The NASPP Blog

Last week, on April 5, President Obama signed the Jumpstart Our Business Startups (JOBS) Act into law. Intended to make it easier for startups to raise capital and go public, JOBS has three primary thrusts: 1) making it easier to raise capital (including “crowdfunding” and unregistered offerings), 2) making it easier for companies to go public, and 3) making it easier for newly public companies to be public (e.g., reduced public reporting). Today I begin looking at the provisions of JOBS that are relevant to stock compensation.

Reduced Disclosures for EGCs

JOBS creates a new category of company, an “Emerging Growth Company.” An EGC is essentially a company with less than $1 billion in revenues that is private or has been public for less than five years (I’m simplifying this, there are a couple of other requirements). In addition to provisions designed to encourage investment in EGCS and allow them to explore an IPO without filing a public registration statement, JOBS also reduces the public disclosures and reporting EGCs are subject to.

In the context of compensation, EGCs are allowed to comply with the executive compensation disclosures required for smaller reporting companies (companies with a public float of less than $75 million or, if unable to calculate public float, revenues of less than $50 million).  This results in the following changes to their disclosures:

• Disclosure for only top three, rather than top five, NEOs
• No CD&A 
• Only two years reported in Summary Compensation Table
• Fewer tabular disclosures: only the SCT, Outstanding Equity Awards at Fiscal Year-End Table, and Director Compensation Table

Dodd-Frank “Light”

EGCs also don’t have to comply with some of the provisions of the Dodd-Frank Act, including:

• Say-on-Pay, et. al.
• CEO pay ratio disclosure
• Disclosure relating executive pay to company financial performance

Of course, right now, there aren’t any companies required to comply with the CEO pay ratio and executive pay for performance disclosures because the SEC hasn’t promulgated rules on these yet. JOBS only adds to the long list of SEC rule-making projects and I’ve read speculation that the SEC won’t make the deadlines under JOBS because of Dodd-Frank and other rulemaking projects that are still outstanding.

Mark Borges of Compensia brought up some good points with respect to this area of the JOBS Act in his Proxy Disclosure Blog on CompensationStandards.com (see “Executive Compensation Disclosure and the JOBS Act,” March 31, 2012):

I also find it ironic that, just 21 months after Congress decided that shareholder advisory votes on executive compensation were a critical component of an effective corporate governance system, that policy has now taken a back seat to other considerations when it comes to recently-public companies.

Finally, I can’t quite get my head around the reasoning for exempting emerging growth companies from the CEO pay ratio requirement. It was my understanding that the complaints of the business community that the provision is too burdensome were falling on deaf ears in Congress. Yet, it appears that Congress has just decided that the provision is too burdensome for newly-public companies – a group that, ostensibly, doesn’t face the same compliance challenges of large, global companies.

Stay tuned; next week I’ll discuss the new shareholder thresholds for required registration.

NASPP Conference Early-Bird Rate Ends on Friday
The early-bird rate for the 20th Annual NASPP Conference ends this Friday, April 13.  This rate will not be extended, so don’t wait any longer to register.

Online Fundamentals Starts on Thursday
The NASPP’s acclaimed online program, Stock Plan Fundamentals, starts this Thursday, April 12.  This is a great program for anyone new to the industry.  Register today so you don’t miss the first webcast.

NASPP “To Do” List
We have so much going on here at the NASPP that it can be hard to keep track of it all, so we keep an ongoing “to do” list for you here in our blog. 

– Barbara