclosure of the fair value of the award as so modified, unlike FAS 123R, which only requires recognition of the incremental cost of the modification.

The SEC also proposed adding a column to the Summary Compensation Table for "Non-Stock Incentive Plan Compensation" to report the value of all other amounts earned pursuant to an incentive plan, where the performance measure is neither based on the price of the company's equity securities nor settled by the issuance of the company's equity securities. Disclosure would occur in the year when the relevant performance criteria are satisfied and the compensation is earned, whether or not payment is made during such period.

The Compensation Table would also contain a column disclosing the value of all other compensation not required to be included in any other column. This would include any item of compensation not properly included in another column, such as:

  • the value of all perquisites, unless the aggregate value of the Named Executive Officer's perquisites is less than $10,000;
  • earnings on deferred compensation, except under a tax-qualified plan;
  • tax "gross ups";
  • any discount on stock purchased from the company unless the discount is available to all security holders or all salaried employees;
  • payments in connection with termination or change in control of the company;
  • the increase in actuarial value to the executive of defined benefit and actuarial plans accrued during the year;
  • company contributions to defined contribution plans (i.e., 401(k) plans); and
  • premiums paid by the company on life insurance for the Named Executive Officer.

Each item of compensation included in this column which is in excess of $10,000 would be separately identified and quantified in a footnote, except that each perquisite must be identified unless the total value of all perquisites is less than $10,000 and must be quantified if it is valued at the greater of $25,000 or 10% of the total value of all perquisites.

In the proposing release, the SEC provided significant interpretive guidance of the factors to be considered in determining whether an item is a personal benefit or perquisite. In particular, the SEC stated that "an item is not a perquisite or personal benefit if it is integrally and directly related to the performance of the executive's duties [;] otherwise, an item is a perquisite or personal benefit that has a personal aspect without regard to whether it may be provided for some business reason or for the convenience of the company, unless it is generally available on a non-discriminatory basis to all employees." The SEC's discussion of what constitutes a benefit that is "integrally and directly" related to job performance indicates that the category is a narrow one. For example, office space at a company business location or additional clerical or secretarial services devoted to company matters qualifies, but commuter transportation services or investment management advice do not, even if the expense is "ordinary or necessary" for tax or other business purposes.

C. Supplemental Annual Compensation Table and Narrative Disclosure

In addition to the Summary Compensation Table, the SEC proposed two supplemental tables to help explain the information in the Summary Compensation Table, which are derived from two tables that are currently required: Grants of Performance-Based Awards and Grants of All Other Equity. The first table includes information concerning instruments that are performance based and provide an opportunity for future compensation if either a performance condition or a market condition is satisfied, as such terms are defined in FAS 123R. In contrast, the second table would show equity-based compensation where the pay out or future value is tied to the company's stock price.

The SEC also proposed requiring narrative disclosure to describe any material factors necessary to understand the Summary Compensation Table and supplemental tables. The SEC noted that, depending on the circumstances, the mere filing of an executive's employment agreement or an option or other equity-based award agreement may not be adequate to disclose material factors that should be discussed in this narrative. Rather, the SEC wants companies to disclose the material terms of the Named Executive Officers' employment agreements. Factors that the SEC noted as potentially being material include repricing or material modifications of option or stock-based awards and any change or elimination of applicable performance criteria. While companies are not required to disclose confidential commercial or business information, the disclosure of which would adversely affect the company's competitive position, the narrative would require a general description of the formula or criteria applied in determining the amounts payable, vesting schedule or any other material conditions that apply to awards. In connection with defined benefit and defined compensation plans, the narrative may require a discussion of material assumptions underlying changes in actuarial values or provisions for determining earnings on deferred compensation plans that are not tax-qualified.

The SEC also proposed a new requirement to disclose the total compensation for the last fiscal year of up to three employees who were not executive officers during the year, but whose total compensation was greater than that of any of the Named Executive Officers. This could include sales people or highly paid media personalities. The disclosure would include a description of each such employee's job or position, but would not need to name them and would not include details of their compensation.

D. Exercise and Holdings of Previously Awarded Equity

The proposed rules would also require disclosure of compensation derived from equity previously awarded, as well as holdings of equity compensation that is unexercised or unvested. The SEC proposed two additional tables, one showing the amount of awards outstanding and the second showing the exercise and vesting of equity awards during the year. The first table is designed to disclose information regarding outstanding awards under plans involving stock options, stock appreciation rights, restricted stock, and other equity-based incentives and disclose the values of such awards, along with an explanation of their expiration and vesting dates. The second table would disclose amounts the Named Executive Officers received upon the exercise of any option or similar instrument, or the vesting of any equity right.

