Executive Compensation

In my previous Blog on the SEC's new compensation plan risk assessment and reporting requirements, I expressed our belief that most companies would conduct some type of review of executive compensation risk and make some type of disclosure of that in this year's proxy statement.  Now everyone wants to know:  "where should the Company make this disclosure?"

Companies should include this disclosure outside of the CD&A.  As to the location of the new Item 402(s) disclosure, the adopting release states

"As adopted, the new disclosure requirements will not be a part of the CD&A.  We were persuaded by commenters who asserted that it would be potentially confusing to expand the CD&A beyond the named executive officers to include disclosure of the company's broader compensation policies and practices for employees.  CD&A provides discussion and analysis of the compensation of the named executive officers and the information contained in the Summary Compensation Table and other required tables, and the new disclosure requirements would be inconsistent with that approach because they would cover all employees, not just the named executive officers."

On January 20, 2010, the SEC issued nine new Compliance and Disclosure Interpretations [http://www.sec.gov/divisions/corpfin/guidance/regs-kinterp.htm#128a-01] to deal with issues posed by the new executive compensation and proxy disclosure enhancement rules adopted in December 2009.   Question 128A.01 addresses that issue:

The new rules do not specify where the disclosure should be presented. However, to ease investor understanding, the staff recommends that Item 402(s) disclosure be presented together with the registrant's other Item 402 disclosure. The staff would have concerns if the Item 402(s) disclosure is difficult to locate or is presented in a fashion that obscures it.

Additionally, my partner Erik Lundgren points out that if future say-on-pay legislation is tied to compensation "as disclosed in the CD&A," we should limit the scope of the CD&A to its required pieces, so as not to subject anything else to shareholder approval in the future.

Because the Compensation Committee is "blessing" the CD&A it its Compensation Committee Report, the CD&A should be limited to the NEO items.  The CEO and CFO certifications in the 10-K are allowed to "look to" the Comp. Committee Report in making their certifications, so to include more than NEO compensation in the CD&A is to expand the scope of the Committee's Report.