New CD&A Destined To Be As Big As MD&A

I have earlier alluded to the heavy lifting that the Compensation Discussion and Analysis (CD&A) will have to do on options as part of the SEC’s new executive compensation disclosure regime. Well, after some retrospection and a detailed examination of the 436-page adopting release, I want to expand my earlier statement to say unqualifiedly that the CD&A will have to do some heavy lifting, not only with options, but with much else

The CD&A, which I believe is at the heart of the new disclosure regime, is a narrative principles-based explanation of the material elements of the company’s compensation for its five named executive officers. It also has to detail the objectives of the compensation program and what the program is designed to reward. The CD&A is destined to become as big and important as the MD&A.

The SEC has provided in Item 402 of Reg. S-K what the agency calls illustrative examples of topics worthy for discussion. But in addition to those examples, the SEC has also indicated in the adopting release that the CD&A could discuss hedging arrangements under which executives alter their economic interest in securities they beneficially own. This type of discussion could involve derivatives. The SEC also wants the CD&A to explain instances of double disclosure.