E. Post-Employment Compensation

The SEC proposed significant revisions to the existing disclosure requirements concerning post-employment compensation. The proposals would replace the existing pension plan table and other disclosures with a table regarding defined benefit pension plans, and enhanced narrative description, and a second table and narrative description relating to non-qualified defined contribution plans and other deferred compensation. Tabular disclosure of retirement plan payments will include estimates of amounts payable at normal retirement age and, if available, early retirement. Where the executive is not yet eligible for retirement, the benefits to which such person would be entitled upon becoming eligible would be computed assuming continued employment at current compensation levels. The calculations would also reflect the officer's current benefit elections, such as a joint and survivor or single life annuity (with such elections identified in footnote disclosure).

The SEC also proposed significantly revising existing requirements to describe termination and change of control payments to Named Executive Officers. The proposal requires disclosure of any arrangement that provides for payments at, following or in connection with the resignation, severance, retirement or other termination of a Named Executive Officer, a change in such person's responsibilities or a change in control of the company. An accompanying narrative disclosure would specify:

  • the circumstance triggering such payments or benefits;
  • estimates of the payments upon such circumstance and, if not lump sum, the duration of such payments;
  • factors used to determine the appropriate payment and benefit level;
  • any material condition or obligation applicable to receipt of the payment or benefit; and
  • any other material feature necessary to understand the provisions, such as any tax gross-up payments.

The quantitative disclosures would be required even when uncertainties exist as to the amounts payable. In such instances, the company must make reasonable estimates and disclose the material assumptions underlying the estimates. Such disclosures would be considered forward-looking information and fall within the safe harbor for such information.

F. Named Executive Officers

The SEC proposes to define "Named Executive Officers," for whom the detailed disclosure is required, to consist of the principal executive officer, the principal financial officer and the three most highly compensated executive officers, other than the principal executive officer and the principal financial officer, whose total compensation exceeds $100,000).3 The SEC proposes to identify the most highly compensated executive officers on the basis of total compensation for the most recent fiscal year (as compared to total salary and bonus under current rules). The SEC proposes to continue an existing exclusion of payments relating to overseas assignments, but to eliminate an exclusion of an unusually large, non-recurring cash payment.

G. Interplay of Items 402 and 404

Under current rules, compensation realized by a Named Executive Officer from a transaction between the company and a third party, the primary purpose of which is to provide such compensation to the officer, may be excluded from that officer's reported compensation if the transaction is described in response to Item 404 of Regulation S-K. The proposed rules would eliminate that exclusion.4

H. Disclosures Relating to Plans

Item 402 currently permits companies to omit disclosure relating to group life, health, hospitalization, medical reimbursement or relocation plans that are generally available to all salaried employees and do not discriminate in favor of executive officers or directors. The SEC proposes to eliminate relocation plans from this exclusion.

I. Disclosure of Director Compensation

The SEC also proposed a tabular disclosure for director compensation, similar to the proposed Summary Compensation Table, but presenting information only with respect to the company's last fiscal year. Narrative disclosure would also be required.

J. Treatment of Specific Types of Issuers

The proposed rules continue to differentiate between small business issuers and other issuers.5 A small business issuer would be required to provide, along with related narrative disclosure:

  • the Summary Compensation Table;
  • the Outstanding Awards at Fiscal Year-End Table; and
  • the Director Compensation Table.

The Summary Compensation Table would only require information for the last two fiscal years, and for fewer Named Executive Officers - the principal executive officer and the two other most highly compensated officers. Small business issuers would not be required to provide a Compensation Discussion and Analysis.

Currently, a foreign private issuer is deemed to comply with Item 402 of Regulation S-K if it provides the information required by Items 6.B. and 6.E.2. of Form 20-F. The SEC proposes to continue this.6

The SEC proposes to apply the same executive compensation disclosure requirements to business development companies that it has proposed for operating companies. This would eliminate the current inconsistencies that apply to disclosure relating to business development companies and conforms to the SEC's purpose of providing investors with a clear and complete picture of executive compensation.7

II. Proposed Revisions to Form 8-K and the Periodic Report Exhibit Requirements

Since the recent changes to Form 8-K became effective, the SEC has observed (and many issuers have complained) that Item 1.01 of Form 8-K has elicited disclosure regarding executive compensation matters that does not appear always to be unquestionably or presumptively "material" (the standard that the SEC set for Form 8-K disclosure events). Accordingly, the SEC is proposing to revise Item 1.01 to exclude from its scope employment compensation arrangements. Instead, such arrangements would be covered entirely under a modified and broader Item 5.02.

