On December 22, the Securities and Exchange Commission announced that it had adopted amendments to its executive and director compensation disclosure rules to conform the reporting of stock and option awards to Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123 (revised 2004) Share-Based Payment (FAS 123R). FAS 123R requires recognition of the costs of equity awards over the period in which an employee is required to provide service in exchange for the award, usually the vesting period. The amendments are intended to align the reporting of equity awards in the Summary Compensation Table and the Director Compensation Table to the amounts disclosed in the financial statements under FAS 123R .
Under the amendments:
- The dollar values to be reported in the Stock Awards and Option Awards columns of the Summary Compensation Table and the Director Compensation Table are revised to disclose the compensation cost of those awards, before reflecting forfeitures, over the requisite service period (forfeitures are to be described in accompanying footnotes).
- The Grants of Plan-Based Awards Table is revised to require, in a new column, disclosure of the full grant date fair value of each individual equity award and the Director Compensation Table is revised to require footnote disclosure of the same information.
- The Grants of Plan-Based Awards Table is revised to require disclosure of any option or stock appreciation right that was repriced or otherwise materially modified during the last completed fiscal year, including the incremental fair value, computed as of the repricing or modification date, and the Director Compensation Table is revised to require footnote disclosure of the same incremental fair value information.
The amendments were effective immediately upon publication in the Federal Register. Compliance with the Item 402 amendments is required for proxy statements, information statements and registration statements filed on or after December 15, 2006 that are required to include Item 402 disclosure for fiscal years ending on or after December 15, 2006, and for Forms 10-K and 10-KSB for fiscal years ending on or after December 15, 2006. The SEC is soliciting comment on the amendments for a period of 30 days, and will consider those comments and make changes to the amendments if necessary. The revised rules should reduce reporting anomalies arising from large one-time grants, particularly with respect to which executive officers are named in the compensation tables, and are more consistent with the other parts of the executive compensation disclosure rules.
The SEC’s announcement is available at http://www.sec.gov/news/digest/2006/dig122606.txt