The Division of Corporation Finance has issued a number of Compliance and Disclosure Interpretations on Form 8-K and shareholder advisory votes, and on disclosure of executive compensation pursuant to Regulation S-K
In one interpretation, the Corp Fin staff indicated that a company can disclose its decision as to how frequently it will include a shareholder advisory vote on executive compensation in its proxy materials in a periodic report instead of an Item 5.07 Form 8-K. Under General Instruction B.3 of Item 5-07, an issuer may report Form 8-K information in a periodic report that is filed on or before the date that an Item 5.07 Form 8-K would otherwise be due. If the company reports its annual meeting voting results in a Form 10-Q or Form 10-K, it may file a new Item 5.07 Form 8-K, rather than an amended10-Q or10-K, to report its decision as to how frequently it will include a shareholder advisory vote on executive compensation in its proxy materials. However, if the company reports its annual meeting voting results in an Item 5.07(b) Form 8-K and also intends to report its frequency decision in a Form 8-K, then, as required by Item 5.07(d), that Form 8-K must be filed as an amendment to the Item 5.07(b) Form 8-K, using submission type 8-K/A, and not as a new Form 8-K.
In another interpretation, the SEC staff clarified that companies are not required to state the number of broker non-votes with respect to the frequency of shareholder advisory votes on executive compensation. Item 5.07(b) of Form 8-K does not require disclosure of the number of broker non-votes with respect to the advisory vote on the frequency of shareholder advisory votes on executive compensation. If a company believes this information would be useful for investors, said the staff, then it may disclose such information under Item 5.07(b).
According to the SEC staff, in another interpretation, the Regulation S-K provision allowing companies to omit information regarding non-discriminatory group life, health, hospitalization, or medical reimbursement plans available to all salaried employees also applies to a disability plan satisfying these conditions. To the extent that the disability plan provides benefits not related to termination of employment, a company may rely on Item 402(a)(6)(ii) to omit information regarding the disability plan. To the extent that the disability plan provides benefits related to termination of employment, a registrant may rely on Instruction 5 to Item 402(j) to omit information regarding the disability plan.
The staff separately indicated that Regulation S-K instructions providing that the disclosure of target levels that are non-GAAP financial measures are not subject to Regulation G and Item 10(e), but that disclosure must be provided as to how the number is calculated from the audited financial statements, do not extend to non-GAAP financial information unrelated to the disclosure of target levels, but that is nevertheless included in CD&A or other parts of the proxy statement.
Instruction 5 to Item 402(b) is limited to CD&A disclosure of target levels that are non-GAAP financial measures, explained the staff. If non-GAAP financial measures are presented in CD&A or in any other part of the proxy statement for any other purpose, such as to explain the relationship between pay and performance or to justify certain levels or amounts of pay, then those non-GAAP financial measures are subject to the requirements of Regulation G and Item 10(e) of Regulation S-K.
In these pay-related circumstances only, the staff would not object if a company includes the required GAAP reconciliation and other information in an annex to the proxy statement, provided that a prominent cross-reference to such annex is included. Or, if the non-GAAP financial measures are the same as those included in the Form 10-K that is incorporating by reference the proxy statement's Item 402 disclosure as part of its Part III information, the staff would not object if the company complies with Regulation G and Item 10(e) by providing a prominent cross-reference to the pages in the Form 10-K containing the required GAAP reconciliation and other information.
Another staff interpretation states that, if at the beginning of Year 1 a company’s compensation committee sets the threshold, target and maximum number of shares that may be earned for Year 1 under the company's performance-based equity incentive plan, and incentive awards are paid in the form of restricted shares issued early in Year 2 after the compensation committee has certified the company's Year 1 performance results, the SEC staff said that the company cannot report the amount in the Stock Awards column reflecting the grant date fair value of the number of restricted shares actually issued for Year 1, rather than the amount that reflects the probable outcome of the performance conditions as of the grant date.
The staff noted that the grant date fair value for stock and option awards subject to performance conditions must be reported based on the probable outcome of the performance conditions as of the grant date, even if the actual outcome of the performance conditions, and therefore, the number of restricted shares actually awarded for Year 1, is known by the time of the filing of the proxy statement.