A. Current Disclosure Requirements under Items 1.01 and 5.02 of Form 8-K

Item 1.01 of Form 8-K currently requires companies to report, within four business days, the entry into a material agreement, or a material modification of a material agreement. In determining what is a material agreement, Item1.01 incorporates the standards set forth in Item 601(b)(10) of Regulation S-K. Item 601(b)(10)(iii) includes, as material agreements:

  • any management contract or any compensatory plan, contract or arrangement, including but not limited to plans relating to options, warrants or rights, pension, retirement or deferred compensation or bonus, incentive or profit sharing, in which any director or any Named Executive Officer participates;
  • any other management contract or any other compensatory plan, contract, or arrangement in which any other executive officer of the registrant participates, unless immaterial in amount or significance; and
  • any compensation plan, contract or arrangement adopted without the approval of security holders pursuant to which equity may be awarded, including but not limited to, options, warrants or rights in which any employee participates unless immaterial in amount or significance.

Importantly, the requirement for directors and Named Executive Officers does not include an exception for those that are "immaterial in amount or significance." Moreover, the exclusion for arrangements with other officers that are "immaterial in amount or significance" is often difficult to apply.

Item 5.02 of Form 8-K currently requires disclosure within four business days of the appointment or departure (for any reason) of the company's principal executive officer, president, principal financial officer, principal accounting officer, principal operating officer, or persons performing similar functions, as well as directors. Item 5.02 requires, among other things, a brief description of the material terms of any employment agreement between the company and any such newly appointed officer.

B. Proposed Revisions to Form 8-K

The SEC proposes to revise Items 1.01 and 5.02 to move all disclosures of executive compensation into Item 5.02. Specifically, the proposed rules would amend Item 1.01 to provide that an agreement relating to the subject matter identified in Items 601(b)(10)(iii) need not be reported under Item 1.01.

In addition, Item 5.02 would be amended to:

  • cover the departure of any Named Executive Officer, in addition to those persons currently covered by Item 5.02;
  • expand the disclosure relating to the appointment of a principal executive officer, president, principal financial officer, principal accounting officer, or principal operating officer, to require a brief description of any material plan, contract or arrangement to which the new officer is a party or in which he or she participates that is entered into or materially amended in connection with the appointment, or any grant or award to such new officer or any or modification of a grant or award;
  • add Item 5.02(e), to require, with respect to the principal executive officer, the principal financial officer, or any Named Executive Officer, a brief description of any material new compensatory plan, contract or arrangement, or new grant or award thereunder (whether or not written), and any material amendment to any compensatory plan, contract or arrangement (or any modification to a grant or award thereunder), whether or not such occurrence is in connection with another triggering event specified in Item 5.02; and
  • if the company did not, in its last proxy statement, disclose a Named Executive Officer's salary and bonus for the most recent fiscal year because it was not then determinable, disclose such information when it becomes determinable.

The SEC emphasized that Item 5.02 would only require a brief description of the specified matters, and that the goal is to elicit disclosure that informs investors of specified material events and developments.

The SEC also proposes to extend the limited safe harbor provision, and preservation of eligibility for Form S-3, to late filings under new Item 5.02(e).

C. Foreign Private Issuers.

Under the current instructions for Form 20-F, a foreign private issuer must only disclose the compensation of directors and management on an aggregate basis, unless individual disclosure is also required in the issuer's home country and is otherwise publicly disclosed by the foreign private issuer - in which case individual disclosure is also required and the management contracts or compensation plans must be filed as exhibits to Form 20-F. The SEC is proposing to revise the exhibit instructions to Form 20-F, so that foreign private issuers would be required to file any employment or compensatory plan with management or directors only when the foreign private issuer either is required to publicly file the plan in its home country or if the foreign private issuer had otherwise publicly disclosed the plan.

III. Beneficial Ownership Disclosure

The SEC's proposal also would amend Item 403(b) of Regulation S-K to require that the table of ownership of the company's equity securities by officers and directors include footnote disclosure of the numbers of shares pledged as security by each Named Executive Officer, each director or director nominee, and the directors and executive officers as a group. The SEC believes that such pledges of the company's securities could influence management's performance and decisions. This would not apply to shares owned by significant shareholders who are not members of management, other than pledges that may result in a change of control. The proposal also would require disclosure of beneficial ownership of directors' qualifying shares.

