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COPYRIGHT 2006 Aspen Publishers, Inc.
The SEC on July 26 voted to adopt changes to the rules requiring disclosure of executive and director compensation, related person transactions, director independence, and other corporate governance matters and security ownership of officers and directors. These changes would affect disclosure in proxy statements, annual reports, and registration statements, as well as the current reporting of compensation arrangements. The rules would require that most of this disclosure be provided in plain English.
"With more than 20,000 comments, and counting, it is now official that no issue in the 72 years of the Commission's history has generated such interest," said SEC Chairman Christopher Cox. "The better information that both shareholders and boards of directors will get as a result of these new rules will help them make better decisions about the appropriate amount to pay the men and women entrusted with running their companies. Shareholders need intelligible disclosure that can be understood by a lay reader without benefit of specialized expertise or the need for an advanced degree. It's our job to see that they get it."
"Investors have made it clear that disclosure about executive compensation and related matters is very important to them. The rule changes and guidance the Commission today voted to approve will significantly improve the quality and usefulness of the information that investors receive about executive compensation," said John W. White, Director of the SEC's Division of Corporation Finance. "Investors will now be provided with one number for total annual compensation for each named executive officer. The clarity and comparability of this one number will be complemented by the principles-based narrative disclosures in our new Compensation Discussion and Analysis section and by the requirement that these disclosures be made in plain English. By taking up these critical issues and addressing them in record time, the Commission has once again shown its responsiveness to the continually evolving needs of American investors."
1. Executive and Director Compensation
The amendments will refine the currently required tabular disclosure and combine it with improved narrative disclosure to elicit clearer and more complete disclosure of compensation of the principal executive officer, principal financial officer, the three other highest paid executive officers and the directors.
Compensation Discussion and Analysis
New company disclosure in the form of a Compensation Discussion and Analysis will address the objectives and implementation of executive compensation programs, focusing on the most important factors underlying each company's compensation policies and decisions....
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