The NASPP Blog

Monthly Archives: January 2010

January 28, 2010

Section 16 Year-End Action Items

February isn’t just time to be thinking about your sweetheart, it’s also the deadline for Form 5 filings for many companies. If your company year-end is December 31st, then the Form 5 filing deadline for 2010 is Tuesday, February 16 (Feb 14, the 45th day after December 31, is a Sunday and Feb 15 is a federal holiday).

While it is true that the responsibility for reporting ownership and transactions falls squarely on the Section 16 insiders themselves, it is in the best interest of the company to manage the SEC filings on behalf of the Section 16 insiders. This blog is written with the assumptions that your company is managing the SEC filings for your insiders and that you have a December 31st year-end.

Confirm List of Reporting Persons

Take a moment to review who your filing persons are. Once you have your list together, confirm it with your legal department and have your board of directors formally approve the list.

Verify Current Holdings

Although you should be verifying all equity securities held by your Section 16 insiders every time you file a Form 3 or Form 4, take time at the end of the year to do a final reconciliation. Remember that their holdings include not only the shares held in their name, but may also include securities owned by immediate family members or by business entities in which the Section 16 insider has a controlling interest. If you discover any inconsistencies, confirm that the discrepancy isn’t the result of a transaction that should have been reported on a Form 4 or that was reported incorrectly.

Review 2009 Transactions and Filings

Review all known transactions for your Section 16 insiders and confirm that they were correctly reported. Be sure to include insiders who left the company in 2009 in your transaction audit. Verify the transactions in your stock plan administration database against the brokerage records to ensure that the details are all correct. In addition, review any Rule 10b5-1 trading plans to check for transactions that may have been overlooked. Some transactions, such as gifts/inheritances or “small acquisitions”, are not required to be reported on a Form 4. In conducting your review, be sure to include these types of transactions. In addition, be sure to check your Form 4 filing dates for any delinquent filings that will need to be disclosed in your proxy and Form 10-K.

Include each insider’s individual transaction list as an attachment to his or her D&O questionnaire. That way, your insiders will be able to focus their attention on any missed transactions. If any transaction that was required to be reported on a Form 4 was overlooked, you will need to include it on the Form 5.

“No Filing Due” Statements

Where Form 5 reportable transactions were not voluntarily reported early on a Form 4, you will need to include them on the insider’s Form 5. Obtain “No Filings Due” statements for insiders that don’t have any transactions to report on Form 5. Like the transaction list, the “no filing due” statement can be included as an attachment to the D&O questionnaire. Don’t forget about anyone who ceased to be a Section 16 insider during 2009! If you didn’t get a representation from the individual when they ceased to be a Section 16 insider, then you will need to get a “no filing due” statement at year-end.


There are also a couple administrative points to focus on at the end of your fiscal year.

First, make sure that your own EDGAR password has been renewed (for more on this, check out Barbara’s March 10 entry from last year).

Finally, review the power of attorney for each of your Section 16 insiders and confirm that all are filed with the SEC and are still effective. Pay special attention to who is named as appointee in the power of attorney, if the agreement includes reference to the EDGAR filing system, and to confirm that the agreement indemnifies the company and/or appointees.

Don’t Miss Today’s Webcast!

Of course, the number one resource for Section 16 reporting is Romeo & Dye’s Section 16 Treatise and Reporting Guide. Today, you have the opportunity to catch the one and only Alan Dye in our “Latest Section 16 Developments” webcast. Remember, all our webcasts are free to NASPP members!


Tags: , ,

January 26, 2010

IRS Audits: Are You Ready to Rumble?

Based on a recent IRS announcement and alerts we’ve received from law firms, the IRS is stepping up audit activity on executive compensation and employee benefit plans.

Employment Tax Audits
On November 9, the IRS announced an employment tax research study that will include audits of 6,000 companies over the next three years. The study is expected to help the IRS determine areas of greatest compliance risk, which will aid in selecting and auditing future employment tax returns. Companies file employment tax returns to report taxes that have been withheld on employee wages.

According to an alert issued by Pillsbury, the audits will focus on worker classifications (i.e., employee vs. non-employee), fringe benefits, executive compensation, and qualified employee benefit plans. Levine & Baker also mention the impending audits in their January 2010 client newsletter, warning that companies would be ahead to review their tax practices now, before they get an audit notice and still may have an opportunity to address inadvertent errors.

