Last week, I posted on the SEC’s new, more lenient $250,000,000* threshold to qualify as a Smaller Reporting Company (SRC) and mentioned that the SEC reporting rules are less demanding for an SRC. Today, I will discuss the relaxed executive compensation reporting rules available to an SRC.

An SRC need provide only two years of summary compensation table information, rather than three. Additionally, the Named Executive Officer (NEO) disclosure is limited to the principal executive officer, the two most highly compensated executive officers, and up to two additional individuals no longer serving as executive officers at year end. And last but not least, an SRC need not include any of the following in its proxy statement:

  • Compensation discussion and analysis;
  • Grants of plan-based awards table;
  • Option exercises and stock vested table;
  • Pension benefits table;
  • Change in present value of pension benefits;
  • CEO pay ratio;
  • Compensation policies as related to risk management; or
  • Description of retirement benefit plans.

Thus, the smaller reporting company rules provide quite a nice exception.

Importantly, the company itself determines whether it qualifies as an SRC and, if it determines that it so qualifies, may elect to file as an SRC. The determination does not need to be cleared with the SEC or require a legal determination from the SEC. The determination is made based on the information as to shares outstanding as reported in the Form 10-Q relating to the second fiscal quarter of the issuer’s previous fiscal year (e.g., for June 30, 2018 for current determinations, but excluding shares held by affiliates on that date). Affiliates include directors, executive officers, and shares held by other significant stockholders that may be deemed to be affiliates of the issuer (i.e., they “control, are controlled by, or are under common control with” the issuer). “Control” is “the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of the issuer, whether through the ownership of voting securities, by contract, or otherwise.”

Note that, even after a company becomes an SRC, it could continue to be an “accelerated filer” as long as its public float is greater than $75 million. Accordingly, the deadlines for submitting the Company’s Exchange Act filings will not change. The SEC is working on additional rules that may limit the number of companies that fall within the definition of “accelerated filer,” but nothing has yet been released on this.

*To be clear, there are two ways to qualify as an SRC: (i) If the company had a public float of less than $250 million, or (ii) If the company had annual revenues of less than $100 million and either: (A) no public float; or (B) a public float of less than $700 million.