SEC Proposes Amendments to Disclosure Requirements for Executive Compensation
January 18, 2006
At its open meeting on January 17, 2006, the Securities and Exchange Commission (the "Commission") voted to publish for comment significant proposed amendments to the disclosure requirements under the Securities Exchange Act of 1934 (the "Exchange Act") for executive and director compensation, related party transactions, director independence and other corporate governance matters, and security ownership of officers and directors. The text of the proposed rules has not yet been published. We attach a copy of the Commission's press release regarding these proposals.
The proposals are intended to bring the rules into line with changes in compensation practices and to ensure clearer and more complete disclosure. The proposed rules would not purport to regulate how much executives may be paid, but rather provide investors with meaningful information on the various components and the total amount of compensation. Please see the attached memorandum for a more detailed discussion of the proposed rules.
Notable proposed changes include:
A new "Compensation Discussion and Analysis" section which, unlike the Compensation Committee Report and performance graph it would replace, would be filed and subject to CEO / CFO certification requirements and liability under Section 18 of the Exchange Act;
A reformulated Summary Compensation Table including a column setting forth for each person a single number representing total aggregate annual compensation;
A new method of identifying the executive officers whose compensation must be disclosed which would require disclosure with respect to the CEO, the CFO and the three most highly paid executive officers other than the CEO and the CFO based on total compensation (not just annual salary and bonus). In addition, certain compensation disclosure may be required for up to three employees who are not executive officers but whose total annual compensation exceeds that of the named executive officers;
Tabular and narrative disclosure of all director compensation;
Detailed disclosure of post-employment benefits, including actuarial increases in benefits under retirement plans, as well as itemization and quantification of annual retirement, termination and change-in-control benefits potentially payable in the future;
Expanded disclosure of option and equity compensation, including disclosure of the fair value of awards at the time of grant as well as disclosure of outstanding awards and value realized on exercise of options and vesting of restricted stock during the year;
A lowered aggregate threshold (to $10,000) for disclosure of perquisites and a requirement that all perquisites be itemized;
Modified disclosure of related person transactions and director independence, and consolidation of these and certain other corporate governance disclosure requirements under a proposed new Regulation S-K / S-B Item 407;
Clarification that foreign private issuers are not required to file individual employment agreements if not required by the disclosure rules to disclose the individual employment arrangements in question (the Commission indicated that proposals would not otherwise affect foreign private issuers); and
Modification of certain disclosure requirements in Form 8-K.
Please do not hesitate to contact any of your regular contacts at the firm or any of the lawyers listed on the firm website under the "Employee Benefits" or "Corporate Governance" practice headings in connection with these matters.
CLEARY GOTTLIEB STEEN & HAMILTON LLP