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]

There was a fascinating article in the New York Times on Thursday about Merrill Lynch’s 2006 bonus program, which resulted in large payouts to top management even as the company was sold to Bank of America in a distressed sale. The author of the article provides more in-depth analysis in a post in the Times’ DealBook Blog. . . . The Blog post discusses the features of the plan that put a portion of the employees’ bonuses at risk, provided for a partial clawback if return on equity was not adequate, and invested the bonus amounts in stock that was locked up for a year past the three-year term of the plan. . . . I think the Merrill plan had many worthy features that should command the attention of compensation professionals. . . .Here’s a new one – The Corporate Counsel Blog reports that in-house corporate attorneys have joined the blogging world. . . . [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 news today was filled with reports on the first anniversary of the collapse of Lehman Brothers. . . . At around the same time, our local chapter of the National Association of Stock Plan Professionals (NASPP) produced a webcast/conference call entitled “Troubled Company, Workout and Bankruptcy Issues: A little ‘gloom and doom’ with your morning java.”. . . Just to keep on sharing the “gloom and doom”, we have made the transcript available – it makes interesting reading. Topics included . . . SEC Enforcement Follow-Up . . . . On Monday, as described in this New York Times article, Federal District Judge Jed Rakoff issued a scathing order (see the link in the Times article) that voided Bank of America’s $33 million settlement with the SEC. . . . [to read more, click on the title above]

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

SEC actions on July 1

On July 1, 2009, the SEC voted to take several actions. . . .

However, to understand the impact of the July 1 actions, it is necessary understand other current developments, some of which would have an even greater impact on a broader segment of companies . . .

Maslon Small Public Company Forum’s Inaugural Event is a success (singing fish and all).

On June 24, 2009, I participated in the inaugural event of the Maslon Small Public Company Forum, which included presenters from Maslon, Baker Tilly Virchow Krause, Carver Moquist & O’Connor, Feltl and Company and Internal Control & Anti-Fraud Experts, LLC. . . .