Most of us are still up to our eyeballs in proxy statement drafting, checking, circulating, filing, etc. One issue that seems to come up every year around this time is the reporting of a “discretionary bonus.” We all know to report a discretionary bonus in the “Bonus” column of the SCT, instead of the “Non-Equity Incentive” column. However, what other reporting rules apply when a discretionary bonus is paid? As usual, the answer is: it depends. Not all discretionary bonuses are the same.

Proxy statement: If a discretionary bonus is based on prior year’s efforts, it should be reported in current proxy, like other annual incentive payments attributable to performance in the prior fiscal year i.e., the proxy for the year in which it was earned, not the year in which it was paid. However, if the discretionary bonus is more random, it probably should be reported in next year’s proxy, i.e., the proxy for the year in which it was actually paid.

Form 8-K: If the bonus is totally discretionary an 8-K probably would be required. However, a discretionary that is expressly allowed under a plan or employment agreement that was disclosed previously, may not require an 8-K filing.

CDI: Question 117.13 provides:

Question: If a previously-disclosed employment agreement provides that the principal executive officer is entitled to receive a cash bonus in an amount determined by the compensation committee in its discretion, would an Item 5.02(e) Form 8-K be required when the committee makes an ad hoc determination of the amount of the principal executive officer’s bonus at the end of the first year that the contract is in effect? Would an Item 5.02(e) Form 8-K be required if the committee makes an ad hoc determination of the amount of the CEO’s bonus at the end of the second year in which the contract is in effect?

Answer: No. In both cases, no Item 5.02(e) Form 8-K would be required to report the discretionary bonus amount. Disclosure regarding material information about the bonus should be included in the registrant’s Compensation Discussion and Analysis and related disclosures under Item 402 of Regulation S-K (April 2, 2008).