The Corporation Finance staff added three new compliance and disclosure interpretations to its advice on Regulation S-K. New Questions 119.25 and 119.26 relate to executive compensation disclosure in the summary compensation table, while new Question 133.12 deals with compensation consultant fees. The staff also issued a new legal bulletin on the suspension of reporting duties.
In Question 119.25, a company granted annual non-equity incentive plan awards to its executive officers. The officers were informed of the performance criteria, which were based on the company's financial performance for the year. They will not, however, know the total amount earned pursuant to the award until the end of the year, when the compensation committee can determine if the performance criteria have been satisfied.
In this example, one officer declined the award after the amounts are determined and communicated. The staff advised that the award should still be included in total compensation for purposes of determining if the executive is a named executive officer for 2010. The award should also be reported in the Grants of Plan-Based Awards Table and the Summary Compensation Table for 2010. The officer's decision not to accept payment of the award did not change the fact that award was granted in and earned for services performed during 2010. The amount of the award, even though declined, should be included in total compensation for purposes of determining if the executive is a named executive officer for 2010 and reported in the Summary Compensation Table. The company should also disclose the executive's decision not to accept payment of the award, and should consider discussing the effect, if any, of the executive's decision on how the company structures and implements compensation to reflect performance.
Question 119.26 involved a company that granted discretionary bonuses to its executive officers. An officer notified the board that she will decline any bonus for 2010 before the board acted on any such awards. According to the staff, because the executive declined the bonus before it was granted, the company need not report in column (d) of the Summary Compensation Table the bonus award it would have granted her and include that amount in total compensation for purposes of determining if she is a named executive officer for 2010.
In Question 133, the staff advised that there are no limits on the types of services that are included in "additional services" to determine if compensation consultant fees must be disclosed. In addition, if the consultant also sells products to the company, then the revenues generated from such sales should be included in "aggregate fees for any additional services provided by the compensation consultant or its affiliates.
Staff Legal Bulletin Advises on Reporting Suspensions
The Corporation Finance staff issued Staff Legal Bulletin No. 18 to advise on the use of Rule 12h-3 to suspend their reporting obligations under Exchange Act Section 15(d).
When an issuer's registration statement becomes effective, Section 15(d) requires the issuer to file reports with respect to each class of securities covered by the registration statement. Issuers may utilize the suspension provided by Rule 12h-3 at any time during the issuer's fiscal year if it meets the conditions of the rule.
The legal bulletin is an attempt by the staff to streamline the Rule 12h-3 no-action process. The staff identifies specific circumstances and conditions in which no-action relief will not be necessary. The staff will, however, "continue to entertain questions regarding the availability of Rule 12h-3 for situations that fall outside the facts and conditions discussed in the legal bulletin."