Release No. 33-8655
Release No. 34-53185

Release No. IC-27218
 

Securities and Exchange Commission

Executive Compensation and Related Party Disclosure
Section II.C - II.E

    Release Table of Contents

C. Treatment of Specific Types of Issuers

1. Small Business Issuers

The Item 402 proposals would continue to differentiate between small business issuers and other issuers.¹⁸⁷ In crafting the proposals, we recognize that the executive compensation arrangements of small business issuers typically are less complex than those of other public companies. We also recognize that satisfying disclosure requirements designed to capture more complicated compensation arrangements may impose new, unwarranted burdens on small business issuers.

As proposed, small business issuers would be required to provide, along with related narrative disclosure:

the Summary Compensation Table;¹⁸⁸

the Outstanding Awards at Fiscal Year-End Table;¹⁸⁹ and

the Director Compensation Table.¹⁹⁰

Also as proposed, small business issuers would only be required to provide information in the Summary Compensation Table for the last two fiscal years. In addition, small business issuers would be required to provide information for fewer named executive officers, namely the principal executive officer and the two most highly compensated officers other than the principal executive officer.¹⁹¹ Narrative discussion of a number of items to the extent material would replace tabular or footnote disclosure, for example identification of other items in the All Other Compensation column and a description of post-employment payments and other benefits.¹⁹² Small business issuers would not be required to provide a Compensation Discussion and Analysis.¹⁹³

Request for Comment

Would reliance on narrative disclosure adversely affect comparability of disclosure among small business issuers? Are there particular forms of compensation that for this reason should instead be presented in a tabular format? If so, why?

Should small business issuers be categorically exempted from providing a Compensation Discussion and Analysis? Are there particular elements of the proposed Compensation Discussion and Analysis in Item 402 of Regulation S-K that small business issuers should be required to address? If so, which elements and why?

Are there other provisions of our rule proposal that should not apply to small business issuers?

Should the Summary Compensation Table require disclosure of compensation for each of the last two fiscal years, or is only the last completed fiscal year necessary?

Should compensation disclosure be provided for a larger group of executive officers than we have proposed? If so, which officers and why?

Should we require small business issuers to provide an Option Exercises and Stock Vested Table?

Should the quantitative threshold for identifying the most highly compensated executive officers remain the same in both Regulation S-B and Regulation S-K? For example, if we raise this threshold in Item 402 of Regulation S-K, should it remain $100,000 for Regulation S-B? Should any other threshold be different for small business issuers?

Should small business issuers also be required to identify perquisites and personal benefits valued, in the aggregate, in excess of $10,000 and to quantify perquisites and personal benefits valued at the greater of $25,000 or ten percent of total perquisites and other personal benefits?

Should we require the supplemental tables to the Summary Compensation Table?

Are there other items that should be specifically required to be discussed in the proposed narrative disclosure for small business issuers?

2. Foreign Private Issuers

Currently a foreign private issuer will be deemed to comply with Item 402 of Regulation S-K if it provides the information required by Items 6.B. and 6.E.2. of Form20-F, with more detailed information provided if otherwise made publicly available.

The proposals would continue this treatment of these issuers and clarify that the treatment of foreign private issuers under Item 402 parallels that under Form 20-F.

Request for Comment

Should we eliminate the provision which permits a foreign private issuer to comply with Item 402 by complying with the more limited disclosure requirements under Form 20-F with respect to management remuneration? Should a foreign private issuer that is required to comply with Item 402 (for example, by filing an annual report on Form 10-K) be required to provide all of the information required under Item 402 instead of the information required under Form 20-F?

3. Business Development Companies

We are proposing to apply the same executive compensation disclosure requirements to business development companies that we are proposing for operatingcompanies.¹⁹⁴ Currently, business development companies are required to provide executive compensation disclosure based, in part, on the requirements that apply to operating companies and, in part, on the requirements that apply to investment companies registered under the Investment Company Act. Moreover, the executive compensation disclosure requirements for business development companies are not uniform insecurities Act registration statements, proxy and information statements, and Form 10-K.Under Form 10-K, business development companies are required to furnish all of the information required by Item 402 of Regulation S-K for all of the persons covered by Item 402.¹⁹⁵ In proxy and information statements, business development companies are required to provide for directors and each of the three highest paid officers that have aggregate compensation from the company for the most recently completed fiscal year in excess of $60,000, certain information required by Item 402 of Regulation S-K and certain other information that registered investment companies are required to provide.¹⁹⁶In registration statements, business development companies are required to provide the same information required in proxy statements, but with respect to directors, members of the advisory board, and each of the three highest paid officers or any affiliated person of the company that have aggregate compensation from the company for the most recently completed fiscal year in excess of $60,000.¹⁹⁷

