Release No. 33-8732A Release No. 34-54302A Release No. IC-27444A

Securities and Exchange Commission

Executive Compensation and Related Person Disclosure
Section II.C.2.

II. Executive and Director Compensation Disclosure

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C. Compensation Tables

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2. Supplemental Grants of Plan-Based Awards Table

Following the Summary Compensation Table, we proposed two supplemental tables to explain information in the Summary Compensation Table. The proposed tables were derived from two tables required under the rules prior to these amendments.

The first table we proposed to supplement the Summary Compensation Table would have included information regarding non-stock grants of incentive plan awards, stock-based incentive plan awards and awards of options, restricted stock and similar instruments under plans that are performance-based (and thus provide the opportunity for future compensation if conditions are satisfied).²³⁰ The second table we proposed to supplement the Summary Compensation Table would have shown the equity-based compensation awards granted in the last fiscal year that are not performance-based, such as stock, options or similar instruments where the payout or future value is tied to the companys stock price, and not to other performance criteria.²³¹

Because much of the information for each proposed table is consistent, we have followed the recommendation of a commenter to simplify the disclosure format by combining the proposed disclosure in a single table.²³²

GRANTS OF PLAN-BASED AWARDS

Disclosure in this table complements Summary Compensation Table disclosure of grant date fair value of stock awards and option awards by disclosing the number of shares of stock or units comprising or underlying the award. This supplemental table shows the terms of grants made during the current year, including estimated future payouts for both equity incentive plans and non-equity incentive plans, with separate disclosure for each grant.²³³

To simplify the presentation further, we have eliminated some of the proposed columns. Because the narrative section identifies the material terms of an award reported in this table as an example of a material factor to be described,²³⁴ and thus will cover the same information, we have eliminated the proposed columns reporting vesting date, or performance or other period until vesting or payout. As a commenter noted, vesting information typically cannot be reported easily in a single line in a table.²³⁵ Similarly, because the modifications we are making to the Outstanding Equity Awards at Fiscal Year-End Table require that table to report the expiration dates of options and similar awards,²³⁶ we are eliminating the proposed expiration date column. Finally, the proposed column reporting the dollar amount of consideration paid for the award, if any, is not adopted, reflecting comments that this column would be used only rarely.²³⁷ Instead, in those rare instances where consideration is paid for an award, this disclosure will be provided in a footnote to the appropriate column.²³⁸

As proposed, the Grants of All Other Equity Awards Table would have permitted aggregation of option grants with the same exercise or base price. We have not adopted such an instruction for this table, based on our belief that grant-by-grant disclosure is the most appropriate approach, particularly given our particular disclosure concerns regarding option grants. For incentive plan awards, threshold, target and maximum payout information should be provided, but if the award provides only for a single estimated payout, that amount should be reported as the target.²³⁹ Where there is a tandem grant of two instruments, only one of which is granted under an incentive plan, only the instrument that is not granted under an incentive plan is reported in the table, with the tandem feature noted.²⁴⁰ Because the rules as adopted require Summary Compensation Table disclosure of the incremental fair value, computed in accordance with FAS 123R, of options, stock appreciation rights and similar option-like instruments granted in connection with a repricing transaction, rather than the total fair value as we had proposed, grants of these instruments are not reported in this table.²⁴¹ Disclosure should be provided in the Compensation Discussion and Analysis and the narrative disclosures for the Summary Compensation Table and Grants of Plan-Based Awards, as appropriate, regarding awards granted in connection with repricing transactions.

As proposed and adopted, if the per-share exercise or base price of options, stock appreciation rights and similar option-like instruments is less than the market price of the underlying security on the grant date, a separate column must be added showing market price on the grant date.²⁴² Some commenters objected to our proposal to calculate grant date market price for this purpose using the closing price per share of the underlying security on that date. These commenters stated that plans requiring awards to be granted with an exercise price equal to the underlying securitys grant date fair market value may define fair market value based on a formula related to the average market price on the grant date or a range of days either before or after the grant date.²⁴³ Our proposed departure from the rule prior to these amendments, which permitted use of such formulas even for securities traded on an established market,²⁴⁴ was considered, and along with the requirement to disclose the grant date, reflects the significance of issues in awards of option grants.²⁴⁵ Moreover, commenters expressed concern regarding the manipulation of option grant dates to achieve below-market exercise prices.²⁴⁶ The rule as adopted uses the measure for grant date market price of the underlying security that we proposed, modified to specify that the grant date closing market price per share is the last sale price on the principal United States market for the security on the specified date.²⁴⁷ Moreover, if the exercise or base price is not the grant date closing market price per share, we require a description of the methodology for determining the exercise or base price either by footnote to the table or in the accompanying narrative section.²⁴⁸ Further reflecting the significance of grant date issues in awards of option grants and in response to comments,²⁴⁹ we are also providing that if the date on which the compensation committee (or a committee of the board of directors performing a similar function or the full board of directors) takes action or is deemed to take action to grant equity-based awards is different from the date of grant, a column must be added to disclose the date of action.²⁵⁰ For these purposes, the date of grant or grant date is the grant date determined for financial statement reporting purposes pursuant to FAS 123R.²⁵¹ Finally, in combining the proposed tables, we have adopted an instruction specifying that if a non-equity incentive plan award is denominated in units or other rights, then a separate, adjoining column would be required to disclose the units or other rights awarded.²⁵²

²³⁰ Proposed Item 402(d).

²³¹ Proposed Item 402(e), containing much of the information that was required prior to these amendments by the Option/SAR Grants Table (formerly specified in Item 402(c)).

²³² See letter from Hewitt.

²³³ Instruction 1 to Item 402(d).

²³⁴ Item 402(e)(1)(iii), described in Section II.C.3.a. immediately below.

²³⁵ See letter from ABA.

²³⁶ See Section II.C.4.a. below.

²³⁷ Proposed Item 402(d)(2)(iv). See, e.g., letters from Frederic W. Cook & Co. and SCSGP.

²³⁸ Instruction 5 to Item 402(d).

²³⁹ Instruction 2 to Item 402(d).

²⁴⁰ Instruction 4 to Item 402(d).

²⁴¹ See discussion at Section II.C.1.c.i. above.

²⁴² Item 402(d)(2)(vii).

²⁴³ See, e.g., letters from Cravath; Eli Lilly; and Sidley Austin LLP (Sidley Austin).

²⁴⁴ This requirement had been set forth in Instruction 6 to Item 402(c) prior to todays amendments.

²⁴⁵ See the discussion of options disclosure in Section II.A., above.

²⁴⁶ See, e.g., letter from CFA Centre for Financial Market Integrity, dated May 30, 2006 (CFA Centre 2).

²⁴⁷ Because the concept of closing market price is used in a number of provisions of Item 402, we are adopting a definition of the term closing market price in Item 402(a)(6)(v). A foreign company complying with this requirement may instead look to the principal foreign market in which the underlying securities trade.

²⁴⁸ Instruction 3 to Item 402(d).

²⁴⁹ See, e.g., letter from CFA Centre 2.

²⁵⁰ Item 402(d)(2)(ii).

²⁵¹ Item 402(a)(6)(iv).

²⁵² Instruction 6 to Item 402(d).