Proxy Disclosure Enhancements

In an effort to “improve the disclosure around risk, compensation, and corporate governance, thereby increasing accountability and directly benefiting investors,” the SEC approved amendments to the proxy disclosure rules to enhance the information provided in connection with proxy solicitations and other reports filed with the SEC. In addition, the new rules transfer the requirement to disclose shareholder voting results from Forms 10-Q and 10-K to Form 8-K (immediate reporting). The new amendments will become effective on February 28, 2010 and will apply to the upcoming annual report and proxy season.

The SEC’s new proxy rules require the following enhanced disclosures:

Enhanced Compensation Disclosure

The new rules require a company to address its compensation policies and practices for all employees, including non-executive officers, if the company’s compensation policies and practices create risks that are reasonably likely to have a material adverse effect on the company.

Companies should note the following:

• The enhanced disclosure mandated by this new rule will not be part of the CD&A.

• The final rule does not require a company to make an affirmative statement that it has determined that the risks arising from its compensation policies and practices are not reasonably likely to have a material adverse effect on the company.

• The new rules require a company’s Summary Compensation Table and Director Compensation Table to disclose the aggregate grant date fair value of awards computed in accordance with FASB ASC Topic 718, instead of the previously mandated disclosure of the dollar amount recognized for financial statement reporting purposes – the annual accounting charge.

• To facilitate year-to-year comparison, companies are required to present recomputed disclosure for each preceding fiscal year so that the stock awards and option awards columns present the applicable full grant date fair values, and a corresponding recomputed total compensation column.

Enhanced Director and Nominee Disclosure

The new rules require the following enhanced information about directors and nominees: 

• Disclosure of the particular experience, qualifications, attributes, or skills that led the board to conclude that the person should serve as a director for the company. The final rules do not require disclosure of the specific experience, qualifications, or skills that qualify a person to serve as a committee member. 

• Disclosure of any directorships at public companies and registered investment companies held by each director and nominee at any time during the past five years, replacing the previously mandated currently held directorships.

• Disclosure of legal proceedings involving directors and nominees going back ten years, instead of the previously mandated 5 years.

• Disclosure of whether, and if so how, a nominating committee considers diversity in identifying nominees for director.

Board Leadership Structure and the Board’s Role in Risk Oversight

The new rules require the following disclosure about the board leadership structure and the board’s role in risk oversight: 

• Whether and why it has chosen to combine or separate the principal executive office and board chairman positions, and the reasons why the company believes that this board leadership structure is the most appropriate structure. 

• A description of the board’s role in the oversight of risk. 

Enhanced Disclosure Regarding Compensation Consultants

The new rules require companies to disclose under certain circumstances the fees paid to compensation consultants and their affiliates, in addition to the current requirement to describe the role of the compensation consultant in determining or recommending the amount or form of executive and director compensation.

Reporting of Voting Results on Form 8-K

The new rules require companies to disclose on Form 8-K the results of a shareholder vote and to have that information filed within four business days after the end of the meeting at which the vote was held, instead of the previously mandated requirement to disclose shareholder voting results on Forms 10-Q and 10-K, which often are filed months after the relevant meeting.

The complete text of the new rules may be accessed at: Final Rule: Proxy Disclosure Enhancements.

By: Steve Kronengold and David C. Zuckerbrot. © December 2009. All rights reserved.
This article is provided for educational, informational and non-commercial purposes only. The content of this article is not intended to provide legal advice on any subject matter and should not be relied on as such.

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