SEC adopts its January 2006 proposal

• Will require a CD&A section that is filed

• Will require a Compensation Committee Report
  that is furnished

• Comp committee to review and pass on CD&A

• Performance graph will be retained, but moved
• Revised summary compensation table

• "Investors will now be provided with one number for total annual compensation for each named executive officer"

• New disclosures about option grants will be required

• Response to stock option backdating scandal

• Adds a new director compensation table
• Makes changes to related party disclosures
• Consolidates disclosures about director independence
• Changes to named executive officers

• Will delay application to "star employees"
• Will only cover three highest-paid employees who make "significant policy decisions"
• Won't apply to athletes, salesmen, entertainers, and traders who don't have management responsibilities

• Will apply to 10-Ks and proxies after 12.15.06

SEC press release  7.26.06

• Introduction ++
• Compensation discussion and analysis - CD&A 1.A
• Tabular and narrative disclosure 1.B

• Summary compensation table

• Option grants 1.C
• Director compensation 1.D
• Related person transactions   2.A
• Director independence 2.B 
• Security ownership of officers and directors 3
• Form 8-K 4
• Plain English 5
• Registered investment companies 6
• Compliance 7

Opening statements

• Chairman Cox
• SEC staff
• SEC special counsel
• Commissioner Atkins

SEC meeting webcast

• Live replay of SEC meeting
• WindowsMedia
• RealMedia

Commentary

• Wachtell Lipton 7.26.06
• Sidley Austin 7.26.06
• Alston & Bird 7.27.06
• Covington & Burling 7.27.06

SEC final release available 

• SEC website PDF

SEC proposes sweeping changes to required disclosures

• Proposal approved by SEC 1.17.06
• SEC will consider approving this proposal on Wed 7.26

• SEC notice 7.18.06

Hyperlinked version of release  (TOC)

• Comment letters
• SEC website version of release
• Federal Register version of release

Includes interpretive guidance on disclosing perks

• Already effective for 2006 proxy season
• See Disclosing Perquisites

Proposed changes to S-K 402  On this Topic Page

• Redefine who's a named executive officer
• New disclosure section: CD&A
• New compensation tables:

• Summary compensation
• Grants of performance-based awards
• Grants of all other equity awards

• New section on outstanding equity interests
• New section on retirement plans and post-employment

Other proposed changes

• Revised disclosures of related person transactions
• New S-K Item re: corporate governance
• Addition to beneficial ownership disclosures
• Modify Form 8-K
• Require use of plain English in proxy statements

SEC speeches

Redefine named executive officers to include

• Principal executive officer
• Principal financial officer officer
• Three other most highly compensated executive officers

Proposal release discussion II.B.6

• Named executive officers II.B.6.a
• Identification of most highly compensated officers;
  Dollar threshold for disclosure II.B.6.b

Proposed rule change

• S-K 402(a)(3)

Would require new CD&A section

• A narrative discussion of executive compensation programs

• Overview explaining in one place the policies and decisions relating to NEO compensation
• Eliminate compensation committee report
• Eliminate performance graph

• Would lead-off executive compensation disclosures

• CD&A would be considered filed and soliciting material

• Thus, subject to greater liability

Proposal release discussion II.A

• CD&A: intent and operation II.A.1
• Proposed CD&A instructions II.A.2
• Re: filedstatus II.A.3
• Elimination of performance graph -
  compensation committee report II.A.4

Proposed rule change

• S-K 402(b)

Early Adopter Precedent

• Pfizer 2.24.06 

Summary Compensation Table

• Would total to a single figure for total compensation, including for compensation over the last three years

• Dollar value of all stock awards per FASB 123R
• Increase in actuarial value of pension plans
• Earnings on deferred compensation
• Perquisites over $10,000

Proposal release discussion II.B

• Summary Compensation TableII.B.1
  For NEOs for last three years

• Total compensation column II.B.1.a
• Salary and bonus columns II.B.1.b
• Plan-based awards II.B.1.c
  ◊ Stock awards - option awards columns II.B.1.c.i
  ◊ Non-stock incentive plan column II.B.1.c.ii
• All other compensation column II.B.1.d
  ◊ Earnings on deferred compensation II.B.1.d.i
  ◊ Increase in pension value II.B.1.d.ii
  ◊ Perquisites - Other personal benefits II.B.1.d.iii
  ◊ Additional items II.B.1.d.iv
• Captions and table layout II.B.1.e

Table: Grants of performance-based awards

• Proposal release discussion II.B.2.a

Table: Grants of All Other Equity Awards

• Proposal release discussion II.B.2.b

Require Narrative Disclosure to Tables

• Proposal release discussion II.B.3
• Proposed rule S-K 401(f)(1)