409A Audits Started Already
According to a Jones Day alert that we posted on, the IRS has already started auditing deferred compensation arrangements for compliance with Section 409A. Recent Information Document Requests issued to companies undergoing audits have included items related to §409A compliance.

As described by Jones Day, the information requested by the IDRs includes:

  • Identification of arrangements that the company does not consider to be subject to §409A, but that create a legally binding right to compensation that won’t be paid until a later year. Stock options and restricted stock, of course, are prime examples of these types of arrangements. They also include plans that are exempted from §409A under the short-term deferral rule.
  • Terms and deadlines for making deferral elections, re-deferrals, and any payment accelerations.
  • The names of “specified employees” and payments made to them upon separation of service.
  • Certain information on stock options and SARs that may be subject to §409A.
  • Any §409A violations and whether the company participated in the §409A corrections program.

Technical Corrections to Section 423 Regs
Turns out the IRS makes typos just like the rest of us. Technical corrections to the final regulations under Section 423 were issued on December 22, 2009. Nothing substantive, though, just a couple of minor textual errors. Just because I thought it would be cool, I’ve annotated the PDF of the final regs that we have posted here on with the corrections; see §1.423-2(a)(1) (pg 15), §1.423-2(d)(3) (pg 24), and §1.423-2(i)(5) Example 5 (pg 39). The full text of the corrections is on pg 46.

ShareComp 2010
The NASPP is happy to announce its support of ShareComp 2010, a fully virtual conference on stock compensation. NASPP members can attend the event for free using the sponsor pass “naspp”; feel free to share this sponsor code with others at your company.

ShareComp 2010 will be held live on February 23, 2010 and all presentations, documents, and booths will be available on-demand for a year afterwards. Presentations, solutions, and providers will focus on the needs of professionals in executive roles, finance, human resources, compensation, accounting and stock administration positions. Benefits of attending include:

  • 16 hours of live global interactive learning and networking
  • Best practices for designing, implementing and managing stock compensation programs
  • Instructional sessions that will share real-world examples, tactics and lessons learned
  • Facilitated discussion forums with experts and practitioners
  • A searchable library, including presentations, Q&A sessions and booth materials
  • A year of access to the conference center and the materials

To find out more about, visit Register today for this no-risk, high-impact event (be sure to enter sponsor pass “naspp” for free registration). While you are attending the event, we hope you’ll stop by the NASPP booth.

NASPP “To Do” List
We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog. 


Tags: , , , , , , ,

January 21, 2010

M&A Project Management

“Never again!”

These were the words uttered recently by a stock plan manager in reference to managing a “small and simple” merger project internally with no additional resources.

Relatively few stock plan managers found themselves in this situation last year. We saw a dramatic decrease in M&A activity in 2009, which is no surprise given the condition of our economy. However, the second half of the year did bring with it increased M&A activity, and news sources are all abuzz with anticipation for 2010.

Even though a merger or acquisition may be exciting for shareholders and a great way for a company to grow, it can be a serious undertaking for a stock plan manager. If an acquisition or merger is potentially in your future, start brainstorming now on what that project management will look like for you and your team.

The Left Hook

What’s the big deal, you ask? Just give me the employee and grant data along with the terms of the transaction, and I’ll throw it in Excel, work my magic and have the imports ready to process. (I mean, you should see how smooth my annual grant procedures are!) Well, if there’s one thing you can guarantee about a merger or acquisition, it’s that some part of the process of gathering and crunching your data will not go as planned. It could be something as clear cut as a spreadsheet with mismatched data (say names matched with the wrong SSNs) sent to you by the other company or a real doozy like finding out that the grants in an international location were actually all out of compliance with regulations in that country.

So, expect the unexpected when projecting the amount of time you’ll need to process the transaction and leverage your friends and peers who’ve gone through a merger or acquisition themselves. In fact, ask around at the next NASPP chapter meeting you attend and find out who’s had experience with M&A (even if you’ve done a few yourself) and ask them for just one issue they encountered in their transaction that they weren’t expecting. You can tuck those thoughts away in your “just in case” file and pull them out if your company brings you a merger or acquisition this year. If you’re looking for a more comprehensive approach to being prepared, enroll in our online education program, “Tackling Equity Compensation Issues Related to Mergers and Acquisitions,” and get a heavy dose of the due diligence considerations that you’ll want to know to put together a smooth transaction.

