ON Securities

After all the speculation about effective dates of the new amendments to the proxy disclosure rules, the SEC on Tuesday published a set of Compliance & Disclosure Interpretations that clarifies the effective date of the new amendments . . . . The most important clarification is that companies with a fiscal year ended before December 20, 2009 will not have to comply with the new rules this year. A company with a fiscal year ended on or after December 20, 2009 will be required to comply, unless the definitive proxy materials and the Form 10-K are filed before February 28, 2010. . . . You might review this previous post that includes insights from a recent Deloitte program on compliance with the new rules . . . . [to read more, click on the link above]

As I reported previously, the SEC enforcement staff is “loaded for bear,” stepping up its enforcement activities to go after violations of the securities laws. Some recent stories reinforce that it is more important than ever to guard against these violations . . . . The Wall Street Journal reported on Wednesday that the SEC has greatly expanded its insider trading investigations of broker-dealers and hedge funds . . . . There is no reason to think that the current investigations are limited to broker-dealers and hedge funds, and the trail could easily lead the SEC staff to company personnel. . . . [to read more, click on the link above]

Early November finds us in a kind of limbo – those of us who advise public companies on governance and compensation matters are waiting for something big to happen. But there’s plenty of smaller stuff to report on – although most of these items present more questions than answers . . . . On November 4, SEC Chairman gave a speech addressing current regulatory developments. She described the proxy disclosure rules but did not address when they would be adopted or considered. . . . Rep. Maxine Waters has proposed an amendment to the Investor Protection Act of 2009 . . . . [to read more, click on the link above]

. . . Say-on-Pay has become a political football lately. . . [Editor’s Note: You may have noticed veiled references to “football” in the title and the first paragraph of this post. The Editor of the ON Securities Blog categorically denies ANY relationship between these references and Brett Favre’s announcement Tuesday that he signed a contract with the Minnesota Vikings.] . . . So, what does the scoreboard look like in Say-on-Pay season? Generally, the non-binding proposals to approve executive compensation did very well. . . . [To read more, click on the title above]

Is your head spinning from the number of new developments in corporate governance and compensation reform? Are you dizzy from trying to remember whether “say-on-severance” is part of the Schumer Bill or the Treasury Department’s white paper? Is your heart racing from trying to keep track of the progress of shareholder access proposals? . . . We have just the answer – the ON Securities Cheat Sheet will cure what ails you. The Cheat Sheet is a one stop shop for “capsule summaries” of each bill and regulatory proposal being considered. These capsules are sure to make you feel better – and in the spirit of health care reform, this remedy is ABSOLUTELY FREE! . . . . [To read more, click on the Title above.]

. . . . The SEC’s newly proposed amendments to its disclosure rules, issued on July 10, 2009 . . . , would require additional disclosures about compensation consultants, . . . . The SEC’s proposed amendments would also require: . . . . (read more) – Marty Rosenbaum

SEC Release Provides Detail on Proposed Compensation Disclosure Amendments; Podcasts Available!

Proposed Compensation Disclosure Amendments Affect Risk Disclosures and Summary Compensation Disclosure Table Values

Last Friday, the SEC issued its release that details the proposed amendments to the compensation disclosure requirements for public companies, which the SEC approved on July 1. If adopted, the changes would generally be effective for the 2010 proxy season. Two of the most important proposed changes:

CD&A. The SEC proposes to add a new instruction to the requirements for the Compensation Discussion and Analysis section of the proxy statement. A company would be required to disclose how its overall compensation policies for employees create incentives that can affect the company’s risk level, and its management of risk. The disclosure is required if the compensation policies (including compensation of non-executives) create risks that may have a “material adverse effect” on the company. The new CD&A instruction includes a laundry list of situations that might require disclosure, such as the payment of bonuses based on short-term goals, in situations where the risk to the company extends over a longer period of time.

Comment: The examples in the instruction seem like they are lifted right out of the pre-meltdown playbooks of Lehman Brothers and other financial institutions – the bonus practices of these institutions clearly encouraged risky practices that brought down some of the institutions and nearly brought down the world economy. In other industries, it’s hard to imagine that companies will come to the conclusion that their compensation practices create “material risks” for the company.

Assuming the SEC adopts the new instruction, I would guess that very few companies other than financial institutions will disclose anything but a generic sentence stating that the company has done the risk assessment and found nothing material. For the financial institutions that have accepted TARP funds, the American Recovery and Reinvestment Act of 2009 and the related Interim Treasury Regulations already require specific risk assessment in their compensation practices. For other companies, does the SEC really need to add two pages of instructions to CD&A, for such a limited result for most companies? My guess is that the Commission was responding to public pressure to do something about the risky behavior that led to the current economic mess.

Summary Compensation Table (SCT). The SEC proposes to change the calculation method for stock awards and option awards in the SCT to require disclosure of the grant date fair value of the aggregate awards to each individual. Currently, the SCT requires disclosure of the dollar amount recognized for financial statement reporting purposes for the individual for the relevant year under FAS 123R. This change will affect the total compensation line for each individual and may have a major impact on total compensation in some years and could change the individuals to be included in the SCT for the year.

Comment: This change reverses the last-minute change the SEC made in the SCT disclosures in December 2006, without public comment and just as the compensation disclosure rules were going into effect. The 2006 SEC release that implemented the “December surprise” stated the SEC’s belief that “this disclosure ultimately will be easier for companies to prepare and investors to understand.” In fact, the effect was just the opposite – the current amounts are difficult to calculate and confusing to investors, as each year’s dollar amount includes a variety of equity awards that have been granted in different years and are amortized over time. As famously reported by Gretchen Morgenson of the New York Times, the current calculation method can actually lead to negative compensation numbers for some executives in some years. The new method, if it is adopted, will be more predictable and will relate more closely to the equity grants made in the year in question.

And that’s not all. The proposed rules would make a number of other changes, . . . . (read more)

You Don’t Have to Work at a Small Public Company to Enjoy These Podcasts!

Our June 24 program for the Small Public Company Forum is now available as a series of downloadable podcasts. . . .

(read more) – Marty Rosenbaum