SEC proposes changes to executive compensation disclosure requirements: the SEC proposes improved narrative disclosure on executive compensation.(SEC Update)

Publication: Bank Accounting & Finance

Publication Date: 01-JUN-06

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COPYRIGHT 2006 Institutional Investor, Inc.

The Securities and Exchange Commission (SEC) recently proposed rules that would amend the disclosure requirements for executive and director compensation, related-party transactions, director independence and other corporate governance matters and security ownership of officers and directors. The proposed rules would amend the disclosures in proxy and information statements, periodic reports and other filings under the Securities Exchange Act of 1934 ("Exchange Act") and registration statements under the Exchange Act and the Securities Act of 1933 ("Securities Act"). The SEC would require most of the disclosures to be provided in plain English. The proposed rules would also modify the current reporting requirements of Form 8-K regarding compensation arrangements. Specifically, the SEC proposed to do the following:

* Amend Items 201, 306, 401, 402, 403 and 404 of Regulation S-K and Regulation S-B; Item 601 of Regulation S-K; Item 1107 of Regulation AB and Rule 100 of Regulation BTR

* Add new Item 407 to Regulation S-K and Regulation S-B

* Amend Rules 13a-11, 14a-6, 14c-5, 15d-11 and 16b-3 under the Exchange Act

* Add Rules 13a-20 and 15d-20 under the Exchange Act and amend Schedule 14A under the Exchange Act, as well as Exchange Act Forms 8-K, 10,10SB, 10-Q, 10-QSB, 10-K, 10-KSB and 20-F

* Amend Forms SB-2, S-1, S-3, S-4 and S-11 under the Securities Act; Forms N-1A, N-2 and N-3 under the Securities Act and the Investment Company Act of 1940 and Form N-CSR under the Investment Company Act and the Exchange Act

The SEC noted that the proposed amendments are intended to make proxy statements, reports and registration statements easier to understand and to provide investors with a clearer and more complete picture of the compensation earned by an issuer's principal executive officer, principal financial officer and other highest-paid executive officers and members of its board of directors. The SEC also noted that the proposed amendments would provide better information about key financial relationships among companies and their executive officers, directors, significant shareholders and their respective immediate family members.

The SEC stated that closely related to executive officer and director compensation is the participation by executive officers, directors, significant shareholders and other related persons in financial transactions and relationships with the issuer. Therefore, the SEC proposed to revise its disclosure rules regarding related-party transactions and director independence and board...

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