The Decision Dilemma

If you will be assuming any portion of the outstanding stock grants, then there are a lot of issues to consider. Converting grant data means really identifying the administrative, tax, and financial accounting consequences your decisions and finding the best balance for your company. For example, will you be converting just shares outstanding or including historical data as well? It may make sense to convert both outstanding and historical grant data because you will be acquiring ISO grants and dealing with shares purchased from an ESPP. Having the historical data makes tracking disqualifying dispositions easier. However, the “new” historical data will impact reports you run for periods prior to the transaction and you will need to accommodate the additional shares that will appear to be granted from your plan. For many issues, you will find that there all your choices have a downside. Decide what works best for your company by bringing other departments (like payroll and finance) in on the conversation and testing your strategies out in a mirror database before going live.

Think Outside the Box

So, that brings me back to the idea of how to manage your resources on a merger or acquisition. If you have a large stock plan management team and are dealing with a relatively small acquisition, you might be able to allocate enough resources to complete the transaction internally. However, if you are a one-person team or one that is already pushing the envelope on time commitment, you should give outsourcing a serious look.

Of course, you want to make the most of your consulting dollar! That means getting multiple quotes and asking the right questions. Ideally, if you’re getting help on your merger or acquisition, the individual or firm you bring in on the project will have experience with a similar transaction. However, no two transactions are the same. You know your company’s history, administrative priorities, and database best. It’s possible that you are the best person for the job or that your company is just not comfortable with handing over any part of the transaction to an outside resource. If that’s the case, you can still get help for your project. Think outside the box and bring someone in to help with your standard administrative responsibilities and free yourself up to focus on the merger or acquisition.


Tags: , , ,

January 19, 2010

409A Corrections Program

409A Corrections Program for Documentation Errors
Last week, I said that I would blog about the recently announced (in Notice 2010-6) Section 409A corrections program for documentation errors once I figured out how it applies to stock compensation. Well, figuring that out was easier than I thought–it doesn’t. That’s right, under §III.G of the notice, stock rights aren’t eligible for relief under the program.

Under §1-409A-1(b)(5)(i), the term “stock rights” refers to non-qualified stock options and stock appreciation rights. Thus, Notice 2010-6 can’t be relied on to correct discounted stock options or SARS or any other documentation errors related to these arrangements.

Your only §409A relief for discounted stock options and SARs is Notice 2008-113, which establishes a corrections program for operational errors. Under that notice, for options or SARs to be eligible for correction, the grant documentation (either the grant agreement or the plan) must indicate that the exercise price of the option/SAR should be equal to or greater than the FMV at grant. As I mentioned in my January 13, 2009 blog on Notice 2008-113, it is critical that either your plan or grant agreement include language to this effect–if omitted and an option/SAR is inadvertently granted at a discount, there’s no opportunity to correct the error under either Notice 2008-113 or Notice 2010-6.

It’s clear that Notice 2010-6 doesn’t offer any relief for options and SARs, but what about restricted stock units? For me, the term “stock rights” brings to mind any arrangement that gives employees the right to acquire stock, whether they have to pay for it or not. The IRS, however, thinks differently (hmmm, perhaps I’ve hit upon a key reason why I find §409A so hard to understand). §1-409A-1(b)(5)(i) uses the term “stock rights” to refer specifically to NQSOs and SARs, not RSUs. Thus, an RSU program that provides for elective or mandatory deferral of payout, beyond the short-term deferral period, could potentially be eligible for the Notice 2010-6 corrections program. For example, if the RSU plan allowed deferral elections to be made in a manner prohibited under §409A, that problem might be eligible for correction under Notice 2010-6 (emphasis on the word “might”–there are a number of additional conditions that must be met to be eligible for the program).

When an RSU program has been designed to be exempt from Section 409A under the short-term deferral rule, however, the program isn’t eligible for the Notice 2010-6 corrections program. Thus, the more typical RSU program, in which units are paid out upon vesting, probably isn’t eligible for the Notice 2010-6 corrections program.

