Securities and Exchange CommissionExecutive Compensation and Related Person Disclosure |
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II. Executive and Director Compensation Disclosure
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D. Treatment of Specific Types of Issuers
1. Small Business Issuers
The Item 402 amendments continue to differentiate between small business issuers and other issuers, as we proposed. In adopting the amendments, we recognize that the executive compensation arrangements of small business issuers typically are less complex than those of other public companies.353 We also recognize that satisfying disclosure requirements designed to capture more complicated compensation arrangements may impose new, unwarranted burdens on small business issuers.354
Some commenters addressing the proposed amendments to Item 402 of Regulation S-B expressed the view that all companies whose shares are publicly traded should have to meet the same reporting and disclosure standards, regardless of their size, or urged that exemptions for smaller public companies be limited,355 suggesting that they be required to file some form of a basic Compensation Discussion and Analysis.356 We are not following these recommendations, because the executive compensation arrangements of small business issuers generally are so much less complex than those of other public companies that they do not warrant the more extensive disclosure requirements imposed on companies that are not small business issuers and related regulatory burdens that could be disproportionate for small business issuers.
Other commenters who supported the Commissions proposal to require less extensive disclosure for companies subject to Regulation S-B suggested that the Commission amend the definition of small business issuer to encompass a larger group of smaller public companies, such as by adopting the definition of smaller public company recommended by the Advisory Committee on Smaller Public Companies, and scale back the disclosure thresholds for all such smaller companies.357 We are not following this recommendation at this time, but would instead defer consideration until we can fully consider all recommendations of the Advisory Committee.
As proposed and adopted, small business issuers will be required to provide, along with related narrative disclosure:
Small business issuers will be required to provide information in the Summary Compensation Table only for the last two fiscal years. In addition, small business issuers will 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.361 In light of our decision to link the Summary Compensation Table pension plan disclosure to the disclosure in the Pension Benefits Table, which is not required for small business issuers, and in response to comment,362 we have decided not to require that small business issuers include pension plan disclosure in the Summary Compensation Table. Narrative discussion of a number of items to the extent material replaces 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.363 In light of our request for further comment on the proposed additional narrative disclosure requirement regarding up to three highly compensated employees so that it might apply only to large accelerated filers, we have not adopted this proposal for Item 402 of Regulation S-B. Small business issuers are not required to provide a Compensation Discussion and Analysis or the related Compensation Committee Report.364
2. Foreign Private Issuers
Prior to todays amendments, a foreign private issuer was deemed to comply with Item 402 of Regulation S-K if it provided the information required by Items 6.B. and 6.E.2. of Form 20-F, with more detailed information provided if otherwise made publicly available. We proposed to continue this treatment of these issuers and clarify that the treatment of foreign private issuers under Item 402 parallels that under Form 20-F. Commenters supported this approach, stating that it showed appropriate deference to a foreign private issuers home country requirements.365 We are adopting these requirements as proposed.366
3. Business Development Companies
As proposed, we are applying the same executive compensation disclosure requirements to business development companies that we are adopting for operating companies.367 We received no comments on this proposal. Our amendments eliminate the 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.
Under the amendments, the registration statements of business development companies will be required to include all of the disclosures required by Item 402 of Regulation S-K for all of the persons covered by Item 402.368 This disclosure will 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.369 Business development companies will also be required to make these disclosures in their annual reports on Form 10-K.370
As a result of these amendments, the persons covered by the compensation disclosure requirements will be changed. The compensation disclosure in the proxy and information statements and registration statements of business development companies will 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 $100,000,371 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 will no longer be required to disclose compensation of members of the advisory board or certain affiliated persons of the company.
Finally, under the amendments, the proxy and information statements and registration statements of business development companies will not be required to include compensation from the fund complex. Previously, this information was required in some circumstances.372
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353 These amendments apply only to small business issuers, as defined by Item 10(a)(1) of Regulation S-B. The Commissions Advisory Committee on Smaller Public Companies has recommended that the Commission incorporate the scaled disclosure accommodations currently available to small business issuers under Regulation S-B into Regulation S-K and make them available to all microcap companies. Final Report of the Advisory Committee on Smaller Public Companies to the United States Securities and Exchange Commission (Apr. 23, 2006). Any future consideration of this recommendation would be the subject of a separate rulemaking.
354 Prior to todays amendments, under both Item 402 of Regulation S-B and Item 402 of Regulation S-K, a small business issuer was 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 rules prior to todays amendments also permitted small business issuers to exclude the Pension Plan Table.
355 See, e.g., letters from CII; CRPTF; IUE-CWA; SBAF; and WSIB.
356 See, e.g., letters from ISS and Institutional Investors Group.
357 See letters from Americas Community Bankers (ACB); Independent Community Bankers of America (ICBA); and SCSGP.
358 Items 402(b) and 402(c) of Regulation S-B. Consistent with the instructions to the narrative disclosure required by Item 402(e) of Regulation S-K, we have added an instruction to Item 402(c) of Regulation S-B so that disclosure is not required regarding any repricing that occurs through specified provisions. Instruction to Item 402(c) of Regulation S-B.
359 Item 402(d) of Regulation S-B.
360 Item 402(f) of Regulation S-B.
361 Item 402(a) of Regulation S-B. Item 402(c)(7) of Regulation S-B requires an identification to the extent material of any item included under All Other Compensation in the Summary Compensation Table. However, identification of an item will not be considered material if it does not exceed the greater of $25,000 or 10% of all items included in the specified category. All items of compensation are required to be included in the Summary Compensation Table without regard to whether such items are required to be identified.
363 Item 402(c) and 402(e) of Regulation S-B.
364 We are also eliminating a 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. This provision had been set forth in Item 402(a)(1)(i) of Regulation S-K prior to todays amendments.
365 See, e.g., letters from Federation of German Industries; DaimlerChrysler AG; and jointly, Allianz AG, Deutsche Bank AG and Siemens AG.
366 Item 402(a)(1).
367 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)].
368 New Item 18.14 of Form N-2. Under the amendments, business development companies will no longer be required to respond to Item 18.13 of Form N-2, and Item 18.13(c) of Form N-2 is being deleted. Items 18.14 and 18.15 of Form N-2 are being redesignated as Items 18.15 and 18.16, respectively. As a result of the redesignation of Item 18.15 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 being made.
369 Amendment to Item 8 of Schedule 14A. Under the amendments, business development companies will no longer be required to respond to Item 22(b)(13) of Schedule 14A, and Item 22(b)(13)(iii) of Schedule 14A is being deleted. Amendments to Item 22(b)(13) of Schedule 14A.
371 See Section II.C.6., above.
372 See instructions 4 and 6 to Item 22(b)(13)(i) of Schedule 14A; and instructions 4 and 6 to Item 18.13(a) of Form N-2 (prior to todays amendments 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).
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