[Federal Register Volume 71, Number 250 (Friday, December 29, 2006)]
[Rules and Regulations]
[Pages 78338-78351]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-9932]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 228 and 229
[Release Nos. 33-8765; 34-55009; File No. S7-03-06]
RIN 3235-AI80
Executive Compensation Disclosure
AGENCY: Securities and Exchange Commission.
ACTION: Interim final rules with request for comments.
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SUMMARY: The Securities and Exchange Commission is adopting, as interim
final rules, amendments to the disclosure requirements for executive
and director compensation. The amendments to Item 402 of Regulations S-
K and S-B revise Summary Compensation Table and Director Compensation
Table disclosure with respect to stock awards and option awards to
provide disclosure of the compensation cost of awards over the
requisite service period, as described in Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 123
(revised 2004) Share-Based Payment (FAS 123R). FAS 123R defines a
requisite service period as the period or periods over which an
employee is required to provide service in exchange for a share-based
payment. The revised disclosure replaces disclosure in the Summary
Compensation Table and Director Compensation Table of the aggregate
grant date fair value of awards computed in accordance with FAS 123R.
The amendments revise the Grants of Plan-Based Awards Table to add a
column showing, on a grant-by-grant basis, the full grant date fair
value of awards computed in accordance with FAS 123R. The amendments
also revise the Grants of Plan-Based Awards Table to include
information concerning repriced or materially modified options, stock
appreciation rights and similar option-like instruments, disclosing the
incremental fair value computed as of the repricing or modification
date computed in accordance with FAS 123R. The amendments to the
Director Compensation Table in Item 402 of Regulation S-K require
footnote disclosure corresponding to the new Grants of Plan-Based
Awards Table fair value disclosures. The amendments are intended to
provide investors with more complete and useful disclosure about
executive compensation. Disclosing the compensation cost of stock and
option awards over the requisite service period will give investors a
better idea of the compensation earned by an executive or
[[Page 78339]]
director during a particular reporting period, consistent with the
principles underlying the financial statement disclosure; and retaining
the requirement to disclose the grant date fair value will give
investors useful information about the total impact of compensation
decisions made by a company in a particular reporting period.
DATES: Effective Date: The amendments are effective December 29, 2006.
Comment Date: As discussed below, we are publishing interim final
regulations. We will, however, consider any comments received on or
before January 29, 2007 and will revise the interim final rule
amendments to Item 402 of Regulations S-K and S-B if necessary.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/final.shtml); or
Send an e-mail to [email protected]. Please include
File Number S7-03-06 on the subject line; or
Use the Federal Rulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549-1090.
All submissions should refer to File Number S7-03-06. This file number
should be included on the subject line if e-mail is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
Internet Web site (http://www.sec.gov/rules/proposed/shtml). Comments
are also available for public inspection and copying in the
Commission's Public Reference Room, 100 F Street, NE, Washington, DC
20549. All comments received will be posted without change; we do not
edit personal identifying information from submissions. You should
submit only information that you wish to make publicly available.
FOR FURTHER INFORMATION CONTACT: David Lynn or Anne Krauskopf, at (202)
551-3500, in the Division of Corporation Finance, U.S. Securities and
Exchange Commission, 100 F Street, NE., Washington, DC 20549-3010.
SUPPLEMENTARY INFORMATION: We are adopting amendments to Item 402 \1\
of Regulations S-K \2\ and S-B \3\ as interim final rules.
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\1\ 17 CFR 229.402 and 17 CFR 228.402.
\2\ 17 CFR 229.10 et seq.
\3\ 17 CFR 228.10 et seq.
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I. Background
On July 26, 2006, we voted to adopt revisions to our rules
governing disclosure of executive compensation.\4\ We intended these
revisions to provide investors with a clearer and more complete picture
of compensation to principal executive officers, principal financial
officers, the other highest paid executive officers and directors.\5\
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\4\ Executive Compensation and Related Person Disclosure,
Release No. 33-8732A (Aug. 29, 2006) [71 FR 53158] (the ``2006
Executive Compensation Release''). These revisions became effective
on November 7, 2006.
\5\ The discussion that follows focuses on amendments to Item
402 of Regulation S-K, with references to differences from Item 402
of Regulation S-B where appropriate.
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Two significant features of the amended disclosure rules were
revisions to the Summary Compensation Table \6\ and adoption of a new
Grants of Plan-Based Awards Table.\7\ Among other things, we revised
the Summary Compensation Table to include a new ``Total'' column \8\
that aggregates the total dollar value of each form of compensation
quantified in the other columns. We also adopted a Director
Compensation Table,\9\ modeled on the revised Summary Compensation
Table.
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\6\ Item 402(c) of Regulation S-K, which presents information
for each of the company's last three completed fiscal years, and
Item 402(b) of Regulation S-B, which presents information for each
of a small business issuer's last two completed fiscal years.
\7\ Item 402(d) of Regulation S-K.
\8\ Item 402(c)(2)(x) of Regulation S-K and Item 402(b)(2)(x) of
Regulation S-B.
\9\ Item 402(k) of Regulation S-K and Item 402(f) of Regulation
S-B. Each of these tables presents information for the last
completed fiscal year.
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Under these rules, in order to calculate a total dollar amount of
compensation in the Summary Compensation Table for a particular fiscal
year, a dollar value for all equity awards--rather than the number of
securities underlying an equity award--must be disclosed. We required
this valuation to be based on the grant date fair value of the awards
determined pursuant to FAS 123R. In particular, for both the Stock
Awards and Option Awards columns,\10\ we amended the rules to require
disclosure of the aggregate grant date fair value of the awards
computed in accordance with FAS 123R.\11\ This approach provided for
Summary Compensation Table and Director Compensation Table disclosure
of these awards, consistent with the timing of option and stock awards
disclosure that had applied in the Summary Compensation Table since
1992.\12\
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\10\ Items 402(c)(2)(v) and (vi) of Regulation S-K and Items
402(b)(2)(v) and (vi) of Regulation S-B require these columns in the
Summary Compensation Table. Items 402(k)(2)(iii) and (iv) of
Regulation S-K and Items 402(f)(2)(iii) and (iv) of Regulation S-B
require these columns in the Director Compensation Table.
\11\ 2006 Executive Compensation Release at Section II.C.1.c.i.
\12\ See Executive Compensation Disclosure, Release No. 33-6962
(Oct. 16, 1992) [57 FR 48126] (the ``1992 Release''). Before the
amendments adopted in the 2006 Executive Compensation Release, the
Summary Compensation Table had required disclosure of the sum of the
number of securities underlying stock options granted (including
options that subsequently have been transferred), with or without
tandem stock appreciation rights (SARs), and the number of free-
standing SARs. The Summary Compensation Table also had required
disclosure of the dollar value (net of any consideration paid by the
named executive officer) of any award of restricted stock,
calculated by multiplying the closing market price of the company's
unrestricted stock on the date of grant by the number of shares
awarded. Alternatively, restricted stock awards subject to
performance-based vesting conditions could have been reported as
long-term incentive plan (LTIP) awards in the separate Long-Term
Incentive Plan Awards table, with vesting later reported in the
Summary Compensation Table LTIP Payouts column.
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The comments we received regarding the dollar amount for Stock
Awards and Option Awards in the Summary Compensation Table reflected
differing views. Some commenters expressed support for requiring
companies to report the full grant date fair value in the fiscal year
of the award because it would provide a more complete representation of
compensation and would be more consistent with the purpose of executive
compensation disclosure.\13\ Others stated that we should require
Summary Compensation Table disclosure of the proportionate
[[Page 78340]]
amount of an award's total fair value that is recognized in the
company's financial statements for the fiscal year.\14\ Some of these
commenters expressed concerns that disclosing the full grant date fair
value would overstate compensation earned related to service rendered
for the year, and might confuse the discussion and analysis of
compensation policies and practices.\15\ Others stated that requiring
immediate reporting of the full grant date fair value would not
necessarily reflect the cost to the company or the benefit to the named
executive officer or director, and that the actual amounts earned later
could be substantially different.\16\ For example, a performance-based
stock award might never be earned, yet the entire grant date fair value
of the award is required to be reported in the Summary Compensation
Table in the fiscal year of grant.\17\ Some commenters expressed
concern regarding inconsistency with the presentation of non-equity
incentive plan compensation,\18\ which is reported when earned.\19\
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\13\ See, for example, letters from California Public Employees'
Retirement System; CFA Centre for Financial Market Integrity, dated
April 13, 2006; Connecticut Retirement Plans and Trust Funds, dated
April 10, 2006; Leo J. Burns; Governance for Owners USA, Inc.;
Laborers International Union of North America; Nancy Lucke Ludgus;
jointly, California Public Employees' Retirement System, California
State Teachers' Retirement System, Co-operative Insurance Society--
UK, F&C Asset Management--UK, Illinois State Board of Investment,
London Pensions Fund Authority--UK, New York State Common Retirement
Fund, New York City Pension Funds, Ontario Teachers' Pension Plan,
PGGM Investments--Netherlands, Public Sector and Commonwealth Super
(PSS/CSS)--Australia, RAILPEN Investments--UK, State Board of
Administration (SBA) of Florida, Stichting Pensioenfonds ABP--
Netherlands, UniSuper Limited--Australia, and Universities
Superannuation Scheme--UK; State Board of Administration (SBA) of
Florida; Teamsters Local 671 Health Services and Insurance Plan;
Southwestern Pennsylvania and Western Maryland Area Teamsters and
Employers Pension Fund; United Church Foundation, Inc.; Washington
State Investment Board; and Western PA Teamsters & Employers Welfare
Fund.
\14\ See, for example, letters from the SEC Regulations
Committee of the American Institute of Certified Public Accountants
(``AICPA''); Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C.;
Chamber of Commerce of the United States of America (``Chamber of
Commerce''); Computer Sciences Corporation; Deloitte & Touche LLP
(``Deloitte''); Ernst & Young LLP (``E&Y''); Fenwick & West LLP
(``Fenwick''); Foley & Lardner LLP (``Foley''); HR Policy
Association; American Bar Association, Joint Committee on Employee
Benefits; and KPMG LLP (``KPMG'').