We’ve posted an alert on Notice 2010-6 that includes several law firm memos that provide excellent and thorough discussions of the corrections program.

Thanks to Art Meyers of Choate Hall & Stewart for helping me sort through how Notice 2010-6 applies to RSUs.

ShareComp 2010
The NASPP is happy to announce its support of ShareComp 2010, a fully virtual conference on stock compensation. NASPP members can attend the event for free using the sponsor pass “naspp”; feel free to share this sponsor code with others at your company.

ShareComp 2010 will be held live on February 23, 2010 and all presentations, documents, and booths will be available on-demand for a year afterwards. Presentations, solutions, and providers will focus on the needs of professionals in executive roles, finance, human resources, compensation, accounting and stock administration positions. Benefits of attending include:

  • 16 hours of live global interactive learning and networking
  • Best practices for designing, implementing and managing stock compensation programs
  • Instructional sessions that will share real-world examples, tactics and lessons learned
  • Facilitated discussion forums with experts and practitioners
  • A searchable library, including presentations, Q&A sessions and booth materials
  • A year of access to the conference center and the materials

To find out more about, visit Register today for this no-risk, high-impact event (be sure to enter sponsor pass “naspp” for free registration). While you are attending the event, we hope you’ll stop by the NASPP booth.

NASPP “To Do” List
We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog. 


January 14, 2010

Clawback Provisions


The Sarbanes-Oxley Act contains an umbrella clawback provision requires that the CEO and CFO give back incentive compensation and stock sale profits in a year prior to any restatement that was caused by misconduct or fraud. Last year, the SEC filed a landmark complaint against the CEO of CSK Auto Corp (see the SEC Press Release) that sought to recoup incentive compensation resulting from accounting fraud without actually alleging that the CEO participated in the fraud. While Sarbanes-Oxley does not require that the executive actively participate in the fraud in order for the clawback provision to be invoked, this case marked a first for the SEC to open a case against an executive without alleging actual misconduct on the part of the individual.

For individual companies, a clawback is a contractual provision that provides the company with a means of recouping incentive compensation or stock sale profit from executives or top employees. The provision may apply to fraud, incentive resulting from incorrect financials, violation of non-compete provisions, or other violation of other specific restrictions within the agreement. Companies may include both equity compensation and cash bonuses in clawback provisions.

The existence of a clawback provision does not mean that a situation that violates the restrictive provisions will automatically result in funds being returned to the company. Most likely, the company will need to initiate legal proceedings in order to recoup any profits. Additionally, unless the agreement between the company and the executive details the repayment process, the company may need to negotiate the timing and manner of repayment.


Shareholders are most interested in performance-based clawback provisions that recoup profits resulting from accounting fraud. These types of clawbacks provide a critical protection to shareholders by forcing the executives to share in the financial losses related to inaccurate financial statements. This goes beyond performance-based pay arrangements where the executive only benefits if certain goals are reached (with the intention of aligning executive pay-out with shareholder benefit) because it reaches back to profits already realized by the executive rather than reducing future payout.

The use of clawback provisions can be helpful when companies are justifying their executive compensation.

Recent or Pending Legislation

Companies participating in the TARP are required to have clawback provisions relating to “materially inaccurate” financial statements. Additionally, TARP companies are required to exercise their clawback rights except in cases where they can demonstrate that it would be “unreasonable” to do so. This was further highlighted in the October determinations from the Treasury (see our alert). For more information on the TARP or other provisions under the Emergency Economic Stabilization Act of 2008, see our Economic Stimulus Legislation portal.

The proposed Senate bill, Restoring American Financial Stability Act (also known as the Dodd bill), goes one step further and recommends that all public companies be required to set clawback policies pertaining to inaccurate financial statements.

For Stock Plan Administrators

Hopefully, you will not need to deal with enforcing any clawback provisions your company may have. However, it’s a good idea to know if the company has clawback provisions in place and if there is a corporate policy on initiating repayment if they are triggered. One issue with clawbacks is that they may not be included in documentation that is normally accessible to stock plan administrators. They may be part of an employment or other separate agreement.

