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January 17, 2006
SEC Approves Rules on Executive-Compensation Disclosure

The Securities and Exchange Commission has voted to approve a proposal that calls for clearer disclosure of executive and director compensation.

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The proposed rules would affect disclosure in proxy statements, annual reports, and registration statements. The proposals would require companies to provide most of this disclosure in plain English.

The SEC says the proposed rules aim to make executive compensation clearer to investors. The rules would require more complete disclosure of compensation of the chief executive officer, chief financial officer, the three other highest paid executive officers, and the directors.

The agency is accepting public comments for 60 days before it takes any action.

Under the proposal, executive-compensation disclosure would be organized into three broad categories: compensation over the last three years; holdings of outstanding equity-related interests received as compensation that are the source of future gains; and retirement plans and other post-employment payments and benefits.

  • A reorganized Summary Compensation Table would be the principal vehicle for showing three-year compensation and would include additional information.
    • A new column would report total compensation.
    • A dollar value will be shown for all stock-based awards, including stock and stock options, measured at grant date fair value, computed pursuant to Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, to provide a more complete picture of compensation and facilitate reporting total compensation.
    • The "All Other Compensation" column would include the aggregate increase in actuarial value of pension plans accrued during the year and all earnings on deferred compensation that is not tax-qualified.
    • The threshold for disclosing perquisites would be reduced to $10,000 and interpretive guidance is provided for determining what is a perquisite.
    • Two supplemental tables would report Grants of Performance-Based Awards and Grants of All Other Equity Awards.
  • Disclosure regarding outstanding equity interests would include
    • the Outstanding Equity Awards at Fiscal Year-End Table, which would show outstanding awards representing potential amounts that may be received in the future; and
    • the Option Exercises and Stock Vested Table, which would show amounts realized on equity compensation during the last year.
  • Retirement plan and post-employment disclosure would include
    • the Retirement Plan Potential Annual Payments and Benefits Table, which would disclose annual benefits payable to each named executive officer;
    • the Nonqualified Defined Contribution and Other Deferred Compensation Plans Table, which would disclose year-end balance, and executive contributions, company contributions, earnings and withdrawals for the year; and
    • disclosure of payments and benefits (including perquisites) payable on termination or change in control, including quantification of these potential payments and benefits.
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