SEC Proposes Enhanced Compensation Disclosure and Faster Disclosure of Voting Results

The SEC has proposed a broad package of corporate disclosure improvements and proxy solicitation enhancements designed to provide shareholders with access to important information about company compensation policies and procedures and their impact on risk-taking, director qualifications, and compensation consultants. The proposals would also remove unnecessary impediments to the solicitation of proxy authority to improve shareholder communication. The proposals are also designed to improve the reporting of annual stock and option awards to company executives and directors as well as to require quicker reporting of election results.

In an effort to accelerate the timing of disclosure of voting results, the Commission also proposes to transfer the requirement to disclose voting results from Forms 10-Q and 10-K to Form 8-K. This revision would add a new item to Form 8-K to require a company to disclose on that form the results of a shareholder vote, and to have that information reported within four business days after the end of the meeting at which the vote was held. In supporting this proposal, Commissioner Elisse Walter said that there is no reason for shareholders to have to wait, perhaps as long as a few months, to find out the results of voting.

The compensation-related proposals are critical, said SEC Commissioner Walter. Currently, a company must discuss the material risk considerations of its compensation policies and decisions with respect to named executive officers. Under the proposal, that type of information would be required about a company's overall compensation policies, meaning that it would be applicable to employees beyond the executive officers. The disclosure is designed to reveal if a company is setting appropriate incentives for its employees, or, conversely, is it creating incentives for employees to act in a way that creates risks not aligned with corporate risk objectives. If the proposal is adopted, shareholders would have access to this type of information.

Specifically, the proposal would broaden the required disclosure in the Compensation Discussion and Analysis so that a company would discuss its broader compensation policies and overall actual compensation practices for employees generally, including non-executive officers, if the risks arising from those compensation policies or practices may have a material effect on the company. Under the proposed amendments, the situations that would require disclosure will vary depending on the particular company and its compensation policies.

Similarly, the SEC proposes to require companies to disclose for each director and any nominee for director selected by the company, or another proponent, the particular experience, qualifications, attributes or skills that qualify that person to serve as a director of the company, and as a member of any committee that the person serves on or is chosen to serve on. The proposal would also require disclosure of any directorships at public companies held by each director and nominee at any time during the past five years instead of only currently held directorships, and lengthen the time for which disclosure of legal proceedings is required from five to 10 years. According to Commissioner Walter, providing information about past directorships should help shareholders make informed voting decisions.

Another proposal would require companies to provide additional disclosure on the fees and services of compensation consultants such that a compensation consultant providing services related to executive compensation and any additional services to the company would trigger additional disclosure. There would be required disclosure of the additional services provided by the compensation consultant; the aggregate fees paid for all additional services and the aggregate fees paid for work related to executive compensation consulting. The company would also have to disclose whether the decision to engage the compensation consultant for any other services was recommended or made by management; and whether the board or the compensation committee has approved the other services.

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