If you want to really take it one step further, educate yourself on the additional implications of recouping profit under a clawback provision. This may include how to handle previously remitted tax withholding or whether there are any 409A issues relating to the repayment method.

For more information on clawbacks and other provisions, check out the materials and audio from the Executive Compensation Conference, which we offered free of charge this year to everyone who attended the NASPP Conference.

More NASPP Value

We’ve added a new portal to the NASPP site, Shareholder Approval. It includes information on shareholder approval of stock plans, compensation, and options exchanges. Additionally, you will find exchange listing rules, legislation, proxy advisory firm recommendations, and more!


Tags: , , ,

January 12, 2010

Finding Your Way Around ASC 718

In my first blog on FASB’s Codification project (“FAS 123(R) Superseded“), I said that the whole thing felt sort of like when my grocery store rearranges the shelves: all the same stuff is there, it just takes me a lot longer to find it. And, based on conversations I’ve had with some of my colleagues, I don’t think I’m the only one having trouble finding where parts of old FAS 123(R) ended up in new ASC 718.

At least at the grocery store, there’s a helpful clerk I can ask for assistance. As far as I can tell, there’s not even a surly, much less helpful, FASB staffer to explain where things are in the new Codification system (well, maybe there’s a help staff if you can afford to pay $850 for the “professional view”–I wouldn’t know.) (BTW–does that mean that those of us that don’t pay the $850 are “amateurs”?)

But, it turns out, there is a cross-reference tool. And it’s even available in the free version.

Using the Codification Cross-Reference Tool
Accessing the cross-reference tool is so easy, I can’t believe it took me this long to find it. Simply click on the tab labeled “Cross Reference” at the top of the main page. Then you enter the pre-Codification standard you are looking for, click the “Generate Report” number, and then the report tells you where to find the standard under Codification. And here’s the best part–the report is broken down by paragraph number!

FASB cross-reference.JPGA screen shot of the cross-reference tool. Click the thumbnail image to make it bigger so you can actually read it.





For example, recently I needed to find the new cite in ASC 718 for paragraph 35 of FAS 123(R). To do this, I simply click the “Cross Reference” tab, select “FAS” in the Standard Type field, select “123(R)” in the Standard Number field, then click the “Generate Report” button. A complete report listing all the paragraphs in FAS 123(R) (including appendices A and E and even a few paragraphs of Appendix B) is generated. The report indicates, paragraph-by-paragraph, where old FAS 123(R) is now located in ASC 718.

I find old paragraph 35 in the report and I see that in ASC 718, it is Topic 718, subtopic 10, section 25, paragraphs 25-16 through 25-19. I looked it up in ASC 718 and, yep, that’s right where it is.

All FASB Standards Included

You can use the cross-reference tool not only for Statements of Financial Accounting Standards (FAS) but also for FASB Staff Positions (FSP), FASB Interpretations (FIN), EITFs, Staff Technical Bulletins (FTB), and a whole host of other standard types that I’m not familiar with. The tool includes a list of what all the standards are and their abbreviations.

For example, using the cross-reference tool, I learn that FSP FAS 123(R)-1 is now split between ASC 718-10-65 and ASC 718-10-35. Who knows how long it would have taken me to find that on my own.

The Annoying Part

With FASB, it always seems like there’s an annoying part. Here, it’s that the cross-reference tool is hard to read online, especially for a long report like you get for 123(R). When you scroll down to read the whole report, you can’t see the column headings anymore and its hard to follow each row of the report across the screen. It would be a lot easier if you could print the report or even just highlight a row using your cursor, but you only get that functionality if you pay for the professional view.

409A Documentation Corrections Program
Last Tuesday, the IRS released Notice 2010-06, which establishes a corrections program for documentation errors under 409A. I am working on an alert and hope to blog about the notice just as soon as I can figure out how it applies to stock compensation.

NASPP “To Do” List
We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog. 


January 7, 2010

Two Proposals and a FAR

With so many proposed, pending, or newly finalized pieces of legislation right now, I feel a little overwhelmed trying to keep up. Fortunately, we have a couple great resources on our site to help me keep it all straight. First, there is the “Cheat Sheet” provided by (posted to the Say on Pay portal). There is also this article by Choate, which has a great chart that details the legislation and which parts of corporate governance it impacts.

