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.6.

II. Executive and Director Compensation Disclosure

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C. Compensation Tables

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6. Officers Covered

a. Named Executive Officers

As proposed, we are amending the disclosure rules so that the principal executive officer, the principal financial officer³²⁶ and the three most highly compensated executive officers other than the principal executive officer and principal financial officer comprise the named executive officers.³²⁷ In addition, as was the case prior to these amendments, up to two additional individuals for whom disclosure would have been required but for the fact that they were no longer serving as executive officers at the end of the last completed fiscal year shall be included.

As we noted in the Proposing Release, we believe that compensation of the principal financial officer is important to shareholders because, along with the principal executive officer, the principal financial officer provides the certifications required with the companys periodic reports and has important responsibility for the fair presentation of the companys financial statements and other financial information.³²⁸ Like the principal executive officer, disclosure about the principal financial officer will be required even if he or she was no longer serving in that capacity at the end of the last completed fiscal year.³²⁹ As was the case for the chief executive officer prior to todays amendments, all persons who served as the companys principal executive officer or principal financial officer during the last completed fiscal year are named executive officers.

We are not requiring compensation disclosure for all of the officers listed in Items 5.02(b) and (c) of Form 8-K.³³⁰ Those paragraph (e) of Item 5.02 of Form 8-K Items were adopted to provide current disclosure in the event of an appointment, resignation, retirement or termination of the specified officers, based on the principle that changes in employment status of these particular officers are unquestionably or presumptively material. At the time when a decision is made regarding the employment status of a particular officer, it will not always be clear who will be the named executive officers for the current year. Given these factors, it is reasonable for the two groups not to be identical.

b. Identification of Most Highly Compensated Executive Officers; Dollar Threshold for Disclosure

In the rule prior to todays amendments, the determination of the most highly compensated executive officers was based solely on total annual salary and bonus for the last fiscal year, subject to a $100,000 disclosure threshold.We proposed to revise the dollar threshold for disclosure of named executive officers other than the principal executive officer and the principal financial officer to $100,000 of total compensation for the last fiscal year. Given the proliferation of various forms of compensation other than salary and bonus, we believe that total compensation would more accurately identify those officers who are, in fact, the most highly compensated.

Several commenters objected to using total compensation to identify named executive officers.³³¹ In particular, commenters stated that this measure would minimize the importance of the compensation committees compensation decisions for the most recent year and include significant elements beyond the committees control, such as the increase in pension value and earnings on nonqualified deferred compensation. Some commenters recommended continuing to rely solely on salary and bonus, stating that these measures more accurately reflect the executives who are most highly valued in the company and permit greater year-to-year consistency.³³² Other commenters expressed concern that including episodic option awards would result in more frequent changes to the named executive officer roster.³³³

We are persuaded that it is appropriate to exclude from the named executive officer determination compensation elements that principally reflect executives decisions to defer compensation and wealth accumulation in pension plans, or are unduly influenced by age or years of service. However, as we stated in the Proposing Release, basing identification of named executive officers solely on the compensation reportable in the salary and bonus categories may provide an incentive to re-characterize compensation. Further, limiting the determination to salary and bonus is not consistent with our decision to eliminate the distinction between annual and long-term compensation in the Summary Compensation Table.³³⁴ We realize that this may result in more frequent changes to the officers designated as named executive officers, but believe that it will provide a clearer picture of compensation at a company. Accordingly, we require the most highly compensated executive officers to be determined based on total compensation, reduced by the sum of the increase in pension values and nonqualified deferred compensation above-market or preferential earnings reported in column (h) of the Summary Compensation.³³⁵

Prior to these amendments, companies were permitted to exclude an executive officer (other than the chief executive officer) due to either an unusually large amount of cash compensation that was not part of a recurring arrangement and was unlikely to continue, or cash compensation relating to overseas assignments attributed predominantly to such assignments.³³⁶ Because payments attributed to overseas assignments have the potential to skew the application of Item 402 disclosure away from executives whose compensation otherwise properly would be disclosed, we are retaining this basis for exclusion, as we proposed. However, we believe that other compensation that is not recurring and unlikely to continue should be considered compensation for disclosure purposes. There has been inconsistent interpretation of the not recurring and unlikely to continue standard, and it is susceptible to manipulation. We therefore are eliminating this basis for exclusion, as we proposed.³³⁷

³²⁶ We are adopting the nomenclature used in Item 5.02, which refers to principal executive officer and principal financial officer.

³²⁷ Item 402(a)(3). As defined in Securities Act Rule 405 [17 CFR 230.405] and Exchange Act Rule 3b-7 [17 CFR 240.3b-7], the term executive officer, when used with reference to a registrant, means its president, any vice president of the registrant in charge of a principal business unit, division or function (such as sales, administration or finance), any other officer who performs a policy-making function or any other person who performs similar policy-making functions for the registrant. Executive officers of subsidiaries may be deemed executive officers of the registrant if they perform such policy-making functions for the registrant. Therefore, as was formerly the case, a named executive officer may be an executive officer of a subsidiary or an employee of a subsidiary who performs such policy-making functions for the registrant. We have clarified this point in the provision describing the determination of named executive officer. Instruction 2 to Item 402(a)(3).

³²⁸ Exchange Act Rules 13a-14 and 15d-14.

³²⁹ Paragraphs (a)(3)(i) and (a)(3)(ii) of Item 402 provide that all individuals who served as a principal executive officer and principal financial officer or in similar capacities during the last completed fiscal year must be considered named executive officers. Item 402(a)(4) specifies that if the principal executive officer or principal financial officer served in that capacity for only part of a fiscal year, information must be provided as to all of the individuals compensation for the full fiscal year. Item 402(a)(4) also specifies that if a named executive officer (other than the principal executive officer or principal financial officer) served as an executive officer of the company (whether or not in the same position) during any part of the fiscal year, then information is required as to all compensation of that individual for the full fiscal year.

³³⁰ These are the registrants principal executive officer, president, principal financial officer, principal accounting officer, principal operating officer or any person performing similar functions. As described in Section III.A. below, the rules we adopt today also amend Item 5.02 of Form 8-K.

³³¹ See, e.g., letters from ACC; Emerson; Leggett & Platt; SCSGP; and Unitrin.

³³² See, e.g., letters from Frederic W. Cook & Co. and Intel.

³³³ See, e.g., letter from Intel.

³³⁴ See Section II.C.1.f. above, discussing the effect of this change on compensation formerly reported as bonus.

³³⁵ Instruction 1 to Item 402(a)(3).

³³⁶ This exclusion had been set forth in Instruction 3 to Item 402(a)(3) prior to these amendments.

³³⁷ Instruction 3 to Item 402(a)(3).