The Compensation Disclosure & Analysis discussion newly mandated by the SEC as part of its reform of executive compensation disclosure is destined to become the centerpiece of the new regime. Modeled on the MD&A, the CD&A should be a principles-based narrative overview that puts into context the compensation disclosure provided elsewhere. The CD&A would explain material elements of the company’s compensation for named executive officers. According to Chairman Cox, the CD&A provides both an obligation and an opportunity for a company to explain its compensation policies.
The SEC has repeatedly stated that boilerplate will not be acceptable in the CD&A. The perceived presence of too much boilerplate is what doomed the old compensation committee report. In fact, so emphatic is the SEC that the CD&A not become boilerplate that at least one commissioner has noted that the Division of Corporation Finance is expected to undertake procedures to discourage boilerplate. It is unclear what procedures would be undertaken.