SEC Issues New CDIs on Executive and Director Compensation
June 15, 2009
On May 28, 2009, the SEC issued new Compliance and Disclosure Interpretations (CDIs) addressing various executive and director compensation disclosure issues that had been discussed at the May 5 meeting of the ABA’s Joint Committee on Employee Benefits with the SEC Staff. With respect to the Summary Compensation Table (the SCT), the CDIs:
- clarify that the SCT must include compensation information for all three fiscal years in the case of an executive officer who was a named executive officer (NEO) in year one, but not in year two and will again be an NEO in year three
- clarify that tax gross-up payments relating to perquisites or other compensation should be disclosed in the SCT for the same year as the related perquisites or other compensation, even if the actual gross-up payment is made the following year
The SEC also addressed questions regarding disclosure of information in the Grants of Plan-Based Awards Table (the GPBAT) and common reporting questions that arise with respect to multi-year performance plans. Specifically, the CDIs:
- confirm that the “grant date fair value amount” for performance-based equity awards in column (l) of the GPBAT should be determined based on maximum performance, rather than minimum or target performance
- clarify that the Outstanding Equity Awards at Fiscal Year-End Table for the year in which the performance period ended should include the actual number of shares that were earned at the end of the multi-year performance period, rather than the potential number of shares to be earned, even if the compensation committee does not meet until after the end of the year to determine the final award
- confirm that to the extent that these shares are subject to additional service-based vesting, the shares should be reported in columns (g) and (h) of the table
- stated that, in the case of long-term incentive plans which provide for an award of a target number of shares at the beginning of a multi-year performance period, the award “grant date” and grant date fair value disclosed in the GPBAT should be determined in accordance with SFAS 123(R). Consequently, if all of the annual performance targets are set at the beginning of the multi-year period, that is the grant date for the entire award, and the aggregate amount of fair values for all three tranches of the award would be reported in the proxy table. However, if the annual performance targets are set at the start of each respective single-year performance period, then each of those dates is a separate grant date and only the grant date fair value for the first year’s performance period would be measured and reported in column (l).
Finally, the staff clarified that when a Form 8-K is filed reporting the appointment of a new director, the Form 8-K must include a brief description of the newly-appointed director’s compensatory and other agreements and arrangements, even if they are consistent with the registrant’s previously disclosed standard agreements and arrangements for non-employee directors. However, the CDI confirms that, in lieu of describing any material plan, contract or arrangement to which the director is a party or in which he or she participates, the registrant may cross-reference the description of such plan, contract or arrangement from the Item 402 disclosure in the company’s most recent annual report on Form 10-K or proxy statement.
http://www.sec.gov/divisions/corpfin/cfguidance.shtml#regs-k
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