We are proposing to apply to business development companies the same executive compensation rules that apply to operating companies because the proposed disclosure requirements are intended to provide investors with a clearer and more complete picture of executive compensation, and we are concerned that this purpose would not be achieved through piecemeal application of some of the requirements. Our proposal would also eliminate the current inconsistency between Form 10-K, on the one hand, which requires business development companies to furnish all of the information required by Item 402 of Regulation S-K, and the proxy rules and Form N-2, on the other, which require business development companies to provide some of the information from Item 402 and other information that applies to registered investment companies. Finally, we believe that, similar to operating companies, business development companies should furnish compensation disclosure on proxies relating to the compensation arrangements and other matters enumerated in Items 8(b) through (d) of Schedule 14A and not just in the case of director elections as currently required by Item 22(b)(13).

Under the proposals, the registration statements of business development companies would be required to include all of the disclosures required by Item 402 of Regulation S-K for all of the persons covered by Item 402.¹⁹⁸ This disclosure would also be required in the proxy and information statements of business development companies if action is to be taken with respect to the election of directors or with respect to the compensation arrangements and other matters enumerated in Items 8(b) through (d) of Schedule 14A.¹⁹⁹ Business development companies would also be required to make these disclosures in their annual reports on Form 10-K.²⁰⁰

As a result of these proposed amendments, the persons covered by the compensation disclosure requirements would be changed. The compensation disclosure in the proxy and information statements and registration statements of business development companies would be required to cover the same officers as for operating companies, including the principal executive officer and principal financial officer, as well as the three most highly compensated executive officers that have total compensation exceeding $100,000,²⁰¹ instead of each of the three highest paid officers of the company that have aggregate compensation from the company for the most recently completed fiscal year in excess of $60,000. In addition, the registration statements of business development companies would no longer be required to disclose compensation of members of the advisory board or certain affiliated persons of the company.

Finally, under the proposals, the proxy and information statements and registration statements of business development companies would not be required to include compensation from the "fund complex." Currently, this information is required in some circumstances.²⁰²

Request for Comment

Should business development companies be required to comply with the same compensation disclosure requirements as operating companies or registered investment companies, a combination of the compensation disclosure requirements for operating companies and registered investment companies, or some other set of compensation disclosure requirements? Should the same compensation disclosure requirements apply to business development companies in registration statements, proxy and information statements, and Form 10-K? In addressing the appropriate compensation disclosure requirements for business development companies, commenters are requested to address separately the persons covered by the disclosure requirements and the disclosures required with respect to those persons. Commenters are also requested to address separately disclosures for executive officers and directors.

Should all business development companies be subject to the same executive compensation disclosure or should we distinguish between smaller and larger business development companies? Should business development companies be subject to the executive compensation disclosure requirements of Regulation S-B filers?

Should we require disclosure of compensation paid to affiliated persons of abusiness development company and members of the advisory board of the company?

Should we require disclosure of certain compensation paid by the fund complex that includes a business development company?

D. Conforming Amendments

The Item 402 proposals necessitate conforming amendments to the Items of Regulations S-K and S-B and the proxy rules that cross reference amended paragraphs of Item 402. On this basis, the rule proposals would amend:

the Item 201(d) of Regulations S-K and S-B and proxy rule references to the Item402 definition of "plan;"²⁰³

the Item 601(b)(10) of Regulation S-K reference to the Item 402 treatment of foreign private issuers;²⁰⁴ and

the proxy rule references to Item 402 retirement plan disclosure.²⁰⁵

E. General Comment Requests on the Item 402 Proposals

We request comment on any aspect of these proposals. In particular:

Would the proposals effectively provide clearer, more complete disclosure of executive and director compensation? If not, what changes are needed to accomplish this result?

Are the proposals sufficiently broad-based to continue to operate effectively as new forms of compensation are developed in the future? If not, what changes are necessary to achieve this flexibility?

To clarify what other filed documents provide information about executive compensation, should a company be required to list in its annual proxy statement for the election of directors all other documents filed since the last proxy statement (such as Forms 8-K and exhibits filed with Forms 10-K and 10-Q) that contain this information? Instead, should such a list be provided solely as an EDGAR-filed annex to the proxy statement?

