Yesterday, we looked at new executive compensation disclosure rules proposed by the Securities and Exchange Commission (SEC). Today: who’s covered by the rules, and how to calculate executive compensation that was actually paid out over a given time period.
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[Click here for yesterday’s rundown.]
Executives Covered
The proposed rules would require disclosure about the named executive officers for whom disclosure is currently required in the summary compensation table.
For each year in which disclosure would be required, companies would present the information separately for the principal executive officer and as an average for the remaining named executive officers identified in the table.
Determination of Executive Compensation Actually Paid
Under the proposal, executive compensation actually paid would be calculated using compensation that companies report in the summary compensation table already required in the proxy statement as a starting point with adjustments relating to pension amounts and equity awards. Companies would be required to disclose the adjustments to the compensation as reported in the summary compensation table.
Pension amounts would be adjusted by deducting the change in pension value reflected in that table and adding back the actuarially determined service cost for services rendered by the executive during the applicable year.
Smaller reporting companies would not be required to make adjustments in pension amounts because they are subject to scaled compensation disclosure requirements that do not include disclosure of pension plans.
Under the proposal, equity awards would be considered actually paid on the date of vesting and at fair value on that date, rather than fair value on the grant date as required in the summary compensation table. Both amounts would be disclosed in the new table. A company would be required to disclose the vesting date valuation assumptions if they are materially different from those disclosed in its financial statements as of the grant date.
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Covered Companies
The proposed rules would apply to all reporting companies except for foreign private issuers, registered investment companies, and emerging growth companies, which are exempt from the statutory requirement.
Transition Period
The proposed rules would provide a phase-in for all companies. Companies, other than smaller reporting companies, would be required to provide the information for 3 years in the first proxy or information statement in which they provide the disclosure, adding another year of disclosure in each of the two subsequent annual proxy filings that require this disclosure.
Smaller reporting companies would initially provide the information for 2 years, adding an additional year in their subsequent annual proxy or information statement that requires this disclosure.
What’s Next?
If approved for publication by the SEC, the proposed rules will be published on the SEC website and in the Federal Register. The comment period for the proposed rules will be 60 days after publication in the Federal Register. Stay tuned here for additional updates.
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