\15\ See letters from Chamber of Commerce and E&Y.
\16\ See letters from Foley (noting that awards would be
forfeited if the executive terminates employment before expiration
of the vesting period) and WorldatWork.
\17\ See letter from Compass Bancshares, Inc.
\18\ See, for example, letters from The Corporate & Securities
Law Committee and the Employment & Labor Law Committee of the
Association of Corporate Counsel; Amalgamated Bank Long-View Funds;
BDO Seidman, LLP (``BDO Seidman''); Council of Institutional
Investors, dated March 29, 2006; IUE-CWA Pension Fund and 401(k)
Plan; and Mercer Human Resources Consulting.
\19\ Item 402(c)(2)(vii) of Regulation S-K and Item
402(b)(2)(vii) of Regulation S-B.
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Commenters also suggested that providing compensation disclosure
that is consistent with the company's financial statements would make
it easier for analysts and investors to analyze compensation for top
executives.\20\ One commenter noted particularly that the Financial
Accounting Standards Board engaged in a thorough and extensive process
before concluding that financial statements should reflect the
compensation cost of the award proportionately over the vesting
period.\21\ Another commenter stated that the accounting rules shape
decision-making on executive compensation.\22\ Regarding identification
of the most highly compensated executive officers, one commenter noted
that reporting full grant date fair value would cause wide year-to-year
swings in reported compensation when in fact the executive is earning a
consistent level of compensation, and cause inconsistencies in the
identification of named executive officers from year-to-year.\23\
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\20\ See letters from AICPA; Chamber of Commerce; Deloitte; EY;
and KPMG.
\21\ See letter from Fenwick.
\22\ See letter from Steven Hall & Partners. If this is the
case, we would anticipate that this influence may be discussed in
the Compensation Discussion and Analysis. See Item 402(b)(2)(xii) of
Regulation S-K.
\23\ See letter from Fenwick.
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Our comprehensive revisions also adopted the Grants of Plan-Based
Awards Table to supplement and complement Summary Compensation Table
disclosure of stock and option awards by disclosing, among other
things, the number of shares of stock or units comprising or underlying
the award. This supplemental table shows the terms of grants, including
estimated future payouts for both equity incentive plans and non-equity
incentive plans,\24\ with separate disclosure for each grant.
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\24\ Equity incentive plan and non-equity incentive plan are
both defined in Item 402(a)(6)(iii) of Regulation S-K and Item
402(a)(5)(iii) of Regulation S-B.
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II. Discussion
Under FAS 123R, while the compensation cost is initially measured
based on the grant date fair value of an award, it is generally
recognized for financial reporting purposes over the period in which
the employee is required to provide service in exchange for the award
(generally the vesting period). When and where to disclose this
compensation cost as executive compensation disclosure requires a
careful balancing. In the 2006 Executive Compensation Release, we chose
to require disclosure of the full grant date fair value as compensation
when the grant is made. As we explained, on balance we chose that
approach for the purpose of executive compensation disclosure for a
variety of reasons, including that it informs investors of current
actions regarding plan awards, and emphasizes the importance of the
compensation committee's compensation decisions for the most recent
fiscal year.
We recognize, however, that no one approach to disclosure of stock
and option awards addresses all of the issues regarding disclosure of
these forms of compensation. Upon further consideration, we have
concluded that a combination of disclosure of the compensation cost
associated with equity awards as that cost is recognized in the
financial statements in the Summary Compensation Table, combined with
disclosure of the grant date fair value of those awards on a grant-by-
grant basis in the Grants of Plan-Based Awards Table, would provide a
fuller and more useful picture of executive compensation than our
recently adopted rules. Thus, we now adopt, as interim final rules,
amendments that implement an approach to Summary Compensation Table
disclosure of equity awards that provides disclosure of compensation
cost of those awards over the requisite service period, as described in
FAS 123R. Adopting the amendments as interim final rules--before
issuers are required to comply with the recently adopted amendments--
will avoid presentation of executive compensation disclosure in the
first year that would be different in later years. Measuring
compensation in this manner should provide investors with a clearer
view of the annual compensation earned by executives and the annual
compensation costs to a company, consistent with the timing of
financial statement reporting. Measuring compensation in this manner
also should eliminate the potential for distortion in identifying named
executive officers based on a measure that reflects the full grant date
fair value of awards, such as when a single large grant that will be
earned by services to be performed over multiple years changes the
composition of the named executive officers in the Summary Compensation
Table.
In addition, we are revising the Grants of Plan-Based Awards Table
to add a column showing the full grant date fair value of each award
granted, computed in accordance with FAS 123R. This will provide
investors a more complete perspective of the compensation decisions
made with respect to the last completed fiscal year, and facilitate
Compensation Discussion and Analysis disclosure of the company's
policies and decisions regarding compensation awarded to, earned by, or
paid to the named executive officers.\25\ As a result of the
amendments, investors will have more disclosure and ultimately a more
complete picture of a company's
[[Page 78341]]
compensation decisions. We believe that this approach will better
fulfill the Commission's objective of informing investors of current
actions regarding plan awards and compensation decisions, and that this
disclosure ultimately will be easier for companies to prepare and
investors to understand.
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\25\ The Compensation Discussion and Analysis section is
required by Item 402(b) of Regulation S-K. Instruction 2 to Item
402(b) provides, among other things, that the Compensation
Discussion and Analysis should be of the information contained in
the tables and otherwise disclosed pursuant to Item 402 of
Regulation S-K.
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A. Summary Compensation Table
Under the amendments we adopt today as interim final rules, the
dollar amount of compensation cost recognized over the requisite
service period, as described in FAS 123R, will be the amount reported
in the Stock Awards and Option Awards columns in the Summary
Compensation Table.\26\ Compensation cost will include both the amounts
recorded as compensation expense in the income statement for the fiscal
year as well as any amounts earned by an executive that have been
capitalized on the balance sheet for the fiscal year. This amount will
include compensation cost recognized in the financial statements with
respect to awards granted in previous fiscal years and the subject
fiscal year. The amendments revise the corresponding columns in the
Director Compensation Table in the same way.\27\
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\26\ Items 402(c)(2)(v) and (vi) of Regulation S-K and Items
402(b)(2)(v) and (vi) of Regulation S-B.
\27\ Items 402(k)(2)(iii) and (iv) of Regulation S-K and Items
402(f)(2)(iii) and (iv) of Regulation S-B.
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We also amend the related instruction calling for a footnote
disclosing all assumptions made in the valuation by reference to a
discussion of those assumptions in the company's financial statements,
footnotes to the financial statements, or discussion in Management's
Discussion and Analysis,\28\ and providing that the referenced sections
are deemed part of the Item 402 disclosure, to also require footnote
disclosure of awards that are forfeited.\29\ Since the amendments
correlate Summary Compensation Table disclosure of stock and option
awards to the dollar amount recognized for financial statement purposes
with respect to the fiscal year, the other related instruction,
limiting the amount reported with respect to a repriced option or SAR
to the FAS 123R incremental fair value,\30\ is rescinded. As discussed
below,\31\ this information and the full grant date fair value
disclosure formerly disclosed in the Summary Compensation Table is
moved to the Grants of Plan-Based Awards Table, where it is required on
a grant-by-grant basis.
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\28\ Item 303 of Regulation S-K [17 CFR 229.303].
\29\ Former Instruction 1 to Item 402(c)(2)(v) and (vi) of
Regulation S-K and former Instruction 1 to Item 402(b)(2)(v) and
(vi) of Regulation S-B. Each of these instructions is redesignated
as the Instruction to the respective Item.
\30\ Former Instruction 2 to Item 402(c)(2)(v) and (vi) of
Regulation S-K and former Instruction 2 to Item 402(b)(2)(v) and
(vi) of Regulation S-B. With respect to the Director Compensation
Table, we correspondingly amend the Instruction to Item 402(k) of
Regulation S-K and the Instruction to Item 402(f) of Regulation S-B
to reflect this rescission. We also make a technical correcting
amendment to the Instruction to Item 402(k) of Regulation S-K so
that it also applies Instructions 1 and 5 to Item 402(c)(2)(ix).
These two instructions regarding the All Other Compensation column
address the treatment of non-equity incentive plan awards and
earnings and earnings on stock and options, and accrued amounts
under termination or change in control plans or arrangements,
respectively.
\31\ See Section II.B.
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We also revise the instruction to the Summary Compensation Table
Salary and Bonus columns regarding salary or bonus forgone at the
election of a named executive officer in favor of receiving a non-cash
form of compensation.\32\ Reporting such forgone amounts in the Stock
Awards or Option Awards columns after salary or bonus is earned is
inconsistent with the original terms of the award that would have
compensated the named executive officer in cash. Accordingly, the
revised instruction requires the forgone amount to be reported in the
Salary or Bonus column, with footnote disclosure of the receipt of non-
cash compensation that refers to the Grants of Plan-Based Awards Table
where the stock, option or non-equity incentive plan award elected is
reported.
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\32\ Instruction 2 to Item 402(c)(2)(iii) and (iv) of Regulation
S-K and Instruction 2 to Item 402(b)(2)(iii) and (iv) of Regulation
S-B. Compensation that is within the scope of FAS 123R, and hence
reportable in the Stock Awards or Option Awards columns, is
specified by Paragraph 4 of FAS 123R.
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Under FAS 123R, the classification of an award as an equity or
liability award is an important aspect of the accounting because the
classification will affect the measurement of compensation cost
recognized in each financial statement reporting period. Awards with
cash-based settlement, certain repurchase features, or other features
that do not result in an employee bearing the risks and rewards
normally associated with share ownership for a specified period of time
are classified as liability awards under FAS 123R. For an award
classified as an equity award under FAS 123R, the compensation cost
recognized is fixed for a particular award and, absent modification of
the award, is not revised with subsequent changes in market prices or
other assumptions used for purposes of the valuation. In contrast,
liability awards are initially measured at fair value on the grant
date, but for purposes of recognition in the financial statements are
then re-measured at each financial statement reporting date through the
date the awards are settled under FAS 123R. Under the amendments to the
Summary Compensation Table and Director Compensation Table, these re-
measurements of liability awards will be reflected in executive
compensation disclosure, providing a more comprehensive measure of
liability awards over time.