Would the presentation and content of the executive and director compensation disclosure be improved by making the information available in the form of interactive data? For example, could an understanding of the information reported in the proposed tables be enhanced by the ability to access more detailed information regarding discrete amounts or items reported in the tables? If the presentation of interactive data would be desirable, what would be the best means for introducing interactive data capabilities into the proposed Item 402 disclosure requirements? For example, should we develop a data format that could be used to submit the information that has interactive capability while at the same time having the information readable on its face? Should we consider having the information provided using Extensible Business Reporting Language, also known as XBRL? Could the information be provided in a form that permits interactive capability in proxy and information statements that are made available on the Internet or otherwise electronically?

¹⁸⁷ The term small business issuer is defined by Item 10(a)(1) of Regulation S-B. Currently, under both Item 402 of Regulation S-B and Item 402 of Regulation S-K, a small business issuer is not required to provide the Compensation Committee Report, the Performance Graph, the Compensation Committee Interlocks disclosure, the Ten-Year Option/SAR Repricings Table, and the Option Grant Table columns disclosing potential realizable value or grant date value. The current rules also permit small business issuers to exclude the Pension Plan Table.

¹⁸⁸ Proposed Items 402(b) and 402(c) of Regulation S-B.

¹⁸⁹ Proposed Item 402(d) of Regulation S-B.

¹⁹⁰ Proposed Item 402(f) of Regulation S-B.

¹⁹¹ Proposed Item 402(a) of Regulation S-B. Proposed Item 402(c)(1)(vii) of Regulation S-B would require an identification to the extent material of any item included under All Other Compensation in the Summary Compensation Table, however identification of an item would not be considered material under the proposal if it did not exceed the greater of $25,000 or 10% of all items included in the specified category. All items of compensation would be required to be included in the Summary Compensation Table without regard to whether such items are required to be identified.

¹⁹² Proposed Items 402(c) and 402(e) of Regulation S-B.

¹⁹³ We would also eliminate the current provision of Item 402 of Regulation S-K that allows small business issuers using forms that call for Regulation S-K disclosure to exclude the disclosure required by certain paragraphs of that Item. Current Item 402(a)(1)(i) of Regulation S-K.

¹⁹⁴ 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)].

¹⁹⁵ Item 11 of Form 10-K.

¹⁹⁶ Items 8 and 22(b)(13) of Schedule 14A. These items require business development companies to provide certain information required by Item 402(b)(2)(iv) and (c) of Regulation S-K, as well as a compensation table and a brief description of the material provisions of certain pension, retirement and other plans.

¹⁹⁷ Item 18.14 of Form N-2.

¹⁹⁸ Proposed Item 18.15 of Form N-2. Under the proposals, business development companies would no longer be required to respond to Item 18.14 of Form N-2, and Item 18.14(c) of Form N-2would be deleted. Current Items 18.15 and 18.16 of Form N-2 would be redesignated as Items18.16 and 18.17, respectively. As a result of the redesignation of current Item 18.16 of Form N-2,a change to the cross reference to this Item in Instruction 8(a) of Item 24 of the form is also proposed.

¹⁹⁹ Proposed amendment to Item 8 of Schedule 14A. Under the proposals, business development companies would no longer be required to respond to Item 22(b)(13) of Schedule 14A, and Item22(b)(13)(iii) of Schedule 14A would be deleted. Proposed amendments to Item 22(b)(13) of Schedule 14A.

²⁰⁰ Item 11 of Form 10-K.

²⁰¹ See Section II.B.6., above.

²⁰² See Instructions 4 and 6 to Item 22(b)(13)(i) of Schedule 14A; Instructions 4 and 6 to Item18.14(a) of Form N-2 (requiring certain entries in the compensation table in the proxy and information statements and registration statements of business development companies to include compensation from the fund complex).

²⁰³ Proposed amendments to: Instruction 2 to paragraph (d) of Item 201 of Regulation S-B; Instruction 2 to paragraph (d) of Item 201 of Regulation S-K; Exchange Act Rules 14a-6(a)(4)and 14c-5(a)(4); and Instruction 1 to Item 10(c) of Schedule 14A.

²⁰⁴ Proposed amendment to Item 601(b)(10)(iii)(C)(5).

²⁰⁵ Proposed amendments to Item 10(b)(1)(ii) and the Instruction following Item 10(c) of Schedule 14A.