On January 20, the Securities and Exchange Commission published Compliance and Disclosure Interpretations (C&DIs) providing further guidance as to transition dates and other clarifications for the new rules on corporate governance disclosures. Click here for a Katten Client Advisory on the final rules.

Transition Issues

The C&DIs clarified that voting results for annual meetings prior to February 28 should be reported in the “Other Information” Item of a Form 10-K or 10-Q due on or after February 28 rather than in the “Submission of Matters to a Vote of Security Holders” Item. The C&DIs also clarified that if a company with a fiscal year ending on or after December 20, 2009, files a Securities Act or Exchange Act registration statement on or after December 20, 2009, in general, the registration statement would have to be in compliance with the Regulation S-K amendments in order for it to be declared effective on or after February 28.

Click here for the transition C&DIs.

Interpretations Under Regulation S-K Items 401 and 402

  • Directors’ skills and qualifications. The SEC clarified that the specific experience, qualifications, attributes or skills that led the board to conclude that a person should serve as a director must be disclosed on an individual basis for each director rather than as a group for those sharing similar attributes. The SEC also indicated that this disclosure is required for all members of classified boards, regardless of whether a director is up for re-election in a particular year.
  • Executive Compensation. The SEC clarified that the grant date fair value for an equity award granted in 2009 to an executive officer that is forfeited due to the executive’s separation from the company is required to be included for the purpose of determining the 2009 total compensation. The SEC also stated that the grant date value of an award subject to time-based vesting should exclude the effect of estimated forfeitures.
  • Narrative Disclosure of Compensation Practices and Policies. The SEC indicated that although the location of the narrative disclosure of compensation practices and policies as they relate to risk management is not specified in the new Item 402(s) of Regulation S-K, the SEC recommends that the disclosure be presented together with the other Item 402 disclosures.
  • Consulting Fees. The SEC stated that the “additional services” provided by executive compensation consultants that are subject to disclosure are not limited to services for non-executives. The SEC also clarified that fees for consulting on broad-based, non-discriminatory plans in which executive officers or directors participate and for providing information relating to executive and director compensation, such as survey data (in each case, that would otherwise qualify for the exclusion from disclosure if they are the only services provided), are considered to be fees for “determining or recommending the amount or form of executive and director compensation” for purposes of reporting fees under the rule. Services such as benefits administration, human resources services, actuarial services and merger integration services are “additional services” subject to the disclosure requirements. In addition, if non-customized information relates to matters other than executive and director compensation, then the fees for such information would be for “additional services.”

Click here for the C&DIs.