FAS 123R requires a company to aggregate individuals receiving
awards into relatively homogenous groups, for example, executives and
non-executives, with respect to exercise and post-vesting employment
termination behaviors for the purpose of determining expected term
assumption used for computing the grant date fair value. The rules we
adopt today as interim final rules, like the recently adopted
amendments, are not intended to change the method used to value
employee stock options for purposes of FAS 123R or to affect the
judgments as to reasonable groupings for purposes of determining the
expected term assumption required by FAS 123R. Where a company uses
more than one group, the measurement of grant date fair value for
purposes of Item 402 will be derived using the expected term assumption
for the group that includes the named executive officers (or the group
that includes directors for purposes of the Director Compensation
Table).
In determining the amount recognized, FAS 123R requires a company
to estimate at the grant date the number of awards that ultimately will
be earned. Those estimates are revised each period as awards vest or
are forfeited. The interim final rules that we adopt today are not
intended to change the method a company uses to estimate forfeitures
under FAS 123R. However, under the amendments, the compensation cost
disclosed for Item 402 purposes will not include an estimate of
forfeitures related to service-based vesting conditions. Compensation
cost for awards containing service-based vesting conditions \33\ will
be disclosed assuming that a named executive officer will perform the
requisite service to vest in the award. If the named executive officer
fails to perform the requisite service and forfeits the award, the
[[Page 78342]]
amount of compensation cost previously disclosed in the Summary
Compensation Table will be deducted in the period during which the
award is forfeited.\34\
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\33\ As defined in Appendix E of FAS 123R, a service condition
is ``a condition affecting the vesting, exercisability, exercise
price, or other pertinent factors used in determining the fair value
of an award that depends solely on an employee rendering service to
the employer for the requisite service period. A condition that
results in the acceleration of vesting in the event of an employee's
death, disability, or termination without cause is a service
condition.''
\34\ This approach to forfeitures was suggested in the letter
from BDO Seidman.
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Under the interim final rules, compensation cost for awards
containing a performance-based vesting condition \35\ will be disclosed
in the Summary Compensation Table only if it is probable that the
performance condition will be achieved. If the achievement of the
performance condition is not probable at the grant date but becomes
probable in a subsequent period, the proportionate amount of
compensation cost based on service previously rendered will be
disclosed in the Summary Compensation Table during the period in which
achievement of the performance condition becomes probable. Likewise, if
the achievement of a performance condition was previously considered
probable but in a later period is no longer considered probable, the
amount of compensation cost previously disclosed in the Summary
Compensation Table will be reversed during the period in which it is
determined that achievement of the performance condition is no longer
probable.\36\
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\35\ As defined in Appendix E of FAS 123R, a performance
condition is ``a condition affecting the vesting, exercisability,
exercise price or other pertinent factors used in determining the
fair value of an award that relates to both (a) an employee's
rendering service for a specified (either explicitly or implicitly)
period of time and (b) achieving a specified performance target that
is defined solely by reference to the employer's own operations (or
activities). Attaining a specified growth rate in return on assets,
obtaining regulatory approval to market a specified product, selling
shares in an initial public offering or other financing event, and a
change in control are examples of performance conditions for
purposes of this Statement. A performance target also may be defined
by reference to the same performance measure of another entity or
group of entities. For example, attaining a growth rate in earnings
per share that exceeds the average growth rate in earnings per share
of other entities in the same industry is a performance condition
for purposes of this Statement. A performance target might pertain
either to the performance of the enterprise as a whole or to some
part of the enterprise, such as a division or an individual
employee.''
\36\ Disclosing stock and option awards as they are recognized
for financial statement reporting purposes may not mirror the timing
of disclosure of non-equity incentive plan compensation. Because
there is not one clearly required or accepted standard for measuring
the value at grant date of non-equity incentive plan awards that
reflects the applicable performance contingencies, as there is for
equity-based awards under FAS 123R, we have not included such a
value in the Summary Compensation Table disclosure. Instead, non-
equity incentive plan compensation is disclosed in the Summary
Compensation Table in the year when the relevant specified
performance criteria are satisfied and the compensation earned,
whether or not payment is actually made to the named executive
officer in that year. See Item 402(c)(2)(vii) of Regulation S-K,
Item 402(b)(2)(vii) of Regulation S-B and 2006 Executive
Compensation Release at Section II.C.1.c.ii.
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In summary, if an award with service or performance-based
conditions ultimately vests, the amount cumulatively recognized in the
Summary Compensation Table over a period of years should equal 100% of
the grant date fair value of the equity award or the total fair value
at the date of settlement for a liability award. The amount
cumulatively reported in the Summary Compensation Table for awards with
service or performance-based conditions that do not vest will be zero.
On this basis, the amount cumulatively reported for equity awards with
graded vesting will equal 100% of the grant date fair value of the
portion of the award that vests. For example, if 20% of an award to the
principal executive officer vests in each of the five years following
the grant and the principal executive officer leaves the company after
the fourth year of service, 80% of the award's grant date fair value
will be reported cumulatively in the Summary Compensation Table over
those four years of service.\37\
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\37\ This example of graded vesting assumes an award with
service-based vesting conditions only, where the company has elected
the straight-line attribution method pursuant to paragraph 42 of FAS
123R.
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In some cases, correlating disclosure in the Stock Awards and
Option Awards columns to the financial statement recognition timing
could result in a negative number. For example, a negative number would
result if the value of awards forfeited in a fiscal year by a named
executive officer exceeds the value of other awards recognized in the
Summary Compensation Table for that same named executive officer. Such
a negative number will be disclosed in the relevant column and affect
the calculation of ``total'' for purposes of determining who is a named
executive officer. In addition, there could be instances when
compensation cost is recognized in the financial statements under FAS
123R in the year before the award is granted. This occurs when an
employee is rendering services in exchange for an award, but a grant
has not occurred because the terms of the award have not yet been
finalized. There also could be instances where a grant has been made,
but compensation cost is not recognized in the financial statements.
This occurs when an award has a performance condition that is not
considered at the date of grant to be probable to vest.\38\
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\38\ Footnote 25 of FAS 123R provides that whether vesting is
probable for this purpose is determined based on the standard set
forth in Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 5, Accounting for Contingencies (FAS 5), at
paragraph 3, which defines probable as ``the future event or events
are likely to occur.''
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Under FAS 123R, an award granted to a retirement eligible employee
who is entitled to retain the award at retirement generally is not
considered to have a substantive service requirement. This is because
the employee can keep the benefit of the award without performing
services, regardless of the stated vesting terms. In this circumstance,
the full grant date fair value of the award is recognized in the
company's financial statements in the year of grant. Thus, the interim
final rules do not effect significant change from the former
requirements for computing Stock Awards and Option Awards disclosure
for retirement eligible executives.
The amendments do not revise the instruction regarding the
determination of the most highly compensated executive officers for
purposes of identifying named executive officers other than the
principal executive officer and principal financial officer.\39\ This
determination will continue to be based on total compensation, reduced
by the sum of the increase in pension values and nonqualified deferred
compensation above-market or preferential earnings reported in column
(h) of the Summary Compensation Table, subject to a $100,000 threshold.
However, the amendments to the Stock Awards and Option Awards
disclosure may reduce potential fluctuations in total compensation
resulting from year-to-year differences in equity awards, as a
commenter suggested.\40\ Consequently, a company's identification of
named executive officers may be more consistent from year-to-year,
facilitating investors' ability to track year-to-year changes in
compensation for the same persons.
---------------------------------------------------------------------------
\39\ Instruction 1 to Item 402(a)(3) of Regulation S-K and
Instruction 1 to Item 402(a)(2) of Regulation S-B.
\40\ See letter from Fenwick.
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B. Grant of Plan-Based Awards Table
Under the interim final rules, the grant date fair value
information with respect to equity awards to named executive officers
is moved to the Grants of Plan-Based Awards Table and expanded to
include grant-by-grant information. As described above, this should
provide investors a more complete perspective of the compensation
decisions made with respect to the last completed fiscal year and
facilitate Compensation Discussion and Analysis disclosure of the
[[Page 78343]]
company's policies and decisions regarding named executive officers'
compensation.\41\
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\41\ See general discussion in Section II above.
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The amendments revise the Grants of Plan-Based Awards Table to add
column (l), showing the full grant date fair value of each equity
award, computed in accordance with FAS 123R.\42\ Presenting this
information on a grant-by-grant basis is consistent with the
presentation of other information in the Grants of Plan-Based Awards
Table. This presentation should continue to provide investors a clear
picture of the value of options when granted, including in-the-money
awards.\43\ The table will continue to disclose the number of shares
underlying an award and other details regarding the award.\44\ To
conform the presentation for directors, we amend the Director
Compensation Table in Item 402 of Regulation S-K to require footnote
disclosure of the grant date fair value of each equity award computed
in accordance with FAS 123R.\45\ Under the amendments, grant date fair
value information is not required regarding equity awards to named
executive officers or directors of companies covered by Item 402 of
Regulation S-B, which does not include a Grants of Plan-Based Awards
Table.\46\ This differential treatment of small business issuers is
consistent with other aspects of Item 402 of Regulation S-B, which in
general recognizes that the executive compensation arrangements of
small business issuers typically are less complex than those of other
public companies and that satisfying disclosure requirements applicable
to other public companies may impose unwarranted burdens on small
business issuers.\47\
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\42\ Item 402(d)(2)(viii) of Regulation S-K. Disclosing the
value of the equity award in this table resembles the approach taken
in the Option/SAR Grants Table previously required by Item 402(c) of
Regulation S-K as adopted in the 1992 Release. That table required
disclosure of either (a) the present value of the grant at grant
date under any option-pricing model, or (b) the potential realizable
value of each option or freestanding SAR grant assuming annualized
appreciation rates of 5% and 10%, and 0% for awards where the
exercise or base price was below the market price of the underlying
security at the date of grant. In their comment letters, AICPA, E&Y
and KPMG recommended presenting full grant date fair value in a
supplemental table. In light of our previous decision to report the
full grant date fair value in the Summary Compensation Table, we did
not follow this recommendation in the 2006 Executive Compensation
Release.
