ON Securities

On December 16, 2009, the SEC adopted its amendments to the proxy disclosure rules – see the press release and the full 129-page release that includes the text of the rules. The release has led to some confusion about when the new rules are effective – the release mentions an effective date of February 28, 2010, but it does not specify exactly what that means. I agree with Mark Borges in the Proxy Disclosure Blog (subscription site), who assumes that the amendments apply to proxy statements and other applicable filings on or after that date. . . . In my last post, I mentioned one of the “sleepers” in the rules. But I think there may be another one. . . . [to read more, click on the link above]

Last week, the Twin Cities Chapter of the National Association of Stock Plan Professionals hosted a presentation on hot topics in executive compensation . . . . One of the hot topics covered by the presenters was compensation risk analysis. They presented a very high-level summary of steps a company should consider . . . . As I discussed previously, if the SEC adopts its proposed amendments to the proxy rules, each public company will be required to disclose in its proxy statement how its overall compensation policies for employees (including compensation of non-executives) create incentives that can affect the company’s risk level, and its management of risk. . . . Public companies should start thinking about the analysis that must be completed . . . . [to read more, click on the link above]

The past few weeks have been fairly slow in terms of new developments in securities law, corporate governance and executive compensation. However, summer’s over, and I’m expecting a flurry in the next few weeks. Take a look back at the ON Securities Cheat Sheet – a lot of these developments are likely to change as we head into the fall . . . . Last weekend I saw my all-time favorite film about blogging – okay, maybe the only film I have seen about blogging. “Julie & Julia” follows two parallel true stories . . . . I watched Julie’s story with my “blogger hat” on, and I tried to figure out what made her blog successful. . . .[to read more, click on the title above].

It’s a pretty good bet that non-binding shareholder advisory votes on executive compensation (“Say-on-Pay”) will be adopted this year and will become mandatory for public companies, probably starting with the 2010 proxy season. . . . So, what does Say-on-Pay look like in practice, and what is the likely outcome of the shareholder vote? . . . . Assuming Say-on-Pay is required to be on the ballot in 2010, what should companies do now? . . . .We have just posted an updated version of the ON Securities Cheat Sheet under the Resources listing on the home page of this Blog. . . . [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