Early Adopter Precedent

• Pfizer 2.24.06 

• See "Present Value of ... " at page 55

New section on outstanding equity interests

• Table: Outstanding Equity Awards at Fiscal Year-End
• Table: Option Exercises and Stock Vested

Proposal release discussion II.B.4

• Outstanding equity awards at fiscal year-end II.B.4.a
• Option exercises and stock vesting II.B.4.b

New section on outstanding equity interests

• Table: Retirement Plan Potential Annual Payments
  Table: Nonqualified Defined Contribution and Other Deferred Compensation Plans
  Disclosure of change of control payments and benefits
  Including quantification thereof

Proposal release discussion II.B.5

• Retirement plan table II.B.5.a
  Potential Annual Payments and Benefits
• Nonqualified plans table II.B.5.b
  Defined Contribution and Other Deferred Compensation
• Retirement Plan Table II.B.5.a
  Potential Annual Payments and Benefits
• Other potential post-employment payments II.B.5.c

Revise related person transaction disclosures

• To be more principles-based
• Changes to S-K 404

Proposal release discussion V

• Transactions with related persons V.A

• Principled-based disclosure V.A.1
  ◊ Indebtedness V.A.1.a
  ◊ Definitions V.A.1.b
• Disclosure requirements V.A.2
• Exceptions V.A.3

• Approval of related person transactions V.B
• PromotersV.C

Application to certain issuers

• Specific types of issuersV.E

• Small business issuersV.E.1
• Foreign private issuers V.E.2

Consolidate and update corporate governance disclosures

• SEC would adopt new disclosure items

• S-K 407
• S-B 407

Proposal release discussion V.D

Modify Form 8-K

• Limit required 8-K filings for employment arrangements and modifications to named executive officers
• Consolidate employment filings under a single 8-K item

Proposal release discussion III

• Changes to Items 1.01 and 5.02 III.A
• Item 5.02(e) III.B
  Safe harbor  - Exclusion from S-3 eligibility
• General Instruction D III.C
• Foreign private issuers III.D

Proposed rule changes

• Rule 13a-11
• Rule 15d-11

Add to security ownership disclosures

• Disclose any shares pledged by directors and officers
• Change to S-K 403(b)

Proposal release discussion IV

Require use of plain English

• Require most of the disclosure in proxy and information   statements to be provided in plain English
• Would apply to

• S-K 402
• S-K 403
• S-K 404
• S-K 407

• SEC would adopt new rules

• Rule 13a-20
• Rule 15d-20

Proposal release discussion VI

Proposed phase-in of final SEC rule-making

• See proposal release discussion VII
• Issuers wouldn't have to restate prior periods

• e.g, summary compensation table disclosures
  would only be required for most recent fiscal year

Small business issuers

• Proposal release commentary II.C.1

Foreign private issuers

• Proposal release commentary II.C.2

Business development companies

• Proposal release commentary II.C.3

Proposed rule changes

• S-K Item 601(b)(10)(iii)(C)(5)
• AB Item 1107(e)
• BTR Rule 100
• Rule 14a-6
• Rule 14c-5
• Rule 16b-3 Rule 16b-3 32 technical changes

Proposal release discussion

• Conforming amendments V.F

• Regulation BTR V.F.1
• Rule 16b-3 definition: non-employee director V.F.2
• Other conforming amendments V.F.3

Key changes

Additions

Deletions

Amendments to

Add

Changes to SEC Forms

SEC has been flooded with comment letters

• See Comments on Proposed Rule

Selected comment letters

• American Bar Association (Business Law section)
• New York City Bar Association
• American Bar Association (Employee benefits committee)
• New York State Bar Association
• Sullivan & Cromwell
• American Bankers Association
• Law school professors
• Association of Corporate Counsel I
• Association of Corporate Counsel II
• BDO Seidman
• Cleary Gottlieb
• German companies
• Federation of German Industries

• Independent Community Bankers of America

• Financial Services Roundtable

• Ernst & Young

• Fenwick & West

• AICPA

• New York City Bar Association

• Business Roundtable

• KPMG

• CALPERS

• Cravath

• Chadbourne & Parke

• Securities Industry Association

• Towers Perrin

• Sidley Austin

• Deloitte

• Investment Company Institute

• Foley & Lardner

• Shearman & Sterling Media companies

• National Association of Corporate Directors

Law firms

• Willkie Farr    Mar Apr-May 06
• Simpson Thacher 3.01.06
• Fried Frank 2.07.06
• Kirkland & Ellis Feb 06
• Alston & Bird 2.06.06
• Debevoise  1.31.06
• Latham & Watkins 1.31.06
• Weil Gotshal 1.23.06

Executive Compensation Disclosure  Current Rules