Preparing 2013 Proxy Statements and Periodic Reports
As you gear up to prepare your 2013 proxy statement and periodic reports, it is essential to keep in mind some recent changes and developments that may affect your company's disclosure in these documents. For 2013, three new disclosure requirements exist that companies must comply with:
- All companies must disclose in their proxy statements any compensation consultant conflicts of interest.
- Smaller reporting companies must now include in their proxy statements a say-on-pay vote and a say-on-frequency vote. Smaller reporting companies must also report on Form 8-K how frequently the company will have a say-on-pay vote in light of the results on the say-on-frequency vote.
- All companies required to file annual or quarterly reports with the SEC pursuant to Section 13(a) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), must report certain Iran-related activities undertaken by them or their affiliates during the period covered by the report.
Disclosure of Compensation Consultant Conflicts of Interest
Companies must now evaluate whether compensation consultants used in determining or recommending executive or director compensation (including both amount and form) during the company's last completed fiscal year involved any conflict of interest. If a conflict of interest exists, the company must disclose in its proxy statement a short and clear description of (i) the nature of the conflict and (ii) how the conflict is being addressed. It is important to note that the SEC did not define conflict of interest, but indicated that the following six factors are relevant to the analysis:
- other services provided by the compensation consulting firm to the company
- fees paid by the company as a percentage of the compensation consulting firm's total revenue
- policies or procedures maintained by the compensation consulting firm to prevent a conflict of interest
- any business or personal relationship between the compensation consultant and a compensation committee member
- any company stock owned by the compensation consultant
- any business or personal relationships between the compensation consultant or the compensation consulting firm and the executive officers of the company
Companies should consider preparing a questionnaire to send to any compensation consultants to evaluate conflicts of interest. Companies should also update their D&O questionnaires to gather information on any personal or business relationships between officers/directors and any compensation consultant.
Smaller Reporting Companies: Say-on-Pay and Say-on-Frequency
The two-year exemption for smaller reporting companies from compliance with the SEC say-on-pay rules, enacted in 2011, has expired. Effective January 21, 2013, proxy statements for annual meetings or other shareholder meetings at which directors will be elected must now provide for (i) a shareholder advisory vote on the compensation of executive officers ("say-on-pay") and (ii) a shareholder advisory vote on the frequency of say-on-pay ("say-on-frequency"). A company must briefly explain the general effect of such votes and whether the votes are binding or non-binding.
A smaller reporting company must report on Form 8-K the company's decision as to how frequently the company will include a shareholder say-on-pay vote in its proxy materials, in light of the shareholders say-on-frequency vote. The smaller reporting company has the option of including this disclosure in the Form 8-K that reports the results of the meeting, alternatively, the disclosure can be included in an amendment to that Form 8-K, if amended within 150 days after the date of the meeting, but in no event later than 60 days before the deadline for submission of shareholder proposals under Rule 14a-8 for the next annual meeting.
Iran-Related Activities Disclosure
Effective February 6, 2013, pursuant to new Section 13(r) of the Exchange Act, any company that is required to file quarterly or annual reports under Section (a) of the Exchange Act is now required to report certain activities, primarily Iran-related, that the company or any of its affiliates knowingly engaged in during the period covered by the report. The activities for which disclosure is required are generally illegal under U.S. law and include:
- business activities which relate to Iran's energy and financial sector
- dealings with the government of Iran
- dealings or transactions with terrorists, proliferators of weapons of mass destruction, and their supporters
If applicable, the company must disclose the gross revenues and net profits, a detailed description of each such activity and whether the company or its affiliates intend to continue the activity. In addition to the annual or quarterly report, the company must also file with the SEC a separate notice regarding the activity disclosed in the report. It should be noted that a company is not required to disclose that it did not engage in any of the targeted activities. Companies should also update their D&O questionnaires in light of this new requirement.