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.4.

II. Executive and Director Compensation Disclosure

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C. Compensation Tables

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4. Exercises and Holdings of Previously Awarded Equity

The next section of the revised executive compensation disclosure provides investors with an understanding of the compensation in the form of equity that has previously been awarded and remains outstanding, and is unexercised or unvested. As proposed, this section also discloses amounts realized on this type of compensation during the most recent fiscal year when, for example, a named executive officer exercises an option or his or her stock award vests. We are adopting substantially as proposed two tables: one table shows the amounts of awards outstanding at fiscal year-end, and the other shows the exercise or vesting of equity awards during the fiscal year.²⁷³ In response to comment, we are requiring additional information regarding out-of-the-money awards.

a. Outstanding Equity Awards at Fiscal Year-End Table

As we noted in the Proposing Release, outstanding awards that have been granted but the ultimate outcomes of which have not yet been realized in effect represent potential amounts that the named executive officer might or might not realize, depending on the outcome for the measure or measures (for example, stock price or performance benchmarks) to which the award relates. We are adopting a table that will disclose information regarding outstanding awards, for example, under stock option (or stock appreciation rights) plans, restricted stock plans, incentive plans and similar plans and disclose the market-based values of the rights, shares or units in question as of the companys most recent fiscal year end.²⁷⁴

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

As proposed, the table included a column reporting aggregate dollar amounts of in-the-money unexercised options.²⁷⁵ Some commenters believed that this table should not include information on out-of-the-money options because they believed that these awards have no value to executives at the point they are out-of-the-money.²⁷⁶ Several other commenters recommended disclosure of the number and key terms of out-of-the-money instruments, so investors can understand the potential compensation opportunity of these awards if the market price of the underlying shares increases.²⁷⁷ We proposed to require expiration date information in footnote disclosure. We note that some commenters expressed concern that disclosure of expiration and vesting dates of the instruments would be lengthy.²⁷⁸ However, because we agree with other commenters that information regarding out-of-the-money options is material to investors, we have revised the columns applicable to unexercised options, stock appreciation rights and similar instruments with option-like features to require disclosure of:

• The number of securities underlying unexercised instruments that are exercisable;
• The number of securities underlying unexercised instruments that are unexercisable;
• The exercise or base price; and
• The expiration date.

After evaluating the comments received, we believe disclosure of individual exercise prices and expiration dates is required to provide a full understanding of the potential compensation opportunity. In particular, with respect to out-of-the-money awards, this allows investors to see the amount the stock price must rise and the amount of time remaining for it to happen. Consequently, this disclosure is required for each instrument, rather than on the aggregate basis that was proposed.²⁷⁹

As suggested by another commenter, we also modify the table to clarify that these columns apply to options and similar awards that have been transferred other than for value.²⁸⁰ The proposal reflected interpretations of the former rule that the transfer of an option or similar award by an executive does not negate the awards status as compensation that should be reported.²⁸¹ Because an award that a named executive officer transferred for value is not an award for which the outcome remains to be realized, the rules adopted today instead require disclosure in the Option Exercises and Stock Vested Table of the amounts realized upon transfer for value.²⁸²

In view of our approach in the Grants of Plan-Based Awards Table as adopted and the purposes of this table in showing all outstanding equity awards, we are adopting a column (column (d)) for reporting the number of securities underlying unexercised options awarded under equity incentive plans.²⁸³ We have also revised the format of the table to more clearly delineate between the information regarding option awards and the information regarding stock awards.