\43\ As noted in the 2006 Executive Compensation Release at
Section II.C.1.c.i, disclosing grant date fair value will give
investors a clearer picture of the value of any in-the-money awards.
\44\ Item 402(c)(2)(ix)(G) of Regulation S-K and Item
402(b)(2)(ix)(G) of Regulation S-B require disclosure in the Summary
Compensation Table, All Other Compensation column of the dollar
value of any dividends or other earnings paid on stock or option
awards when those amounts were not factored in the grant date fair
value for the stock or option award. Item 402(k)(2)(vii)(I) of
Regulation S-K and Item 402(f)(2)(vii)(I) of Regulation S-B require
corresponding disclosure in the Director Compensation Table. These
Items are amended to reflect that the grant date fair value no
longer is required to be reported in the Stock Awards or Option
Awards columns, and in the case of Regulation S-K, must be reported
in the Grants of Plan-Based Awards Table with respect to named
executive officers.
\45\ Instruction to Item 402(k)(2)(iii) and (iv).
\46\ Instead, Item 402(c) of Regulation S-B requires narrative
disclosure to the Summary Compensation Table. Item 402(c)(4)
includes among the examples of material factors necessary to an
understanding of the Summary Compensation Table for which narrative
disclosure should be provided the material terms of each grant,
including but not limited to the date of exercisability, any
conditions to exercisability, any tandem feature, any reload
feature, any tax-reimbursement feature, and any provision that could
cause the exercise price to be lowered.
\47\ See 2006 Executive Compensation Release at Section II.D.1.
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The interim final rules further amend the Grants of Plan-Based
Awards Table to include information concerning repriced or materially
modified options, stock appreciation rights and similar option-like
instruments, disclosing the incremental fair value, computed as of the
repricing or modification date in accordance with FAS 123R.\48\
Consistent with the presentation of other information in the Grants of
Plan-Based Awards Table, this disclosure will be made on a grant-by-
grant basis. The Director Compensation Table in Item 402 of Regulation
S-K also is amended to require footnote disclosure of the same
information.\49\ Consistent with FAS 123R, this disclosure does not
apply to any modification that equalizes the fair value of an award
before and after the modification, such as a modification made pursuant
to an antidilution provision that requires adjustment in the event of a
recapitalization or similar transaction equally affecting all holders
of the class of securities underlying the options or SARs. Similarly,
this disclosure does not apply to a repricing that occurs through a
pre-existing formula or mechanism in the terms of the plan or award
that results in the periodic adjustment of the option or SAR exercise
or base price, as the adjustment feature would have been reflected in
the grant date fair value of the award.\50\ As described in the 2006
Executive Compensation Release, disclosure also will be provided in the
Compensation Discussion and Analysis and the narrative disclosures for
the Summary Compensation Table and Grants of Plan-Based Awards
Table,\51\ as appropriate, regarding awards granted in connection with
repricing transactions.\52\
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\48\ Instruction 7 to Item 402(d) of Regulation S-K. Disclosure
of repriced awards was proposed for the Grants of All Other Equity
Awards Table, on which the Grants of Plan-Based Awards Table is
based in part. Executive Compensation and Related Party Disclosure,
Release No. 33-8655 (Jan. 27, 2006) [71 FR 6542] at Section
II.B.2.b. In light of previously adopting Summary Compensation Table
disclosure of the FAS 123R incremental fair value of these awards,
we did not adopt disclosure of these awards in the Grants of Plan-
Based Awards Table in the 2006 Executive Compensation Release. See
the 2006 Executive Compensation Release at Section II.C.2.
\49\ Instruction to Item 402(k)(2)(iii) and (iv).
\50\ Instruction 7 to Item 402(d) and Instruction to Item
402(k)(2)(iii) and (iv), which conform to Instruction 1 to Item
402(e)(1).
\51\ Item 402(e)(1)(ii) of Regulation S-K and Item 402(c)(2) of
Regulation S-B.
\52\ 2006 Executive Compensation Release at Section II.C.3.a.
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III. Administrative Law Matters and Request for Comments
The Administrative Procedure Act generally requires an agency to
publish notice of a proposed rulemaking in the Federal Register.\53\
This requirement does not apply, however, if the agency ``for good
cause finds * * * that notice and public procedure are impracticable,
unnecessary, or contrary to the public interest.'' \54\
---------------------------------------------------------------------------
\53\ See 5 U.S.C. 553(b).
\54\ Id.
---------------------------------------------------------------------------
The Commission, for good cause, finds that notice and solicitation
of comment regarding the amendments to Item 402 of Regulations S-K and
S-B is impracticable, unnecessary and contrary to the public interest.
First, the subject matter of the amendments already was subject to
extensive public comment in connection with the 2006 Executive
Compensation Release, and the Commission has considered those comments
thoroughly in adopting these interim final rules.
Second, compliance with the Item 402 amendments adopted in the 2006
Executive Compensation Release is required for proxy and information
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.\55\ This compliance schedule
affects all public companies with a calendar year fiscal year that are
required to file proxy or information statements, which we estimate to
number approximately 12,190, excluding investment companies. Submitting
the amendments to notice and further opportunity for public comment
would generate considerable
[[Page 78344]]
uncertainty regarding the executive compensation disclosure standards
to apply as these companies prepare their proxy statements. Given that
the amendments affect not only the calculation of total compensation
for each named executive officer, but also the identification of the
named executive officers (other than the principal executive officer
and principal financial officer) based on highest total compensation,
such uncertainty could impose extensive burdens and costs. In effect,
submitting the amendments to notice and further opportunity for public
comment could compel calendar year-end companies to prepare two
different sets of executive compensation disclosures because they would
not know which version of Item 402 ultimately would apply on the date
the proxy or information statement must be filed.
---------------------------------------------------------------------------
\55\ 2006 Executive Compensation Release at Section VII.
---------------------------------------------------------------------------
Adopting the amendments as interim final rules also will
substantially benefit investors by minimizing any inconsistency between
the measure used for disclosure in the Summary Compensation Table of
Stock Awards and Option Awards in the first year of compliance and the
measure used in later years. Avoiding such potential inconsistency will
facilitate year-to-year comparability of the compensation disclosed for
individual named executive officers and directors.
The Administrative Procedure Act also generally requires that an
agency publish an adopted rule in the Federal Register 30 days before
it becomes effective.\56\ This requirement, however, does not apply if
the agency finds good cause for making the rule effective sooner.\57\
For the same reasons as it is waiving notice and comment, the
Commission finds good cause to make the amendments effective as interim
final rules upon publication of this release in the Federal
Register.\58\ The compliance dates for the interim final rules will be
the same as the compliance dates for the amendments to Item 402 of
Regulations S-K and S-B that were adopted in the 2006 Executive
Compensation Release.\59\
---------------------------------------------------------------------------
\56\ See 5 U.S.C. 553(d).
\57\ Id.
\58\ This finding also satisfies the requirements of 5 U.S.C.
808(2), allowing the rules to become immediately effective
notwithstanding the requirements of 5 U.S.C. 801 (if a Federal
agency finds that notice and public comment are ``impractical,
unnecessary, or contrary to the public interest,'' a rule ``shall
take effect at such time as the Federal agency promulgating the rule
determines.'')
\59\ See 2006 Executive Compensation Release at Section VII.
---------------------------------------------------------------------------
Although the Commission is dispensing with prior notice of proposed
rulemaking, the Commission is interested in receiving written comments
on the interim final rules within 30 days after publication of this
release in the Federal Register. The Commission will consider those
comments and make changes to the amendments if necessary.
Do the amendments result in disclosure that is easier or
more difficult for investors to understand? Do the amendments
facilitate or complicate company compliance? For example, does
presenting the compensation costs of stock and option awards over the
requisite service period, as described in FAS 123R, for each individual
named executive officer increase compliance costs?
Does correlating the Summary Compensation Table and
Director Compensation Table disclosure to the recognition of the
compensation cost of stock and option awards over the requisite service
period, as described in FAS 123R, with full grant date fair value
disclosure for named executive officers and directors of non-small
business issuers only, provide investors with a clearer and more useful
presentation of compensation for the subject fiscal year than
disclosure of aggregate grant date fair value in the Summary and
Director Compensation Tables? Are there other approaches that would
provide a better presentation of compensation?
Should footnote or narrative disclosure be required to
identify the remeasurement of liability awards? If so, what level of
detail should we require?
Under the interim final rules, the compensation cost
disclosed for Summary Compensation Table and Director Compensation
Table purposes does not include an estimate of forfeitures related to
service-based vesting conditions. Is this deviation from FAS 123R
needed to present meaningful executive compensation disclosure? If not,
why not? Does this deviation make it easier or harder for companies to
prepare the disclosure and for investors to understand it?
Correlating disclosure in the Stock Awards and Option
Awards columns to an approach that provides disclosure of compensation
cost of those awards over the requisite service period could result in
a negative number. In this circumstance, the negative number will be
disclosed and will affect the calculation of ``total'' for purposes of
determining who is a named executive officer. Instead, should the same
approach be followed as for disclosure of the aggregate change in
actuarial present value of the named executive officer's accumulated
benefit under all defined benefit and actuarial plans, where a negative
number is disclosed in a footnote but not reflected in the applicable
column and not subtracted for purposes of computing the total? \60\
---------------------------------------------------------------------------
\60\ Instruction 3 to Item 402(c)(2)(viii) of Regulation S-K.
