Writing this blog pulls in a lot of information from around the equity compensation industry and its periphery. There are articles to review, Google Alerts to dissect, people to talk to – all to ensure we get relevant information into your hands. Most of the time we are assimilating information we’ve come across into our own words and thoughts. This week I learned that the SEC appears to be nearly ready to propose the long awaited clawback rules required by Dodd-Frank. This news came via the Wall Street Journal (article link below – keep reading). As I prepared to write a blog, Broc Romanek of CompensationStandards.com summarized the facts in his own blog. His summary is on point, and I couldn’t do any better at this point. So in today’s blog I’ll quote Romanek. CompensationStandards.com members can access the full blog on that site.
Before I get to the summary of the issue, I will say that Romanek raises some key questions that will undoubtedly be of concern to many. In approaching the clawback rules, how does a company ensuring the effort is worth the recoupment? Will the SEC take a more “principles” based or “prescriptive” approach?
From CompensationStandards.com
“The big news comes from this WSJ article, which says that the SEC will “soon” propose the clawback rules required by Section 954 of Dodd-Frank.
Here’s my quote in the WSJ piece:
Broc Romanek, a former SEC attorney who edits the websites CompensationStandards.com and TheCorporateCounsel.net, said the SEC should make sure it implements the new clawback requirements in a way that makes practical sense for companies and allows them discretion in determining whether it is economically efficient for them claw back pay, given legal, administrative or other expenses that may be involved. “It would not be ideal if a company is forced to spend more resources clawing back than [what] they would get in return,” he said.
The critical issue is whether the proposed clawback rules will be principles-based or prescriptive (remember how the recent P4P rule proposal was proscriptive, which was surprising to some). “Principles-based” means “just disclose what you have that you treat as a clawback.” And there are lots of tough questions about how a financial misstatement impacts compensation that may be indirectly – but not directly – based on financial performance, such as stock options (ie. how much is the stock price influenced by a restatement, as compared to performance criteria that is tied to EPS which is much more directly influenced).
Whether the proposal is prescriptive or principles-based will in turn impact how much the rules drive a certain type of conduct – the more prescriptive, the more the SEC is making a judgment call and companies will have to come in line with what the SEC determines to be encompassed. And remember as to timing, the SEC’s rulemaking will just be the first step – because SEC will be proposing rules that the stock exchanges then have to adopt standards to implement…”
Stay tuned, folks! When the SEC moves on this, you’ll hear about it here in this blog.
-Jenn
A Few Days to Save on NASPP Conference
The 23rd Annual NASPP Conference will be held San Diego, from October 27 to 30. Don’t wait any longer to register; the current rate is only available through this Friday, June 5.
NASPP To Do List
Here’s your NASPP To Do List for the week:
Tags: NASPP To Do List
I’m sure all of my readers know that Form S-8 is used by public companies to register shares that will be issued under an employee stock plan with the SEC. In it’s January-February 2015 issue, The Corporate Counsel took a closer a look at some of the technical requirements of Form S-8. Here are a few things I learned from the article.
Fee Offsets Are Complicated
Companies wishing to register shares on a Form S-8 must pay a registration fee to the SEC. This fee is based on the value of the stock to be issued under the plan and the total number of shares to be issued. Where shares registered under prior S-8 filings will not be issued, companies can use the fees associated with these unissued shares to offset the fees to file a new Form S-8. But there’s a catch: the offering covered by the S-8 that the fees will be transferred from has to be completed, terminated or withdrawn and the new S-8 has to be filed within five years of when the original S-8 was filed. Because most stock plans have a term of ten years (and the offering isn’t viewed as completed until there are no further outstanding options/awards under the plan), this means that this offset often available. This is covered in the Securities Act Rules CDI Question 240.11.
No Share Offsets
Shares cannot be carried forward from one form S-8 to another. Thus, if shares from an expiring plan (and covered under the Form S-8 filed for that plan) will be transferred to a new plan, the shares have be registered again on the Form S-8 filed for the new plan (and are included in the calculation of the registration fee for the new plan).
New Form S-8 Must Be Filed to Register New Share Allocation
Where shares are newly allocated to an existing plan, a new Form S-8 must be filed to register those shares. They cannot be registered by amending the prior Form S-8 filed for the plan. But, the good news is that a abbreviated format can be used for the new Form S-8. The Corporate Counsel says:
In this scenario, General Instruction E to Form S-8 provides that, for the registration of additional securities of the same class covered by an existing Form S-8 relating to an employee benefit plan, the issuer may file an abbreviated registration statement containing only a cover page, a statement that the contents of the earlier registration statement—identified by file number—are incorporated by reference, the signature page, any required opinions and consents, and any information required in the new registration statement that is not in the earlier registration statement.
Share Counting
I was surprised to learn that it may be not permissible to count share usage for Form S-8 purposes the same way shares are counted against the share reserve. According to the article:
A recommended approach for dealing with forfeited shares is to treat the original restricted stock grant and the subsequent re-grant as two separate issuances for purposes of counting the amount of shares remaining on the Form S-8. But be aware that when counting shares this way, an issuer can deplete shares registered on Form S-8 faster than it depletes the plan capacity shares, so the issuer should keep a separate ledger for both the Form S-8 and the plan share counting. Also note that this approach might be overly conservative for some practitioners who do not believe that the issuer needs to count the forfeited shares as having been issued against the total, particularly with respect to options. There is also a concern that this approach can lead to problems in determining the real share reserve for other purposes, such as for accounting purposes.
The article further notes:
Options and stock-settled SARs should be counted when exercised for the full gross amount exercised (i.e., unreduced for any net exercise or withholding), while stock awards should be counted when granted. For performance stock awards, the conservative approach is that they should be counted at grant for the target number of shares—with any shares actually issued in excess of target counted at the time of issuance.
– Barbara
Tags: Form S-8, registration, SEC, share counting
The Michigan NASPP chapter hosts a meeting at the Arcadia Ales Brewing Company this Thursday, June 4, featuring a presentation by Kerri McKenna and Amanda Beittel of PwC on global equity updates. The presentation will be from 2:00 to 3:30 PM, followed by a brewery tour, appetizers and beer from 3:30 to 6:00 PM. Don’t miss this great opportunity to catch up on global developments and network with local stock plan professionals. There is no cost to attend the meeting.
Tags: NASPP chapter meetings