On May 11th, the staff of the SEC’s Division of Corporation Finance issued 45 Compliance and Disclosure Interpretations (CDIs), replacing previously published telephone interpretations on proxy rules and Schedule 14A. Most of the updates are non-substantive, as noted by the SEC, and therefore the updates are primarily helpful for consolidating the relevant guidance in one place. Twelve of the CDIs relate to Item 10 of Schedule 14A, which sets forth the disclosure rules when a compensation plan is submitted to shareholders for approval, but only the following interpretation, CDI 161.03, is identified as a substantive change:

Question: If a registrant is required to disclose the New Plan Benefits Table called for under Item 10(a)(2) of Schedule 14A, should it list in the table all of the individuals and groups for which award and benefit information is required, even if the amount to be reported is “0”?

Answer: Yes. Alternatively, the registrant can choose to identify any individual or group for which the award and benefit information to be reported is “0” through narrative disclosure that accompanies the New Plan Benefits Table. [May 11, 2018]

As background, the “New Plan Benefits” table is required to be included in a proxy proposal for shareholder approval of a compensation plan when either:

  • awards have been made under the plan that are contingent on shareholder approval, or
  • the plan has set benefits or amounts, such that the benefits or amounts that will be issued under the plan are determinable (e.g., formulaic director award plans).

The table requires disclosure of such determinable awards granted or to be granted to (i) the issuer’s CEO, (ii) each of the named executive officers, (iii) the executive group, (iv) the non-executive director group, and (v) the non-executive employee group.

Practically speaking, the change set out in CDI 161.03 is not that substantive. The only difference between the new CDI and the SEC’s prior telephone interpretation is that the new CDI confirms that it’s acceptable to provide information on individuals or groups who did not receive contingent grants or will not otherwise receive determinable awards in a narrative along with the table, rather than in the table itself.

At the same time, it is instructive to see that even in view of its Disclosure Effectiveness Initiative, the SEC remains focused on the New Plan Benefits table. No fewer than seven out of the twelve CDIs on Item 10 relate to the table. Therefore, although past disclosures in this area have tended to take a variety of approaches, companies required to disclose a New Plan Benefits table in the future will no doubt want to adhere closely to the new CDIs in their compensation plan proposals.