---------------------------------------------------------------------------
Does applying a recognition-based measure for Summary
Compensation Table disclosure of equity awards result in any
circumstances where, in disclosing a named executive officer's
potential payments upon termination or change-in-control,\61\ there
would be a disclosure gap regarding the remaining value of outstanding
awards (as adjusted for any acceleration of vesting) that has not yet
been recognized?
---------------------------------------------------------------------------
\61\ This disclosure is required by Item 402(j) of Regulation S-
K and Item 402(e) of Regulation S-B.
---------------------------------------------------------------------------
Does spreading out disclosure of equity award compensation
over the period that the cost is recognized for financial reporting
purposes result in less variability in the amount of total compensation
reported from year-to-year?
If the amendments result in fewer year-to-year
fluctuations in the list of named executive officers, will such
increased consistency result in more meaningful disclosure to
investors?
The interim final rules revise Summary Compensation Table
disclosure of salary or bonus forgone at the election of a named
executive officer under which stock, equity-based or other forms of
non-cash compensation have instead been received by the named executive
officer to require this compensation to be disclosed in the salary or
bonus column, as applicable. Should this compensation be disclosed this
way? Are there any other items of disclosure that should be revised in
light of adopting a recognition-based approach to Summary Compensation
Table and Director Compensation Table disclosure of equity-based
compensation?
Will Grants of Plan-Based Awards Table disclosure of the
grant date fair value on a grant-by-grant basis improve investors'
understanding of the value of awards, including in-the-money grants?
For companies subject to Item 402 of Regulation S-K, is
footnote disclosure in the Director Compensation Table of the grant
date fair value of each equity award necessary to investors'
understanding of director compensation?
Under the interim final rules, disclosure of the full
grant date fair value of equity awards and disclosure of the
incremental fair value for repriced or materially modified awards no
longer will be required for named executive officers and directors of
small business
[[Page 78345]]
issuers. Are these results appropriate? Should this disclosure also be
required, on either an aggregate or grant-by-grant basis by Regulation
S-B companies, either as a footnote or in the narrative disclosure to
the Summary Compensation Table? \62\ As a footnote or in narrative
disclosure to the Director Compensation Table? \63\
---------------------------------------------------------------------------
\62\ Item 402(c) of Regulation S-B.
\63\ Item 402(f)(3) of Regulation S-B.
---------------------------------------------------------------------------
In circumstances where compensation cost with respect to
an award is first recognized in the financial statements in the year
before the award is granted, should disclosure in the Grants of Plan-
Based Awards Table also be required in the year before the award is
granted to eliminate potential inconsistency between these tables? What
modifications would be required to reflect that the terms of the award
have not yet been finalized?
Should footnote or narrative disclosure be required to
identify in the Grants of Plan-Based Awards Table and the Regulation S-
B narrative disclosure to the Summary Compensation Table equity awards
with performance conditions that are not considered probable of
achievement and therefore are not reflected in the Summary Compensation
Table disclosure? If so, what level of detail should we require?
IV. Transition Guidance
Because FAS 123R became effective for companies in 2006, it did not
apply to stock and option awards that were granted in earlier years.
Consequently, we are providing transition guidance for application of
the Summary Compensation Table and Director Compensation Table
amendments to disclosure of awards that were granted before 2006,
including both equity awards that are not yet vested and liability
awards that are not yet settled.\64\ In this regard, we are requiring
companies to utilize the FAS 123R modified prospective transition
method \65\ for Item 402 disclosure purposes, without regard to whether
they have adopted that method for financial statement reporting
purposes.\66\ Under the modified prospective transition method, a
proportionate share of the grant date fair value determined under
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, of equity
awards that are outstanding at the date FAS 123R was adopted will be
recognized in the financial statements over those awards' remaining
vesting periods, if any. Liability awards that are outstanding at the
date FAS 123R was adopted will be recognized in the financial
statements until those awards are settled, based on the fair values of
those awards at each financial statement reporting period under FAS
123R as well as the portion of the awards that have vested. The same
approach will apply for presentation of the corresponding information
in the Summary Compensation Table and Director Compensation Table for
fiscal 2006 and later fiscal years.
---------------------------------------------------------------------------
\64\ Under the amendments, the adjustments to update the
cumulative compensation costs recognized for certain awards that a
company might have in the year that FAS 123R initially is adopted
will not be included in the Summary Compensation Table disclosure
for that year.
\65\ Under the modified prospective transition method in FAS
123R, the accounting for new awards and awards that are modified,
repurchased or cancelled after the standard's effective date must
apply the provisions of FAS 123R.
\66\ Consequently, for companies that have not adopted the
modified prospective transition method for financial statement
reporting, the tabular compensation disclosure may not match
financial statement disclosure during the transition period.
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V. Paperwork Reduction Act
A. Background
The interim final rules contain ``collection of information''
requirements within the meaning of the Paperwork Reduction Act of
1995.\67\ We are submitting these to the Office of Management and
Budget for review and approval in accordance with the Paperwork
Reduction Act. \68\ The titles for the collection of information are:
\69\
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\67\ 44 U.S.C. 3501 et seq.
\68\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
\69\ The paperwork burden from Regulation S-K is imposed through
the forms that are subject to the requirements in those Regulations
and is reflected in the analysis of those forms. To avoid a
Paperwork Reduction Act inventory reflecting duplicative burdens,
for administrative convenience we estimate the burdens imposed by
Regulation S-K to be a total of one hour.
---------------------------------------------------------------------------
(1) ``Regulation S-B'' (OMB Control No. 3235-0417);
(2) ``Regulation S-K'' (OMB Control No. 3235-0071);
(3) ``Form SB-2'' \70\ (OMB Control No. 3235-0418);
---------------------------------------------------------------------------
\70\ 17 CFR 239.10.
---------------------------------------------------------------------------
(4) ``Form S-1'' \71\ (OMB Control No. 3235-0065);
---------------------------------------------------------------------------
\71\ 17 CFR 239.11.
---------------------------------------------------------------------------
(5) ``Form S-4'' \72\ (OMB Control Number 3235-0324);
---------------------------------------------------------------------------
\72\ 17 CFR 239.25.
---------------------------------------------------------------------------
(6) ``Form S-11'' \73\ (OMB Control Number 3235-0067);
---------------------------------------------------------------------------
\73\ 17 CFR 239.18.
---------------------------------------------------------------------------
(7) ``Regulation 14A \74\ and Schedule 14A'' \75\ (OMB Control
Number 3235-0059);
---------------------------------------------------------------------------
\74\ 17 CFR 240.14a-1 et seq.
\75\ 17 CFR 240.14a-101.
---------------------------------------------------------------------------
(8) ``Regulation 14C \76\ and Schedule 14C'' \77\ (OMB Control
Number 3235-0057);
---------------------------------------------------------------------------
\76\ 17 CFR 240.14c-1 et seq.
\77\ 17 CFR 240.14c-101.
---------------------------------------------------------------------------
(9) ``Form 10'' \78\ (OMB Control No. 3235-0064);
---------------------------------------------------------------------------
\78\ 17 CFR 249.210.
---------------------------------------------------------------------------
(10) ``Form 10-SB'' \79\ (OMB Control No. 3235-0419)
---------------------------------------------------------------------------
\79\ 17 CFR 249.210b.
---------------------------------------------------------------------------
(11) ``Form 10-K'' \80\ (OMB Control No. 3235-0063);
---------------------------------------------------------------------------
\80\ 17 CFR 249.310.
---------------------------------------------------------------------------
(12) ``Form 10-KSB'' \81\ (OMB Control No. 3235-0420); and
---------------------------------------------------------------------------
\81\ 17 CFR 249.310b.
---------------------------------------------------------------------------
(13) ``Form N-2'' \82\ (OMB Control No. 3235-0026).
---------------------------------------------------------------------------
\82\ 17 CFR 239.14 and 274.11a-1.
---------------------------------------------------------------------------
We adopted all of the existing regulations and forms pursuant to
the Securities Act of 1933 (``Securities Act'') \83\ and the Securities
Exchange Act of 1934 (``Exchange Act''),\84\ except for Form N-2, which
we adopted pursuant to the Securities Act and the Investment Company
Act of 1940 (``Investment Company Act'').\85\ These regulations and
forms set forth the disclosure requirements for annual \86\ and current
reports, registration statements, proxy statements and information
statements that are prepared by issuers to provide investors with the
information they need to make informed investment decisions in
registered offerings and in secondary market transactions, as well as
informed voting decisions in the case of proxy statements.
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\83\ 15 U.S.C. 77a et seq.
\84\ 15 U.S.C. 78a et seq.
\85\ 15 U.S.C. 80a-1 et seq.
\86\ The pertinent annual reports are those filed on Form 10-K
and Form 10-KSB.
---------------------------------------------------------------------------
The amendments adopted as interim final rules are intended to
provide investors a fuller and more useful picture of executive
compensation. In particular, they are intended to provide a more
complete perspective of the compensation decisions made with respect to
the last completed fiscal year, facilitate Compensation Discussion and
Analysis disclosure of the company's policies and decisions regarding
named executive officers' compensation, and provide investors with a
clearer view of the annual compensation earned by executives and
directors and the annual compensation costs to a company consistent
with the timing of financial statement reporting.
The hours and costs associated with preparing disclosure, filing
forms, and retaining records constitute reporting and cost burdens
imposed by the collection of information. An agency may not conduct or
sponsor, and a
[[Page 78346]]
person is not required to respond to, a collection of information
unless it displays a currently valid control number.
The information collection requirements related to annual and
current reports, registration statements, proxy statements and
information statements are mandatory. However, the information
collection requirements relating exclusively to proxy and information
statements will apply only to issuers subject to the proxy rules. There
is no mandatory retention period for the information disclosed, and the
information disclosed will be made publicly available on the EDGAR
filing system.
