Feb 05, 2008
Proxy Season Is Here! Another Look at the SEC Staff’s Observations Regarding Executive Compensation Disclosure
Renee E. Becker, 310.312.4119
Last fall the Securities and Exchange Commission’s staff in the Division of Corporation Finance (the “Staff”) completed a review of the executive compensation and related disclosure of 350 public companies under the SEC’s new and revised rules relating to executive compensation disclosure. As we are now in the midst of proxy season, it is helpful to review and consider the Staff’s key observations and suggestions for improving compliance. A copy of the full report may be found at: www.sec.gov/divisions/corpfin/guidance/execcompdisclosure.htm.
Two principal themes emerged from the Staff’s reviews and individualized comments to the companies whose proxy statements it reviewed. First, companies should provide more focused disclosure of how and why they made specific executive compensation decisions. Second, the manner of presentation is important, and companies should use it to provide more direct, specific, clear, and understandable executive compensation disclosure.
Manner of Presentation/Format
Companies could improve the manner in which executive compensation disclosure is presented by incorporating the following suggestions into their compensation disclosures:
The Staff issued more comments on performance targets than on any other disclosure topic, suggesting that this is an area on which companies should focus particular attention. The Staff had these suggestions:
Compensation Discussion and Analysis
In the CD&A section, companies should enhance their analyses of compensation policies and discussions in the following manner:
Other Staff Suggestions
In light of the Staff’s observations, companies should review their disclosure from the 2007 proxy season and carefully examine how executive compensation decision-making was described. As compensation committees begin considering and evaluating executive compensation for 2008, they should focus on how and why they are making their decisions at the time the decisions are being made and should consider the resulting disclosures that will be required in the proxy statement. In addition, management should consider providing a summary of the Staff’s observations to the compensation committee so that the members are informed about the disclosure obligations related to their executive compensation decisions.
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Renee Becker Ms. Becker represents public and private companies in connection with mergers and acquisitions, public securities offerings, and corporate governance matters. Additionally, she advises public companies on various matters relating to federal securities law compliance and reporting under the Securities Act of 1933, the Securities Exchange Act of 1934, and the Sarbanes-Oxley Act of 2002, as well as state securities laws. Ms. Becker has represented public company acquirers in a number of fairness hearings before the California Department of Corporations.
Blase P. DillinghamPartner
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