IV. Related Party Transaction Disclosure

The proposed rules would significantly revise the disclosure requirements relating to transactions and relationships with related parties set forth in Item 404 of Regulation S-K (and Item 404 of Regulation S-B, for small business issuers). The SEC's intent is to streamline and modernize these disclosure requirements, while making them more principles-based.

The new rules have four principal parts:

  • Item 404(a) would contain a general disclosure requirement for related person transactions, including those involving indebtedness;
  • Item 404(b) would require disclosure regarding the company's policies and procedures for the review, approval or ratification of related person transactions;
  • Item 404(c) would require disclosure regarding promoters of a company; and
  • New Item 407 would consolidate current corporate governance disclosure requirements.

A. Transactions with Related Persons

The proposal would retain the principle of disclosure of related person transactions currently provided in Item 404(a). However, the lengthy series of "bright line" tests for various types of transaction, now set forth in Item 404(b), would be eliminated.

Revised Item 404(a) would require disclosure of any transaction, since the beginning of the company's last fiscal year,8 or any currently proposed transaction, in which the company was or is to be a "participant," in which any related person had or will have a direct or indirect material interest and in which the amount involved exceeds $120,000 (doubling the current $60,000 threshold).9 Whether a related person's interest is "material" would continue to be determined on the basis of the significance of the information to investors in light of all the circumstances and the significance of the interest to the person having the interest. In that regard, the relationship of the related persons to the transaction, and with each other, and the amount involved in the transaction would be among the factors to be considered in determining the materiality of the information to investors.

B. Definitions

The proposed rule defines the terms "transaction," "related persons" and "amount involved" to streamline Item 404(a) and clarify the broad scope of financial transactions and relationships covered by the rule.

The term "transaction" would be defined to include (but is not limited to) "any financial transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness) or any series of similar transactions, arrangements, or relationships." This term is to be interpreted broadly. The proposed rules would eliminate the current distinction between indebtedness and other types of related person transactions.10 Also, the proposals would require disclosure of all material indirect interest in indebtedness transactions of related persons, including significant shareholders and immediate family members.

"Related person" would include the same persons currently covered by Item 404, but would clarify the time periods during which they would be covered. As proposed, the term "related person" would include any person who, at any time during the period for which disclosure under Item 404(a) is required, was a director or executive officer of the company, or a member of the immediate family of an officer or director. If disclosure were provided in a proxy or information statement involving the election of directors, related person would also include any nominee for director and the immediate family members of any nominee for director.

In addition, "related person" would include a security holder known to the registrant to own, at the time at which a transaction occurred or existed in which such security holder or family member had a direct or indirect material interest, of record or beneficially more than 5% of any class of the company's voting securities, or any immediate family member of any such stockholder. Thus, for an officer, director, or their family members, the person would be a related person if the relationship occurred at any time during the year (or three-year period, if applicable), while for 5% stockholders, the relationship would need to have been in existence at the time of the transaction.

The proposed definition of "amount involved" would incorporate two concepts included in current Item 404 regarding how to determine the "amount involved" in transactions and would clarify that the amounts reported must be in dollars even if the amount was set or expensed in a different currency.

C. Disclosure Requirements

If a transaction must be disclosed, The company would be required to describe the transaction, including:

  1. the related person involved and that person's relationship to the company;
  2. the person's interest in the transaction, including the related person's position or relationship with, or ownership in, a firm, corporation or other entity that is a party to or has an interest in the transaction; and
  3. the dollar value of the amount involved in the transaction and of the related person's interest in the transaction.

New Item 404(b) would require disclosure of the company's policies and procedures regarding related person transactions. Specifically, the proposed rule would require a description of the company's policies and procedures for the review, approval or ratification of transactions with related persons that would be reportable under Item 404(a). The description would include the material features of these policies and procedures, which may include:

  • the types of transactions covered by such policies and procedures, and the standards to be applied pursuant to such policies and procedures;
  • the persons or groups of persons on the board of directors or otherwise who are responsible for applying such policies and procedures; and
  • whether such policies and procedures are in writing and, if not, how such policies and procedures are evidenced.

Also, the proposal would require identification of any transactions required to be reported under Item 404(a) where the company's policies and procedures did not require review, approval or ratification or where such policies and procedures were not followed.

The proposed rules also provide certain exceptions to the disclosure requirements. Most importantly, disclosure of compensation to an executive officer would not be required under the related party transaction rules if (i) the compensation is reported pursuant to Item 402 of Regulation S-K or (ii) the executive officer is not an immediate family member of a related person and such compensation would have been reported under Item 402 as compensation earned for services to the company if the executive officer was a Named Executive Officer and such compensation had been approved as such by the compensation committee (or group of independent directors performing a similar function) of the company.