B. Summary of Information Collections
The amendments will affect existing disclosure burdens for affected
filings as follows:
The dollar value reported in the Stock Awards and Option
Awards columns of the Summary Compensation Table and Director
Compensation Table is revised to disclose the compensation cost of
those awards over the requisite service period, as described in FAS
123R, but will not reflect the estimate for forfeitures related to
service-based vesting used for financial statement reporting purposes;
The Stock Awards and Option Awards columns of the Summary
Compensation Table and Director Compensation Table are revised to
require footnote disclosure of forfeitures during the last completed
fiscal year;
The Grants of Plan-Based Awards Table is revised to
require disclosure of the grant date fair value of each individual
equity award, computed in accordance with FAS 123R, and the Item 402 of
Regulation S-K Director Compensation Table is revised to require
footnote disclosure of the same information; and
The Grants of Plan-Based Awards Table is revised to
require disclosure of any option or SAR 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 in accordance with FAS 123R, and the Item 402 of
Regulation S-K Director Compensation Table is revised to require
footnote disclosure of the same incremental fair value information.
C. Paperwork Reduction Act Burden Estimates
For purposes of the Paperwork Reduction Act, we estimate no annual
incremental increase in the paperwork burden for companies to comply
with our amended collection of information requirements. We base this
estimate on the fact that the revised approach is substantially the
same as the approach companies already apply when complying with
financial reporting requirements, most of the information that will be
required to be disclosed will be collected to comply with financial
reporting requirements, and any necessary modifications will not impose
additional burdens compared to the burdens associated with applying the
currently required disclosure. We also base this estimate on the
likelihood that the revised approach will make companies'
identification of named executive officers more consistent from year-
to-year, thereby possibly reducing the burden of tracking the
compensation of all executive officers in order to determine which
executive officers are the most highly compensated.
D. Request for Comment
We invite comment on this estimate and its assumptions. We request
comment in order to: (a) Evaluate whether the collections of
information are necessary for the proper performance of our functions,
including whether the information will have practical utility; (b)
evaluate the accuracy of our estimate of the burden of the collections
of information; (c) determine whether there are ways to enhance the
quality, utility and clarity of the information to be collected; and
(d) evaluate whether there are ways to minimize the burden of the
collections of information on those who respond, including through the
use of automated collection techniques or other forms of information
technology.\87\
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\87\ Comments are requested pursuant to 44 U.S.C. 3506(c)(2)(B).
---------------------------------------------------------------------------
VI. Cost-Benefit Analysis
A. Background
We are adopting, as interim final rules, amendments to our rules
governing disclosure of executive compensation. The amendments adopted
as interim final rules are intended to provide investors a fuller and
more useful picture of executive compensation. In particular, they are
intended to provide a more complete perspective of the compensation
decisions made with respect to the last completed fiscal year,
facilitate Compensation Discussion and Analysis disclosure of the
company's policies and decisions regarding named executive officers'
compensation, and provide investors with a clearer view of the annual
compensation earned by executives and directors and the annual
compensation costs to a company consistent with the timing of financial
statement reporting.
B. Summary of Amendments
Under the amendments adopted as interim final rules, a measure
based on the dollar amount recognized for financial statement reporting
purposes with respect to the fiscal year in accordance with FAS 123R
will become the measure for reporting in the Stock Awards and Option
Awards columns in the Summary Compensation Table and the Director
Compensation Table. However, this measure does not include an estimate
of forfeitures related to service-based vesting conditions, and the
amendments require footnote disclosure of awards forfeited during the
last completed fiscal year. The new measure, which is included in total
compensation disclosed in the Summary Compensation Table, could affect
the determination of most highly compensated executive officers for
purposes of identifying named executive officers other than the
principal executive officer and principal financial officer.
Under the interim final rules, the Grants of Plan-Based Awards
Table is amended to add a column showing the grant date fair value of
each equity award computed in accordance with FAS 123R, and information
for repriced options, stock appreciation rights and similar option-like
instruments, including the incremental fair value computed as of the
repricing or modification date in accordance with FAS 123R. The interim
final rules also amend the Director Compensation Table in Item 402 of
Regulation S-K to provide footnote disclosure of the same grant date
fair value and incremental fair value information.
C. Benefits
Basing Stock and Options Award disclosure in the Summary
Compensation Table and Director Compensation Table on the amount
recognized for financial statement purposes, as required by the interim
final rules, will provide investors with a fuller and more useful
picture of executive compensation. Measuring compensation in a manner
more consistent with FAS 123R recognition will provide investors with a
clearer view of the annual compensation costs to a company. The amended
presentation in some circumstances will reduce the possibility of
overstating compensation related to service rendered for the year that
could result from disclosing the full grant date fair value,
particularly with respect to liability awards, which are subject to
[[Page 78347]]
remeasurement, and will better reflect the possibility that some awards
may be forfeited. Potentially reducing the variability in the identity
of named executive officers from year-to-year may result in
compensation disclosure that is more meaningful to investors due to the
ability to track year-to-year changes in the same executive's
compensation.
For companies subject to Item 402 of Regulation S-K, grant date
fair value information is moved to the Grants of Plan-Based Awards
Table, where it is presented on a more comprehensible grant-by-grant
basis. This should provide investors a more complete perspective of the
compensation decisions made with respect to the last completed fiscal
year and facilitate Compensation Discussion and Analysis disclosure of
the company's policies and decisions regarding named executive
officers' compensation. Amending the Director Compensation Table in
Item 402 of Regulation S-K to provide footnote disclosure of the same
grant date fair value and incremental fair value information also will
present this information on a more comprehensible grant-by-grant basis.
Conforming Summary Compensation Table disclosure of equity-based awards
to the timing mandated for the company's financial statements, together
with the fair value disclosure in the Grants of Plan-Based Awards
Table, will provide more disclosure, potentially making it easier for
investors and analysts to analyze compensation for top executives.
Although difficult to quantify, disclosure under the amendments
will benefit investors in terms of the transparency, completeness and
accessibility of executive compensation disclosure. Making Summary
Compensation Table and Director Compensation Table disclosure of stock
and option awards more comparable to the approach used for financial
accounting recognition purposes will make executive compensation
disclosure more transparent by providing investors a clearer picture of
annual compensation costs. Moving grant date fair value information to
the Grants of Plan-Based Awards Table, where it is presented on a more
comprehensive grant-by-grant basis, and requiring the same disclosure
in a footnote to the Director Compensation Table, makes this disclosure
more complete and accessible for investors in companies that report
under Item 402 of Regulation S-K. To the extent that the amendments
facilitate Compensation Discussion and Analysis disclosure of the
company's policies and decisions regarding named executive officers'
compensation, investors will obtain a more complete perspective of the
compensation decisions made with respect to the last completed fiscal
year.
D. Costs
In our view, the amendments to the executive compensation
disclosure rules adopted as interim final rules do not significantly
increase the costs of complying with the Commission's rules. In order
to implement the amendments, companies will need to incur costs to
revise their disclosure controls. However, we believe that these costs
will be incurred principally on a transitional basis as companies and
their advisors determine how best to compile and report information in
response to the amended disclosure requirements. We base this view on
the fact that the amended approach for Summary Compensation Table and
Director Compensation Table disclosure is substantially the same as the
approach companies already apply when complying with financial
reporting requirements, most of the information that will be required
to be disclosed will have been collected to comply with financial
reporting requirements, and any necessary modifications will impose
minimal additional costs compared to the costs associated with applying
the formerly required disclosure. We also base this view on the
likelihood that the amended approach will make companies'
identification of named executive officers more consistent from year-
to-year, thereby possibly reducing the costs of tracking the
compensation of all executive officers in order to determine which
executive officers are the most highly compensated.
The amendments also may generate costs if they affect the
compensation practices of companies or executives' preferences with
respect to executive compensation. Under the amendments, the Item 402
of Regulation S-B Summary Compensation Table and Director Compensation
Table no longer will provide the full grant date fair value of equity
awards to named executive officers. Similarly, neither of these tables
will provide disclosure of the incremental fair value of awards that
are repriced or materially modified. To the extent that the loss of
this information will reduce the value of executive compensation
disclosure to investors, the amendments could impose costs on
investors.
E. Request for Comment
We solicit quantitative data to assist our assessment of
the benefits and costs of the revised disclosure requirements.
What, if any, additional work and costs are involved in
collecting the information necessary to comply with the amendments?
What are the types of costs, and in what amounts? In what way can the
amendments be modified to mitigate the costs?
Does identification of named executive officers based on
the portion of equity compensation earned during the fiscal year result
in more meaningful identification of named executive officers than
under the former method based on the aggregate grant date fair value of
awards?
Will the interim final rules have an effect on companies'
choice of compensation packages, or executives' preferences with
respect to equity awards?
Assuming the interim final rules are retained, what are
the costs in the first year of compliance versus subsequent years?
We solicit comments on the degree to which companies
already collect the information that the amendments will require to be
disclosed.
VII. Consideration of Burden on Competition and Promotion of
Efficiency, Competition and Capital Formation
Exchange Act Section 23(a)(2) \88\ requires us, when adopting rules
under the Exchange Act, to consider the impact that any new rule would
have on competition. In addition, Section 23(a)(2) prohibits us from
adopting any rule that would impose a burden on competition not
necessary or appropriate in furtherance of the purposes of the Exchange
Act. Furthermore, Securities Act Section 2(b),\89\ Exchange Act Section
3(f) \90\ and Investment Company Act Section 2(c) \91\ require us, when
engaging in rulemaking where we are required to consider or determine
whether an action is necessary or appropriate in the public interest,
to consider, in addition to the protection of investors, whether the
action will promote efficiency, competition, and capital formation.
---------------------------------------------------------------------------
\88\ 15 U.S.C. 78w(a)(2).
\89\ 15 U.S.C. 77b(b).
\90\ 15 U.S.C. 78c(f).
\91\ 15 U.S.C. 80a-2(c).
