The SEC continues to hit the reset button on executive compensation and corporate governance. In its latest rule changes, issued in mid-December, the Commission mandated that public companies make more disclosures on a wide range of practices involving management and directors. Among the new disclosure requirements: the relationship between a company’s compensation policies and its risk management; the grant date fair value of any equity or stock options awards in summary compensation tables; and potential conflicts of interest from the use of outside compensation consultants. At the board level, companies must disclose the backgrounds/qualifications of all director-level nominees, along with any legal proceedings involving officers and directors, and whether the board has split the chairman/CEO functions, and even consideration of diversity for how directors are nominated.
Specifically, the changes will require disclosure concerning:
- The relationship of a company’s compensation policies and practices to risk management, when those compensation policies and practices create risks that are reasonably likely to have a material adverse effect on the company;
- The grant date fair value of equity awards in the Summary Compensation Table, replacing the prior approach of requiring disclosure of the amounts of compensation expense recognized for financial reporting purposes;
- The potential conflicts of interest that compensation consultants may have when performing services for the company, focusing on disclosure of fees paid (subject to a $120,000 threshold) for executive compensation services and for additional services;
- The background and qualifications of directors and nominees for director, describing the experience and skills that led the company to choose the director or nominee for the board;
- Other public company directorships held by each director or nominee over the past five years;
- Legal proceedings involving a company’s executive officers, directors, and nominees for director, including disclosure covering the past ten years and covering a significantly expanded list of relevant proceedings;
- The board of directors’ consideration of diversity in the process by which directors are considered for nomination to the board;
- The leadership structure of the board, including whether the company has combined or separated the roles of chairman and principal executive officer, and why the company believes that its leadership structure is appropriate for the company, as well as a discussion, in some circumstances, of whether and why, a company has a lead independent director;
- The extent of the board’s role in the oversight of risk; and
- Voting results, which are to be provided on a significantly accelerated basis under cover of Form 8-K.