V. Corporate Governance Disclosure

The proposed rules consolidate into new Item 407 of Regulation S-K and expand existing disclosure requirements regarding director independence and corporate governance issues.11

A. Director Independence

In addition to the current disclosure requirements, a company would be required to:

  • identify each director or nominee who is independent, within the meaning of the independence definition applicable to the company,12 even if the director resigns or does not stand for reelection.
  • if the independence standards applicable to the company contain independence standards for committees (which in some cases are stricter than the general independence standards), identify each member of the compensation, audit and nominating committees who is not independent under such standards.
  • if the company uses its own independence definitions, disclose the definitions by posting them on the company's Web site or by including them in the proxy statement at least once every three years.
  • disclose any transaction, relationship or arrangement not otherwise disclosed pursuant to Item 404(a) that the board of directors considered when determining the independence of a director or director nominee, regardless of materiality. This disclosure would be required for any person who served as a director of the company during any part of the year for which disclosure must be provided.

B. Process

The proposals would require a company to describe its processes and procedures for the consideration and determination of executive and director compensation. Specifically, companies would be required to identify the name of any consultant involved in determining or recommending the amount or form of executive or director compensation, whether the consultant was engaged by the compensation committee or another person, the nature and scope of the assignment, material elements of the instructions or directions given, and the identity of any executive officer within the company whom the consultant contacted in carrying out its assignment. The company would also disclose the extent to which the compensation committee may delegate its authority and to whom. In addition, the company would describe any role of executive officers in determining or recommending the amount or form of executive or director compensation.

VI. Additional Provisions

A. Plain English

The proposal requires the information disclosed in Items 402, 403, 404 and 407 to be in the SEC's plain English format.

B. Timing and Transition Rules

The proposal is subject to a 60-day comment period, which will close April 10, 2006. If adopted, the SEC proposed that the new rules will become effective after the adopting release is published in the Federal Register as follows:

  • for proxy statements that are filed 90 days or more after publication;
  • for Forms 8-K, for triggering events that occur 60 days or more after publication;
  • for Forms 10-K and 10-KSB, for fiscal years ending 60 days or more after publication; and
  • for Securities Act and 1940 Act registration statements that are filed (or that become effective) 120 days or more after publication.

Companies would not be required to restate compensation or related party transaction disclosure for fiscal years in which current rules were applied, such as fiscal years 2003 and 2004. However, all other disclosure (including compensation and related party disclosure for 2005 (assuming the documents are filed after the dated described above) would be required to be made.

Finally, the interpretive guidance regarding perquisites, unlike the proposed rules generally, will be applicable to this year's proxy season.

Footnotes

  1. The forms of the revised Summary Compensation Table and the other new and revised tables are included as Exhibits.
  2. See the discussion below concerning revisions to Form 8-K.
  3. The SEC does not propose to require compensation disclosure for all of the officers listed in Item 5.02 of Form 8-K.
  4. The SEC also proposes to revise the definition of "plan" so that it is more principle-based.
  5. The term small business issuers is defined by Item 10(a)(1) of Regulation S-B.
  6. More detailed information is required if otherwise made publicly available.
  7. The proposal would also eliminate any requirements to disclose compensation of members of the advisory board or certain persons affiliated with the development company, and would eliminate any requirement to include compensation from the "fund complex."
  8. As is currently the case, disclosure would be required for three years in registration statements filed pursuant to the Securities Act or the Exchange Act.
  9. The SEC noted in the proposing release that the current $60,000 threshold is not, and the proposed $120,000 threshold would not be, a bright line standard requiring disclosure of any transaction that exceeds the threshold and in which a related person has any interest. Rather, if the amount involved in the transaction exceeds the threshold, the company should analyze whether the related person's interest in the transaction is material.
  10. The related person transaction disclosure requirement in current Item 404(a) covers significant shareholders, while the indebtedness disclosure requirement in current Item 404(c) does not.
  11. These disclosure requirements are currently in Items 306, 401(h), (i) and (j), 402(j) and 404(b) of Regulation S-K and Item 7 of Schedule 14A.
  12. Generally, the definition of the exchange where the company's stock is listed, or Nasdaq if listed there.

Exhibit Tables

For Further Information

If you have any questions regarding the proposed rules, including how they may affect your company, or would like to consider submitting comments on the proposals, please contact one of the attorneys of the Securities Law Practice Group or the lawyer in the firm with whom you are regularly in contact.