---------------------------------------------------------------------------
We have also discussed other impacts of the amendments adopted as
interim final rules in our Cost-Benefit, Paperwork Reduction Act and
Final Regulatory Flexibility Act Analyses. The amendments to
Regulations S-K and S-B are intended to make executive compensation
disclosure more consistent with financial statement disclosure, which
should promote
[[Page 78348]]
efficiency. The amendments should enhance investors' understanding of
how corporate resources are used, and enable shareholders to better
evaluate the actions of the board of directors and executive officers
in fulfilling their responsibilities. In particular, measuring
executive and director compensation in a manner more consistent with
financial accounting recognition, along with disclosure of the grant
date fair value of equity awards on a grant-by-grant basis, should
provide investors with a fuller and more useful picture of executive
compensation. This would include a clearer view of a company's
compensation decisions and the annual compensation costs to a company.
The amendments may have the effect of reducing the likelihood of
inconsistencies in the identity of named executive officers from year-
to-year. To this extent, the number of executives for whom competitors
could potentially gain insights with respect to a company's executive
compensation practices through the required disclosure over a period of
years may be reduced. However, we do not expect the incremental effect
of the amendments overall to affect competition materially.
In adopting the amendments, we have considered their effect on
capital formation and believe that the amendments will have little
effect on capital formation.
We request comment on whether the amendments will promote
efficiency, competition, and capital formation or have an impact or
burden on competition. Commenters are requested to provide empirical
data and other factual support for their views, if possible.
VIII. Final Regulatory Flexibility Act Analysis
This Final Regulatory Flexibility Act Analysis has been prepared in
accordance with 5 U.S.C. 603. It relates to revisions to the rules and
forms under the Securities Act and Exchange Act, adopted as interim
final rules, that will provide investors with a presentation of
compensation for the fiscal year that is more comparable to the
approach used for financial accounting purposes.
A. Need for the Amendments
Since the enactment of the Securities Act and the Exchange Act, the
Commission has on a number of occasions explored the best methods for
communicating clear, concise and meaningful material information about
executive and director compensation. Recently, the Commission adopted
comprehensive amendments to improve the clarity and completeness of
executive compensation disclosure.\92\ The interim final rules
principally modify two aspects of those comprehensive amendments:
modifying the timing of reporting option and stock awards in the
Summary Compensation Table and Director Compensation Table so that it
is more comparable to financial accounting recognition; and, in Item
402 of Regulation S-K, requiring Grants of Plan-Based Awards Table
reporting of the full grant date fair value of equity awards and
information regarding option, SAR and similar option-like awards that
are repriced or materially modified during the fiscal year, and
Director Compensation Table footnote disclosure of the same
information. The overall goal of the amendments is to increase the
transparency and completeness of executive compensation disclosure by
providing investors a fuller and more useful picture of executive
compensation. In particular, they are intended to provide a more
complete perspective of the compensation decisions made with respect to
the last completed fiscal year, facilitate Compensation Discussion and
Analysis disclosure of the company's policies and decisions regarding
named executive officers' compensation, and provide investors with a
clearer view of the annual compensation earned by executives and
directors and the annual compensation costs to a company consistent
with the timing of financial statement reporting.
---------------------------------------------------------------------------
\92\ See the 2006 Executive Compensation Release.
---------------------------------------------------------------------------
B. Significant Issues Raised by Public Comment
As summarized in Section I above, several commenters expressed the
view that Summary Compensation Table disclosure of equity awards should
be presented on a basis that is generally consistent with financial
statement reporting. We have taken these comments into account in
adopting the amendments that would apply to small entities.
C. Small Entities Subject to the Amendments
For purposes of the Regulatory Flexibility Act, Securities Act Rule
157\93\ and Exchange Act Rule 0-10(a) \94\ define an issuer to be a
``small business'' or ``small organization'' for purposes of the
Regulatory Flexibility Act if it had total assets of $5 million or less
on the last day of its most recent fiscal year. These are the types of
entities that we refer to as small entities in this section. We believe
that the amendments will affect small entities that are operating
companies. We estimate that there are approximately 2,500 issuers,
other than investment companies, that may be considered small entities.
Under Rule 0-10 under the Investment Company Act,\95\ an investment
company is a small entity if it, together with other investment
companies in the same group of related investment companies, has net
assets of $50 million or less as of the end of its most recent fiscal
year. We believe that the amendments will affect small entities that
are investment companies. Specifically, we believe that the amendments
will affect small entities that are business development companies.\96\
We estimate that there are 53 business development companies that
qualify as small entities.
---------------------------------------------------------------------------
\93\ 17 CFR 230.157.
\94\ 17 CFR 240.0-10(a).
\95\ 17 CFR 270.0-10.
\96\ Business development companies are a category of closed-end
investment companies that are not required to register under the
Investment Company Act. 15 U.S.C. 80a-2(a)(48).
---------------------------------------------------------------------------
D. Reporting, Recordkeeping, and Other Compliance Requirements
We note that small business issuers,\97\ which is a broader
category of issuers than small entities, in certain circumstances may
provide the executive compensation disclosure specified in Item 402 of
Regulation S-B, rather than the corresponding disclosure specified in
Item 402 of Regulation S-K.
---------------------------------------------------------------------------
\97\ Item 10 of Regulation S-B (17 CFR 228.10) defines a small
business issuer as a registrant that has revenues of less than $25
million, is a U.S. or Canadian issuer, is not an investment company,
and has a public float of less than $25 million. Also, if it is a
majority owned subsidiary, the parent corporation also must be a
small business issuer.
---------------------------------------------------------------------------
The amendments adopted as interim final rules will affect small
business issuers as follows:
The dollar value reported in the Stock Awards and Option
Awards columns of the Summary Compensation Table and Director
Compensation Table is revised to disclose the compensation cost of
those awards over the requisite service period, as described in FAS
123R, but will not reflect the estimate for forfeitures related to
service-based vesting used for financial statement reporting purposes;
and
The Stock Awards and Option Awards columns of the Summary
Compensation Table and Director Compensation Table are revised to
require footnote disclosure of forfeitures during the last completed
fiscal year.
Because Item 402 of Regulation S-B does not include the Grants of
Plan-Based Awards Table, the amendments to Item 402 of Regulation S-B
do not include the following disclosures that
[[Page 78349]]
are required for named executive officers and directors by the
amendments to Item 402 of Regulation S-K:
Disclosure of the grant date fair value of each individual
equity award, computed in accordance with FAS 123R; and
Disclosure of the incremental fair value, computed as of
the repricing or modification date in accordance with FAS 123R, of any
option or SAR that was repriced or otherwise materially modified during
the last completed fiscal year.
As a result, the amendments to Item 402 of Regulation S-B do not
result in the same level of incremental increase in costs or burdens to
small businesses as do the amendments to Item 402 of Regulation S-K.
E. Agency Action To Minimize Effect on Small Entities
The Regulatory Flexibility Act directs us to consider significant
alternatives that would accomplish the stated objectives, while
minimizing any significant adverse impact on small entities. In
connection with the amendments, we considered the following
alternatives:
1. Establishing different compliance or reporting requirements
which take into account the resources available to smaller entities;
2. The clarification, consolidation or simplification of disclosure
for small entities;
3. Use of performance standards rather than design standards; and
4. Exempting smaller entities from coverage of the disclosure
requirements, or any part thereof.
We have considered different changes to our rules and forms to
achieve our regulatory objectives, and where possible, have taken steps
to minimize the effect of the rules on smaller entities. The amendments
are unlikely to have a significant impact on smaller entities because
their principal effect is to make Summary Compensation Table and
Director Compensation Table disclosure of stock and option awards more
comparable to the financial statement presentation of those
compensation items. The amendments do not affect the abbreviated format
of the Regulation S-B Summary Compensation Table, which requires
disclosure with respect to the principal executive officer and two most
highly compensated executive officers for the small business issuer's
last two completed fiscal years. Because Item 402 of Regulation S-B
does not include a Grants of Plan-Based Awards Table, the amendments to
that table do not apply.
F. General Request for Comments
We solicit written comments regarding this analysis. We request
comment on whether the amendments adopted as interim final rules could
have an effect that we have not considered. We request that commenters
describe the nature of any impact on small entities and provide
empirical data to support the extent of the impact.
IX. Statutory Authority and Text of the Amendments
We are adopting rule amendments pursuant to Sections 3(b), 6, 7,
10, and 19(a) of the Securities Act, as amended, Sections 12, 13, 14,
15(d) and 23(a) of the Exchange Act, as amended, Section 38 of the
Investment Company Act, and Section 3(a) of the Sarbanes-Oxley Act of
2002.
List of Subjects
17 CFR Part 228
Reporting and recordkeeping requirements, Securities, Small
businesses.
17 CFR Part 229
Reporting and recordkeeping requirements, Securities.
0
For the reasons set out in the preamble, Title 17, Chapter II of the
Code of Federal Regulations is amended as follows:
PART 228--INTEGRATED DISCLOSURE SYSTEM FOR SMALL BUSINESS ISSUERS
0
1. The authority citation for part 228 continues to read in part as
follows:
Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2,
77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77jjj, 77nnn,
77sss, 78l, 78m, 78n, 78o, 78u-5, 78w, 78ll, 78mm, 80a-8, 80a-29,
80a-30, 80a-37, 80b-11, and 7201 et seq.; and 18 U.S.C. 1350.
* * * * *
0
2. Section 228.402 is amended by revising Instruction 2 to Item
402(b)(2)(iii) and (iv), paragraphs (b)(2)(v), (b)(2)(vi) and the
Instructions to Item 402(b)(2)(v) and (b)(2)(vi), paragraph
(b)(2)(ix)(G), paragraphs (f)(2)(iii), (f)(2)(iv) and (f)(2)(vii)(I),
and Instruction to Item 402(f) to read as follows:
Sec. 228.402 (Item 402) Executive compensation.
* * * * *
(b) * * *
(2) * * *
Instructions to Item 402(b)(2)(iii) and (iv).
* * * * *
2. Small business issuers shall include in the salary column
(column (c)) or bonus column (column (d)) any amount of salary or
bonus forgone at the election of a named executive officer under
which stock, equity-based or other forms of non-cash compensation
instead have been received by the named executive officer. However,
the receipt of any such form of non-cash compensation instead of
salary or bonus must be disclosed in a footnote added to the salary
or bonus column and, where applicable, referring to the narrative
disclosure to the Summary Compensation Table (required by paragraph
(c) of this Item) where the material terms of the stock, option or
non-equity incentive plan award elected by the named executive
officer are reported.
