The NASPP Blog

The 20th Annual Conference in New Orleans was packed with fantastic and useful information throughout. In particular, I want to draw attention to a special moment that actually occurred in one of the pre-conference sessions. Attendees of the pre-conference session on Proxy Disclosure were treated to an address by Meredith Cross, Director of the SEC’s Corporation Finance Division. Director Cross shared insight into SEC priorities and roadmap, as well as iterated some specific reminders for public companies. In today’s blog I’ll summarize some of Director Cross’ key points.

Housekeeping

First, I want to mention that Director Cross began her address with a disclaimer, stating that what she said reflects her own opinions and not formally those of the SEC. I feel compelled to reiterate that here. Still, her insights are undoubtedly valuable insight into the workings and thought process of the SEC.

Disclosures, Disclosures

Director Cross began by sharing her opinion on the state of company disclosures post adoption of Say-on-Pay. She stated that overall, the SEC has observed compliance with the requirements and resultant higher quality disclosures. One thing the SEC is considering is a retrospective review of Say-on-Pay related disclosures to see if they are actually achieving what the SEC hoped they would. What is the SEC hoping for in terms of quality Say-on-Pay disclosures? One example would be individualized reporting for each company director; that level of granularity is what the SEC is looking for in the context of quality disclosures. Data gathered during the review of disclosures will likely be used to determine if any disclosure requirements need tweaking.

Dodd-Frank: What’s Next?

The Dodd-Frank Act came with a myriad of rules to implement, which has kept the SEC rather busy. Some of the rules adopted by the SEC direct the national securities exchanges to develop their own listing standards to implement certain requirements of the Dodd-Frank Act that relate to compensation committees and director independence. The stock exchanges had until 9/25/2012 to submit their proposals to the SEC. Both NYSE and NASDAQ have posted their proposals on their respective web sites. Director Cross encourages companies to review the proposals and comment as they feel appropriate. The SEC has until 6/27/2013 to adopt the new standards.

On other Dodd-Frank notes, the SEC still has remaining rules to implement. Self admittedly, the SEC was challenged in accurately predicting the timing for implementation. Director Cross noted that the SEC has made good progress on all Dodd-Frank requirements that had deadlines, which took priority. Attention will now turn to implementation of the remaining rules (after turning some attention to focus on deadlines imposed by the JOBS Act first).

Tips

What I really appreciated about Director Cross’ address is that she had real tips to provide to issuer companies. I think anytime there’s an opportunity to hear from someone at one of the regulators, visibility into their thinking is more transparent. For example, the Director Cross says the SEC is aware of some specific concerns raised by companies relative to their disclosures. Namely, questions around putting supplemental income in context (e.g. if you pay a bonus in January that was earned prior to December 31, when do you disclose it?). According to Director Cross, the SEC needs to make sure these scenarios are interpreted consistently (my interpretation: don’t be surprised if down the road some interpretive guidance is issued.) Another area of concern for companies is the reporting of realized vs. realizable income. There’s no industry definition for this, so Director Cross’ advice is to approach it consistently year-over-year.

Reminders

On a final note, Director Cross had a few reminders for companies:

• 402(s) disclosures (how compensation practices relate to risk management) – companies need to remember that even if compensation practices haven’t changed, the company’s approach to risk management may have changed. For this reason, companies need to assess both practices annually.

• Performance Targets – remember that if a performance target isn’t met, this could be material, and the SEC expects companies to have related discussion in the CD&A disclosure in the proxy.

• Say-on-Pay – companies should view their proxy statement as an advocate for their pay practices, and a means to communicate with their shareholders.

It certainly was a treat to have Director Cross’ participation in the Proxy Disclosure pre-conference session, and hopefully this summary has provided an inside view into some of the SEC’s agenda, concerns, and radar.

-Jennifer