Here are a couple of the latest developments, along with a little newsworthy item that caught my eye.

FASB Exposure Draft

As I’m sure you are all aware, the U.S. is moving toward the adoption of IFRS. Nobody is sure when we will adopt IFRS as the U.S. accounting standard, but we do occasionally see signs that progress is being made in that direction. The Exposure Draft issued by FASB on December 17th is a perfect example.

The Exposure Draft is a proposed clarification regarding companies that issue equity awards that are denominated in a foreign currency. If enacted, the amendment in this exposure draft won’t impact very many companies at all. This is because Topic 718 (formerly FAS123R) already addresses the more common situations of companies denominating their equity awards in a foreign currency: using the functional or the payroll currency of the foreign entity. The scenario missing from the current wording in Topic 718 is where a company denominates their equity awards in a currency that is neither the functional nor the payroll currency, but is instead the currency of the market in which a substantial amount of the company’s shares trade. This draft clarifies that such an award would also be considered an equity award, providing that it would otherwise qualify for equity treatment. (For more information, check out our alert.)

What FASB is attempting to do with the clarification offered in this proposed change to Topic 718 is create uniformity with respect to the expensing of certain equity awards. More importantly to me, however, is the fact that FASB specifically addresses how the proposed amendments compare with IFRS. The trouble is that neither Topic 718 nor IFRS currently specifically call out the situations in which this amendment would be applicable, but it is likely that if IFRS were to be updated to include this situation, it would be the same. This is because, as stated in the Exposure Draft, most companies currently reporting under IFRS already expense these awards as equity awards.

Facilitating Shareholder Director Nominations

The SEC recently reopened the comment period for the proposed rule, Facilitating Shareholder Director Nominations. The proposed rule is designed to empower certain shareholders (based on ownership thresholds and minimum holding periods) to influence (presumably to improve) corporate governance by means of introducing both director nominations and proposals to amend director nomination process or disclosure requirements.

Existing comments can be viewed here. One of the concerns being voiced are that the bar for determining which shareholders may submit nominations and proposals is set too low, which could potentially allow short-term investors (like hedge funds) to encourage inappropriate risk-taking. Another concern is the amount of time and energy boards may potentially need to divert from day-to-day business decisions in order to deal with the politicization of board elections.

Although it is unlikely that this rule, if adopted, would impact the daily responsibilities of most stock plan managers, it does highlight SEC efforts to create better corporate governance by giving shareholders more power to influence corporate business strategy. Maybe what it does mean for you stock plan managers out there is that it’s time to renew (or initiate) your relationship with your company’s investor relations group.

FAR Out!

I came across this interesting article in the Hedge Fund Law Report on the merits of granting hedge fund managers appreciation rights that would be similar to a stock appreciation right (although the article compares them to stock options), but track against the increase in the fund’s value.

Two things really struck me about this article. First, it’s encouraging and powerful to keep seeing the conviction that creating an ownership mentality improves the long-term success of a company by aligning employee interests with shareholder interests. Much like the Treasury Special Master’s determinations highlighted the preference of performance-based equity compensation over cash compensation, the idea of granting an appreciation right that pays out with the success of a hedge fund really highlights the importance of appropriate equity compensation as a motivating vehicle.

The second thing that really caught my eye is that the name “Fund Appreciation Right” (FAR) has actually been trademarked by a particular compensation administration company (Optcapital). So, it’s not that other administrators (or funds) can’t issue an equity vehicle that is in the form of an appreciation right; they just can’t call it a FAR. It makes me wonder what our conversations would sound like if someone had trademarked “stock option” or “restricted stock unit”, forcing each company to come up with their own nomenclature!

We have several fantastic webcasts planned between now and the end of April; two in January alone! All our webcasts are a complementary benefit provided to our members. Don’t miss out; renew today.

January 20th we’ve got a webcast on the Final Regulations on Sections 6039 and 423: Implications and Action Items and the 28th members will have free access to Alan Dye’s annual Latest Section 16 Developments.


