Securities Law Advisory: The SEC's Compensation Disclosure Reforms: Principles-Based Disclosure Arrives for Executive Compensation
11/15/2006
On July 26, 2006, in response to calls for extensive reform, the Securities and Exchange Commission (SEC) voted to adopt comprehensive changes to the rules last overhauled in 1992 requiring disclosure of compensation for executive officers and directors of public companies. In addition to revising and adding information to the disclosure tables that are required under Item 402 of Regulation S-K, the SEC is now emphasizing that companies must adopt a "principles-based" approach to compensation disclosure. In essence, this means that even if disclosure of a particular element of compensation is not called for by a particular rule, companies are expected to provide disclosure if such disclosure would be relevant or material to an understanding of the compensation of their executive officers or directors. The SEC's intent is that companies disclose and explain, in plain English, a clearer and more complete picture of the compensation earned by their principal executive officers, principal financial officers, highest paid executive officers and directors. The new rules also address changes to Form 8-K, beneficial ownership disclosure, related party transactions and corporate governance matters.
You'll find a summary of the most significant changes adopted by the SEC in this Mintz Levin Publication.