(v) For awards of stock, the dollar amount recognized for financial
statement reporting purposes with respect to the fiscal year in
accordance with FAS 123R (column (e));
(vi) For awards of options, with or without tandem SARs, the dollar
amount recognized for financial statement reporting purposes with
respect to the fiscal year in accordance with FAS 123R (column (f));
Instruction to Item 402(b)(2)(v) and (vi). For awards reported
in columns (e) and (f), disregard the estimate of forfeitures
related to service-based vesting conditions. Include a footnote
describing all forfeitures during the year, and disclosing all
assumptions made in the valuation. Disclose assumptions made in the
valuation by reference to a discussion of those assumptions in the
registrant's financial statements, footnotes to the financial
statements, or discussion in the Management's Discussion and
Analysis. The sections so referenced are deemed part of the
disclosure provided pursuant to this Item.
* * * * *
(ix) * * *
(G) The dollar value of any dividends or other earnings paid on
stock or option awards, when those amounts were not factored into the
grant date fair value for the stock or option award; and
* * * * *
(f) * * *
(2) * * *
(iii) For awards of stock, the dollar amount recognized for
financial statement reporting purposes with respect to the fiscal year
in accordance with FAS 123R (column (c));
(iv) For awards of stock options, with or without tandem SARs, the
dollar amount recognized for financial statement reporting purposes
with respect to the fiscal year in accordance with FAS 123R (column
(d));
* * * * *
(vii) * * *
(I) The dollar value of any dividends or other earnings paid on
stock or option awards, when those amounts
[[Page 78350]]
were not factored into the grant date fair value for the stock or
option award; and
* * * * *
Instruction to Item 402(f).
In addition to the Instruction to paragraph (f)(2)(vii) of this
Item, the following apply equally to paragraph (f) of this Item:
Instructions 2 and 4 to paragraph (b) of this Item; the Instructions
to paragraphs (b)(2)(iii) and (iv) of this Item; the Instruction to
paragraphs (b)(2)(v) and (vi) of this Item; the Instructions to
paragraph (b)(2)(vii) of this Item; the Instruction to paragraph
(b)(2)(viii) of this Item; the Instructions to paragraph (b)(2)(ix)
of this Item; and paragraph (c)(7) of this Item. These Instructions
apply to the columns in the Director Compensation Table that are
analogous to the columns in the Summary Compensation Table to which
they refer and to disclosures under paragraph (f) of this Item that
correspond to analogous disclosures provided for in paragraph (b) of
this Item to which they refer.
PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES
ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND
CONSERVATION ACT OF 1975--REGULATION S-K
0
3. The general authority citation for part 229 is revised to read in
part as follows:
Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2,
77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj,
77nnn, 77sss, 78c, 78i, 78j, 78l, 78m, 78n, 78o, 78u-5, 78w, 78ll,
78mm, 80a-8, 80a-9, 80a-20, 80a-29, 80a-30, 80a-31(c), 80a-37, 80a-
38, 80av39, 80b-11, and 7201 et seq.; and 18 U.S.C. 1350, unless
otherwise noted.
* * * * *
0
4. Section 229.402 is amended by revising Instruction 2 to Item
402(c)(2)(iii) and (iv), paragraphs (c)(2)(v) and (c)(2)(vi), the
Instructions to Item 402(c)(2)(v) and (c)(2)(vi), and paragraph
(c)(2)(ix)(G), revising the Grants of Plan-Based Awards Table in
paragraph (d)(1), removing ``and'' at the end of paragraph (d)(2)(vi),
removing the period at the end of paragraph (d)(2)(vii) and adding
``and'' in its place, adding paragraph (d)(2)(viii) and Instruction 7
to Item 402(d), revising paragraphs (k)(2)(iii), (k)(2)(iv), the
Instruction to Item 402(k)(2)(iii) and (iv), and revising paragraph
(k)(2)(vii)(I) and Instruction to Item 402(k), to read as follows:
Sec. 229.402 (Item 402) Executive compensation.
* * * * *
(c) * * *
(2) * * *
Instructions to Item 402(c)(2)(iii) and (iv).
* * * * *
2. Registrants shall include in the salary column (column (c))
or bonus column (column (d)) any amount of salary or bonus forgone
at the election of a named executive officer under which stock,
equity-based or other forms of non-cash compensation instead have
been received by the named executive officer. However, the receipt
of any such form of non-cash compensation instead of salary or bonus
must be disclosed in a footnote added to the salary or bonus column
and, where applicable, referring to the Grants of Plan-Based Awards
Table (required by paragraph (d) of this Item) where the stock,
option or non-equity incentive plan award elected by the named
executive officer is reported.
(v) For awards of stock, the dollar amount recognized for financial
statement reporting purposes with respect to the fiscal year in
accordance with FAS 123R (column (e));
(vi) For awards of options, with or without tandem SARs, the dollar
amount recognized for financial statement reporting purposes with
respect to the fiscal year in accordance with FAS 123R (column (f));
Instruction to Item 402(c)(2)(v) and (vi). For awards reported
in columns (e) and (f), disregard the estimate of forfeitures
related to service-based vesting conditions. Include a footnote
describing all forfeitures during the year, and disclosing all
assumptions made in the valuation. Disclose assumptions made in the
valuation by reference to a discussion of those assumptions in the
registrant's financial statements, footnotes to the financial
statements, or discussion in the Management's Discussion and
Analysis. The sections so referenced are deemed part of the
disclosure provided pursuant to this Item.
* * * * *
(ix) * * *
(G) The dollar value of any dividends or other earnings paid on
stock or option awards, when those amounts were not factored into the
grant date fair value required to be reported for the stock or option
award in column (l) of the Grants of Plan-Based Awards Table required
by paragraph (d)(2)(viii) of this Item; and
* * * * *
(d) * * *
Grants of Plan-Based Awards
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated future payouts under Estimated future payouts under equity All other All other
non-equity incentive plan incentive plan awards stock option Exercise Grant
awards --------------------------------------- awards: awards: or base date fair
Grant --------------------------------- Number of Number of price of value of
Name date shares of securities option stock and
Threshold Target Maximum Threshold Target Maximum stock or underlying awards option
($) ($) ($) () () () units options ($/Sh) awards
() ()
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
PEO
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
PFO
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
A
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
B
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
C
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(2) * * *
(viii) The grant date fair value of each equity award computed in
accordance with FAS 123R (column (l)). If at any time during the last
completed fiscal year, the registrant has adjusted or amended the
exercise or base price of options, SARs or similar option-like
instruments previously awarded to a named executive officer, whether
through amendment, cancellation or replacement grants, or any other
means (``repriced''), or otherwise has materially modified such awards,
the incremental fair value, computed as of the repricing or
modification date in accordance with FAS 123R, with respect to that
repriced or modified award, shall be reported.
Instructions to Item 402(d).
* * * * *
[[Page 78351]]
7. Options, SARs and similar option-like instruments granted in
connection with a repricing transaction or other material
modification shall be reported in this Table. However, the
disclosure required by this Table does not apply to any repricing
that occurs through a pre-existing formula or mechanism in the plan
or award that results in the periodic adjustment of the option or
SAR exercise or base price, an antidilution provision in a plan or
award, or a recapitalization or similar transaction equally
affecting all holders of the class of securities underlying the
options or SARs.
* * * * *
(k) * * *
(2) * * *
(iii) For awards of stock, the dollar amount recognized for
financial statement reporting purposes with respect to the fiscal year
in accordance with FAS 123R (column (c));
(iv) For awards of stock options, with or without tandem SARs, the
dollar amount recognized for financial statement reporting purposes
with respect to the fiscal year in accordance with FAS 123R (column
(d));
Instruction to Item 402(k)(2)(iii) and (iv).
For each director, disclose by footnote to the appropriate
column: the grant date fair value of each equity award computed in
accordance with FAS 123R; for each option, SAR or similar option
like instrument for which the registrant has adjusted or amended the
exercise or base price during the last completed fiscal year,
whether through amendment, cancellation or replacement grants, or
any other means (``repriced''), or otherwise has materially modified
such awards, the incremental fair value, computed as of the
repricing or modification date in accordance with FAS 123R; and the
aggregate number of stock awards and the aggregate number of option
awards outstanding at fiscal year end. However, the disclosure
required by this Instruction does not apply to any repricing that
occurs through a pre-existing formula or mechanism in the plan or
award that results in the periodic adjustment of the option or SAR
exercise or base price, an antidilution provision in a plan or
award, or a recapitalization or similar transaction equally
affecting all holders of the class of securities underlying the
options or SARs.
* * * * *
(vii) * * *
(I) The dollar value of any dividends or other earnings paid on
stock or option awards, when those amounts were not factored into the
grant date fair value for the stock or option award; and
* * * * *
Instruction to Item 402(k).
In addition to the Instruction to paragraphs 402(k)(2)(iii) and
(iv) and the Instructions to paragraph (k)(2)(vii) of this Item, the
following apply equally to paragraph (k) of this Item: Instructions
2 and 4 to paragraph (c) of this Item; Instructions to paragraphs
(c)(2)(iii) and (iv) of this Item; the Instruction to paragraphs
(c)(2)(v) and (vi) of this Item; Instructions to paragraph
(c)(2)(vii) of this Item; Instructions to paragraph (c)(2)(viii) of
this Item; and Instructions 1 and 5 to paragraph (c)(2)(ix) of this
Item. These Instructions apply to the columns in the Director
Compensation Table that are analogous to the columns in the Summary
Compensation Table to which they refer and to disclosures under
paragraph (k) of this Item that correspond to analogous disclosures
provided for in paragraph (c) of this Item to which they refer.
Dated: December 22, 2006.
By the Commission.
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 06-9932 Filed 12-26-06; 2:29 pm]
BILLING CODE 8011-01-P