SEC Finalizes Changes to Executive Compensation Disclosures
On December 16, 2009, the SEC adopted final rules (PDF) that broaden executive compensation disclosures within proxy statements and annual reports. The new rules are effective on February 28, 2010, just in time for the 2010 proxy season.
As a summary, the final rules generally:
- expand director qualification disclosures,
- require a description of the board's role in risk oversight and an explanation of its leadership structure (e.g., whether it combines the CEO and Chairman positions),
- require disclosure of certain fees paid to compensation consultants,
- require a discussion of compensation risk management policies that are "reasonably likely to have a material adverse effect on the company", and
- change the valuation of equity awards reported in the Summary Compensation Table and Director Compensation Table (from the accounting expense recognized during the year to the grant date fair value).
Though the final rules are straight forward and for the most part consistent with the proposed rules, companies should review these rules to determine whether immediate action is required. For example, director and officer questionnaires will likely need to be revised, the company may need to gather information on engagements with its compensation consultants, and it is possible that using the grant date fair value of equity awards may change the identity of a company's named executive officers for 2009.
