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CCH Provides Analysis of New SEC Rules in Executive Compensation and Related-Party Disclosure
(RIVERWOODS, ILL., August 28, 2006) – The Securities and Exchange Commission (SEC) in late July adopted the most significant reforms to executive compensation in the past 14 years. CCH, a leading provider of securities law information and software and part of Wolters Kluwer Law & Business (www.cch.com), is now publishing Executive Compensation and Related-Party Disclosure: SEC Rules and Explanation, a comprehensive book providing the latest practical guidance to help securities compliance officers and other corporate and securities law professionals understand and apply the changes under the new rules.
The rules are designed to provide investors with a more clear and complete picture of compensation paid to principal executive and financial officers as well as the highest paid executive officers and directors.
“While it remains up to a company’s board to decide how much to pay its executives, the new SEC rules now require that companies do provide a clear explanation of how they arrived at both the amount and the measurement,” said Executive Compensation and Related-Party Disclosure author and CCH Lead Securities Analyst, James Hamilton, JD, LLM. “This will require for the first time that investors be provided with one number for total annual compensation for each named executive and that they be provided with a newly mandated narrative, delivered in plain English, that offers clarity and comparability for this total compensation number.”
CCH’s Executive Compensation and Related-Party Disclosure details all aspects of the rule changes for professionals including the following key areas related to providing investors with a clearer and more complete picture of compensation paid to principal executive and financial officers as well as the highest paid executive officers and directors.
New CD&A and Tables
In the area of executive and director compensation, the most scrutinized section of the reforms, Hamilton said investors will see a newly mandated Compensation Discussion & Analysis (CD&A) and an overhaul of compensation tables.
The CD&A is expected to clearly address the objectives and implementation of executive compensation, explaining material elements of a company’s compensation as well as option grants to executives. It also is required that companies’ CD&As be filed, thus becoming a part of the disclosure subject to Sarbanes-Oxley certification by a company’s principal executive officer and financial officer.
“The SEC is clearly focused on investors’ interests here, both in making the CD&A fall under Sarbanes-Oxley and requiring companies to be more open about the granting and timing of options to executives,” said Hamilton.
The required compensation tables have been reorganized under the SEC rules into three broad categories to logically provide a picture of total compensation via tables on: compensation, equity compensation, and retirement and other post-employment benefits.
The summary compensation table, the principal disclosure vehicle for executive compensation, now will include a column reporting the total compensation of named executive officers as well as specific columns for a variety of different compensation beyond salary and bonus, including all equity-based awards, and identifying stock and stock options and compensation under non-equity incentive plans and compensation derived from perquisites. A narrative also will accompany the summary compensation table, and a directors compensation table will follow a similar format and similar narrative.
Additionally, the SEC provided specific guidance on stock option grants, requiring disclosure of the grant date fair value, closing market price on the grant date if greater than the exercise price of the award, and the date the compensation committee or board of director took action to grant the award if it differs from the grant date.
Three Highest Paid Non-executive Employees
The SEC had proposed disclosure for up to three non-executive employees whose total individual compensation was greater than that of any of the named executive officers. In light of concerted opposition, this proposal was revised and reproposed for public comment. The new proposal would require that the accompanying narrative disclosure include the total compensation and job positions, but not the names, of each of a company’s three most highly compensated employees, whether or not they were executive officers during the last completed fiscal year, whose compensation was greater than that of any of the named executive officers. The proposed disclosure is then qualified in two important ways. First, employees having no responsibility for significant policy decisions within the company would be excluded from this determination. Second, the revised proposal would only apply to large accelerated filers, which is narrower than the original proposal because it now applies to fewer companies.
About the Author
CCH Securities Law Principal Analyst Jim Hamilton, JD, LLM, has been tracking, analyzing and explaining securities law and regulation for nearly 30 years as an analyst for CCH. He has written and spoken extensively on federal securities law and has been cited as an authority by a federal court. His analysis of the Sarbanes-Oxley Act, the Sarbanes-Oxley Manual: A Handbook for the Act and SEC Rules, is considered a definitive explanation of the Act. Other works by Hamilton include the popular guidebook Responsibilities of Corporate Officers and Directors under Federal Securities Law, the Guide to Internal Controls, and Informal Corporate Disclosure under Federal Securities Law.
In addition, Hamilton serves as a leading contributor to the industry-standard publication, CCH Federal Securities Law Reporter, as well as related publications SEC Filings Insight, PCAOB Reporter, Derivatives Regulation Law Reporter,Corporate Secretary’s Guide and International Securities Outlook. Hamilton received a JD from Stetson University College of Law and an LLM from New York University School of Law. He has launched a new blog –Jim Hamilton’s World of Securities at jimhamiltonblog.blogspot.com – to cover every level of securities regulation as it relates to public companies, accountants and auditors, broker-dealers, foreign issuers, hedge funds and others conducting a series of transactions and activities such as acquisitions, financial reporting, private placements, securitization and derivatives trading. Importantly, the blog is also a forum to discuss Sarbanes-Oxley issues.
To Order Executive Compensation and Related-Party Disclosure
For more information or to order Executive Compensation and Related-Party Disclosure:SEC Rules and Explanation call CCH at 800-248-3248, onlinestore.cch.com. Single copy price is $39; quantity discounts are available.
Year-end Compliance Requirements
Companies will have to act relatively quickly to comply with the new SEC rules. Forms 10-K and 10-KSB will be required to comply for fiscal years ending on or after December 15, 2006; proxy or information statements filed on or after that date that are required to include Item 402 and 404 disclosures for fiscal years ending on or after December 15, 2006.
About Wolters Kluwer Law & Business
Wolters Kluwer Law & Business is a leading provider of research products and software solutions in key specialty areas for legal and business professionals, as well as casebooks and study aids for law students. Its major product lines include Aspen Publishers, CCH, Kluwer Law International and Loislaw. Its markets include law firms, law schools, corporate counsel and professionals requiring legal and compliance information. Wolters Kluwer Law & Business, a unit of Wolters Kluwer, is based in New York City and Riverwoods, Ill.
Wolters Kluwer is a leading multinational publisher and information services company. The company's core markets are spread across the health, corporate services, finance, tax, accounting, law, regulatory and education sectors. Wolters Kluwer has annual revenues (2005) of €3.4 billion, employs approximately 18,400 people worldwide and maintains operations across Europe, North America and Asia Pacific. Wolters Kluwer is headquartered in Amsterdam, the Netherlands. Its shares are quoted on the Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices.
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EDITORS’ NOTE: Editorial review copies of Executive Compensation and Related-Party Disclosure: SEC Rules and Explanation are available upon request for members of the press. Contact Leslie Bonacum, 847-267-7153 or firstname.lastname@example.org or Neil Allen, 847-267-2179 or email@example.com.