SEC Adopts New Rules for Executive Compensation
August 2006
On July 26, 2006, the SEC adopted new rules requiring public companies to provide a clearer and more complete summary of the total compensation earned by the chief executive officer, the three other highest paid executive officer and members of the board of directors. These rules represent the most extensive changes to executive compensation in 14 years. The new rules are designed to make executive and director compensation and other disclosure regarding insiders more transparent, understandable and complete.
These new rules amend required disclosures relating to executive and director compensation and security ownership, director independence and related party transactions. The new rules will impact disclosure requirements in proxy statements, annual reports, periodic reports and registration statements.
Among other changes, the final rules (i) add a Compensation Discussion and Analysis Section, which describes a company’s overall compensation policies and objectives; (ii) require different disclosures in the Summary Compensation Table; (iii) add more detailed disclosures related to stock option grants and practices; (iv) increase disclosures relating to retirement plans and post-employment benefits; and (v) add disclosures related to director compensation, related person transactions, and director independence.
For Form 10-Ks and Form 10-KSBs, the rules will need to be complied with for fiscal years ending on or after December 15, 2006. The rules apply to any proxy statements filed after December 15, 2006, if such statements include certain disclosures for fiscal years ending on or after December 15, 2006. The new disclosures will also be required in any registration statement filed on or after December 15, 2006, to the extent it relates to executive compensation disclosures in fiscal years ending on or after December 15, 2006. Form 8-K compliance with the rules will be required for triggering events that occur 60 days or more after publication of the new rules in the Federal Register.
Look for more detailed guidance on these new rules in the near future. In the interim, feel free to contact any member of the Fredrikson & Byron Securities Group with questions.