SEC proposes to broaden disclosure of golden parachute payments.(COMPENSATION & BENEFITS)

The Securities and Exchange Commission (SEC) has proposed new disclosure requirements for executive and director compensation in public company proxy statements and other securities fillings. On January 27, 2006, the SEC released the proposed rules in SEC Release No. 33-8655. The proposed rules will generally apply to the disclosure of 2006 compensation in the 2007 proxy season.

The intent of this article is not to identify all of the new disclosure rules that public companies will have to comply with, although the first section of this article summarizes these rules. This article focuses on the new disclosure rules application to golden parachute payments.

Overview of Proposed SEC Rules

The proposed SEC disclosure rules revise and enhance the existing disclosure rules on executive compensation. The SEC's stated intent for revising these rules includes making proxy statements easier to understand and providing investors with a clearer and more complete picture of compensation paid to a company's executives.

Compensation Discussion and Analysis. The SEC has proposed that the Compensation Committee Report and Company Performance Graph be replaced by a new "Compensation Discussion and Analysis" section, which is designed in a similar fashion to the Management Discussion and Analysis currently required in a company's annual report, SEC Form 10-k filings. The SEC has specifically stated that there should be no "boilerplate" language used when describing the company's executive compensation philosophy and strategy. Instead, the SEC has outlined several questions that must be addressed in the disclosure. The questions are designed to ensure the company is presenting the objectives and policies of the company's executive compensation program.

Annual Total Compensation Disclosure. The SEC proposal …