The remaining disclosure, relating to numbers and market values of nonvested stock and equity incentive plan awards, is adopted on an aggregate basis, substantially as proposed. One commenter expressed the view that the table should not include unearned performance-based awards because it would be difficult to disclose a meaningful value before the performance conditions are satisfied.²⁸⁴ Another commenter requested clarification of valuation of awards that are performance-based and nonvested, specifically whether value should be based on actual performance to date or on achieving target performance goals.²⁸⁵ As adopted, an instruction provides that the number of shares reported in the appropriate columns for equity incentive plan awards (columns (d) and (i)) or the payout value reported in column (j) is based on achieving threshold performance goals, except that if the previous fiscal years performance has exceeded the threshold, the disclosure shall be based on the next higher performance measure (target or maximum) that exceeds the previous fiscal years performance. If the award provides only for a single estimated payout, that amount should be reported. If the target amount is not determinable, registrants must provide a representative amount based on the previous fiscal years performance.²⁸⁶ We have also adopted an instruction clarifying that stock or options under equity incentive plans are reported in columns (d) or (i) and (j), as appropriate, until the relevant performance condition has been satisfied. Once the relevant performance condition has been satisfied, if stock remains unvested or the option unexercised, the stock or options are reported in columns (b) or (c), or (g) and (h), as appropriate.²⁸⁷

b. Option Exercises and Stock Vested Table

We are adopting substantially as proposed a table that will show the amounts received upon exercise of options or similar instruments or the vesting of stock or similar instruments during the most recent fiscal year. This table will allow investors to have a picture of the amounts that a named executive officer realizes on equity compensation through its final stage.²⁸⁸

OPTION EXERCISES AND STOCK VESTED

We proposed that this table include the grant date fair value of these instruments that would have been disclosed in the Summary Compensation Table for the year in which they were awarded. We proposed this column to eliminate the possible impact of double disclosure by showing amounts previously disclosed. We have adopted the table without the grant date fair value column in response to commenters concerns that this column would confuse investors and increase the potential for double counting.²⁸⁹ As described in the preceding section, in response to comment that transfers of awards for value also are realization events, amounts realized upon such transfers must be included in columns (c) and (e) of this table.²⁹⁰ Finally, we have reformatted the columns to make the presentation of stock and option awards consistent with the presentation in other tables.

²⁷³ Some of this information had been required in the Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Value Table, which was required under Item 402(d) prior to adoption of these amendments.

²⁷⁴ Item 402(f). Under the rules prior to todays amendments, such disclosure was provided only for holdings of outstanding stock options and stock appreciation rights.

²⁷⁵ Proposed Item 402(g)(2)(iii).

²⁷⁶ See, e.g., letters from Frederic W. Cook & Co.; N. Ludgus; and SCSGP.

²⁷⁷ See, e.g., letters from Amalgamated; Brian Foley & Company, Inc. (Brian Foley & Co.); Buck Consultants; CII; Hodak Value Advisors; IUE-CWA; and SBAF.

²⁷⁸ See, e.g., letters from Leggett & Platt; SCSGP; and Sidley Austin.

²⁷⁹ Multiple awards may be aggregated where the expiration date and the exercise and/or base price of the instruments is identical. A single award consisting of a combination of options, SARs and/or similar option-like instruments must be reported as separate awards with respect to each tranche with a different exercise and/or base price or expiration date. Instruction 4 to Item 402(f)(2). We have not adopted the proposed requirements to disclose whether an option that expired after fiscal year-end had been exercised, in response to comment that this would unnecessarily deviate from the standard of reporting last fiscal year information. See letter from ABA.

²⁸⁰ Instruction 1 to Item 402(f)(2). See letter from ABA.

²⁸¹ See Registration of Securities on Form S-8, Release No. 33-7646 (Feb. 25, 1999) [64 FR 11103], at Section III.D.

²⁸² Item 402(g), described in Section II.C.4.b. immediately below.

²⁸³ Item 402(f)(2)(iv).

²⁸⁴ See letter from Sullivan.

²⁸⁵ See, e.g., letter from Hewitt.

²⁸⁶ Instruction 3 to Item 402(f).

²⁸⁷ Instruction 5 to Item 402(f).

²⁸⁸ This table is similar to a portion of the Aggregate Options/SAR Exercises in Last Fiscal Year and FY-End Options/SAR Values Table that was required prior to these amendments, except unlike that table it also includes the vesting of restricted stock and similar instruments. Commentators have noted a need for comparable disclosure of restricted stock vesting.

²⁸⁹ See, e.g., letters from Foley; SCSGP; and Stradling Yocca.

²⁹⁰ Item 402(g)(2)(iii) and (v).