The NASPP Blog

Along with snowstorms in much of the country (during my annual trip to Chicago, I got stuck shoveling snow four times–see the pic below), there was a flurry of regulatory activity in mid-December. The IRS released proposed regs for cost-basis reporting, FASB released a proposed standard on stock compensation denominated in foreign currency, and the SEC released new rules on the executive compensation disclosures in proxy statements.

Me, dealing with snow flurries instead of flurries of regulations.  I don’t have an action shot of me shoveling snow, but here I am with my finished snow pile.  Shoveling snow is hard, but not as hard as writing about new tax regs, accounting standards, and securities laws.   

Robyn covered cost-basis reporting in her December 22 blog, “Cost Basis Reporting,” and it turns out that the proposed FASB standard hardly impacts anyone (for more info on it, see our alert “FASB Issues Exposure Draft of Proposed Accounting Standards Update Relating to Stock Compensation“), so today I’m discussing the SEC’s new rules for executive compensation disclosures as they relate to stock compensation.

Equity Awards in the Summary Compensation Table
Readers will recall that, back in December 2006, the SEC issued a surprising amendment to the proxy executive compensation disclosures that changed the amount reported in the Summary Compensation Table for grants of options and stock awards to be essentially equal to the expense amortized under 123(R) for the arrangements during the year, with a few differences for forfeitures. The SEC’s purpose was to align the disclosures with 123(R), and, while they might have achieved this, the resulting disclosures were confusing to shareholders (not to mention the media). Performance awards were a particular problem: the way forfeitures were included in the disclosures sometimes resulted in negative amounts reported in the SCT. See my July 7 blog, “SEC Proposes Changes to Disclosure of Grants in SCT,” for more information.

The New Rules

The new rules return to the disclosure method in effect before the 2006 amendment. Stock options, restricted stock/units, and other equity awards are reported in the SCT in the year granted. The full grant-date fair value of the awards, as determined under 123(R), is the amount disclosed for them.

For performance-based awards, the new rules require that the amount reported in the SCT be based on the level at which the award is expected to pay out, rather than at the maximum possible payout. However, the maximum payout must be disclosed in a footnote to the table.

Since there is no true-up if options and awards are later forfeited, there shouldn’t be any need to disclose negative amounts in the SCT.

No Change to Grants of Plan Based Awards Table

The 2006 amendments also updated the Grants of Plan Based Awards Table to include the full grant-date fair value of options and awards in the year of grant–since this amount was no longer reported in the SCT, disclosing it here made sense. Although it is now duplicative of the amount reported in the SCT for grants and awards, the final rules still require the grant-date fair value to be reported here as well.

Transition

The rules with respect to stock options and awards are effective for disclosures filed on or after February 28, 2010 for fiscal years ending on or after December 20, 2009. The SCT includes three years worth of compensation data; amounts reported for prior years should be recalculated to reflect the new rules, so that they are comparable to the current year data.

Amounts reported in the SCT can also impact which officers are considered Named Executive Officers, for which disclosure is required. The determination of NEOs for fiscal years ending on or after December 20, 2009 will be based on the new rules. For prior years, the determination is based on the rules in effect at that time. Thus, while equity compensation reported for prior years must be recomputed, companies won’t need to change which officers were included in the SCT for those years.

Other Stuff

The new rules go far beyond changes to the disclosures for equity compensation. Additional areas where the rules impose new or updated disclosure requirements include the following:

• Relation of compensation to risk
• Compensation consultant conflicts
• Board qualifications, diversity, leadership structure and risk oversight
• Reporting voting results

But those are topics for someone else’s blog–e.g., Mark Borges’ Proxy Disclosure Blog on CompensationStandards.com. I only cover stock compensation stuff, with an occasional Section 16 topic thrown in for good measure.

For more information on the SEC’s new rules, see our alert “SEC Finalizes Changes to Disclosure of Grants to Executives,” which includes, at last count, over 60 memos.

Don’t Miss the NASPP’s Upcoming Webcasts
All NASPP memberships expire on a calendar-year basis. If you haven’t done so already, be sure to renew your membership for 2010. If you don’t, you will no longer have access to the NASPP website after January 15 and will miss out on our first webcast, “Final Regulations on Sections 6039 and 423: Implications and Action Items,” scheduled for January 20.

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 I keep an ongoing “to do” list for you here in my blog. 

• Complete this month’s Compliance-O-Meter quiz on Preparing for Year-End.
• Purchase the NASPP Conference audio. 
• Renew your NASPP membership for 2010 (if you aren’t an NASPP member, join today). 
• Get started on your New Year’s resolutions!

-Barbara