Tags: , , , , , , ,

January 5, 2010

Back Where We Started: Equity Awards in the SCT

Along with snowstorms in much of the country (during my annual trip to Chicago, I got stuck shoveling snow four times–see the pic below), there was a flurry of regulatory activity in mid-December. The IRS released proposed regs for cost-basis reporting, FASB released a proposed standard on stock compensation denominated in foreign currency, and the SEC released new rules on the executive compensation disclosures in proxy statements.

Barb with snowpile.jpgMe, dealing with snow flurries instead of flurries of regulations.  I don’t have an action shot of me shoveling snow, but here I am with my finished snow pile.  Shoveling snow is hard, but not as hard as writing about new tax regs, accounting standards, and securities laws.   


Robyn covered cost-basis reporting in her December 22 blog, “Cost Basis Reporting,” and it turns out that the proposed FASB standard hardly impacts anyone (for more info on it, see our alert “FASB Issues Exposure Draft of Proposed Accounting Standards Update Relating to Stock Compensation“), so today I’m discussing the SEC’s new rules for executive compensation disclosures as they relate to stock compensation.

Equity Awards in the Summary Compensation Table
Readers will recall that, back in December 2006, the SEC issued a surprising amendment to the proxy executive compensation disclosures that changed the amount reported in the Summary Compensation Table for grants of options and stock awards to be essentially equal to the expense amortized under 123(R) for the arrangements during the year, with a few differences for forfeitures. The SEC’s purpose was to align the disclosures with 123(R), and, while they might have achieved this, the resulting disclosures were confusing to shareholders (not to mention the media). Performance awards were a particular problem: the way forfeitures were included in the disclosures sometimes resulted in negative amounts reported in the SCT. See my July 7 blog, “SEC Proposes Changes to Disclosure of Grants in SCT,” for more information.

The New Rules

The new rules return to the disclosure method in effect before the 2006 amendment. Stock options, restricted stock/units, and other equity awards are reported in the SCT in the year granted. The full grant-date fair value of the awards, as determined under 123(R), is the amount disclosed for them.

For performance-based awards, the new rules require that the amount reported in the SCT be based on the level at which the award is expected to pay out, rather than at the maximum possible payout. However, the maximum payout must be disclosed in a footnote to the table.

Since there is no true-up if options and awards are later forfeited, there shouldn’t be any need to disclose negative amounts in the SCT.

No Change to Grants of Plan Based Awards Table

The 2006 amendments also updated the Grants of Plan Based Awards Table to include the full grant-date fair value of options and awards in the year of grant–since this amount was no longer reported in the SCT, disclosing it here made sense. Although it is now duplicative of the amount reported in the SCT for grants and awards, the final rules still require the grant-date fair value to be reported here as well.


The rules with respect to stock options and awards are effective for disclosures filed on or after February 28, 2010 for fiscal years ending on or after December 20, 2009. The SCT includes three years worth of compensation data; amounts reported for prior years should be recalculated to reflect the new rules, so that they are comparable to the current year data.

Amounts reported in the SCT can also impact which officers are considered Named Executive Officers, for which disclosure is required. The determination of NEOs for fiscal years ending on or after December 20, 2009 will be based on the new rules. For prior years, the determination is based on the rules in effect at that time. Thus, while equity compensation reported for prior years must be recomputed, companies won’t need to change which officers were included in the SCT for those years.

Other Stuff

The new rules go far beyond changes to the disclosures for equity compensation. Additional areas where the rules impose new or updated disclosure requirements include the following:

  • Relation of compensation to risk
  • Compensation consultant conflicts
  • Board qualifications, diversity, leadership structure and risk oversight
  • Reporting voting results

But those are topics for someone else’s blog–e.g., Mark Borges’ Proxy Disclosure Blog on I only cover stock compensation stuff, with an occasional Section 16 topic thrown in for good measure.

For more information on the SEC’s new rules, see our alert “SEC Finalizes Changes to Disclosure of Grants to Executives,” which includes, at last count, over 60 memos.

Don’t Miss the NASPP’s Upcoming Webcasts
All NASPP memberships expire on a calendar-year basis. If you haven’t done so already, be sure to renew your membership for 2010. If you don’t, you will no longer have access to the NASPP website after January 15 and will miss out on our first webcast, “Final Regulations on Sections 6039 and 423: Implications and Action Items,” scheduled for January 20.

NASPP “To Do” List
We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog.