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Summary
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SEC Disclosure Requirements
 SEC
rules require narrative disclosure about
termination and
change
in control provisions 
Required
information includes
- Estimated payments and benefits
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Form of payment
-
Duration of any obligations
-
Who will provide payments and benefits
-
Manner of determination
-
Material conditions to receipt of payments or benefits
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E.g., non-compete / non-solicitation covenants
Must
also cover
- Tax gross-up arrangements
- Including per IRC Section 280G
- Any enhancement or acceleration of pension
or deferred compensation benefits
- Health care benefits and perks
Must
quantify
- Based on reasonable estimates and
disclose any underlying assumptions
- Can use estimated ranges
- Should assume that the triggering event takes
place on the last business day of the companys last completed fiscal year and
that the price per share of the companys securities is the closing price on
that date
- Should quantify health care benefits based on the
assumptions the company uses for GAAP financial reporting purposes
- Perquisites may be excluded if aggregate amount
will be less than $10,000
Former
executives
- Where triggering event has occurred for named
executive officer (NEO), and such officer was not serving as NEO at end of last
completed fiscal year, disclosure may be limited to that triggering event
Non-discriminatory
arrangements
- No disclosure required for arrangements that do
not discriminate in favor of executive officers and that are generally available
to all salaried employees
Forward-looking
statements
- The estimates included in this disclosure will
constitute forward-looking statements entitled to the safe harbors for such
information
Cross-references
- Can refer to
the pension benefits table or
the deferred compensation table
and related
narrative disclosure
SEC
rules also call for CD&A disclosure of basis for selecting particular events as
payment triggers (e.g., rationale for single or double trigger for change in
control payments)
- SEC
staff has published its observations on review of
executive compensation disclosure, which report
provides essential guidance for drafting CD&A
Variation in Disclosures
Wide
variation in disclosures among 2007 proxy filings
- Differences between young and mature companies
- Variations in complexity of arrangements
- No standard valuation methodologies
- Lack of SEC guidance, given broad scope of SEC
disclosure requirements and absence of required tabular disclosure
- Disclosure Precedent
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Developments
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Committee
on Oversight and Government Reform 
-
Rep. Henry Waxman
sent letters to former and current employees of Citigroup, Merrill Lynch, and
Countrywide to testify and produce documents at Full Committee Hearing to Examine Mortgage CEO Severance Packages
- Hearing postponed to 3.07.08
- Rep. Waxman requested CEOs of Citigroup, Merrill
Lynch, and Countrywide to testify
- Oversight Committee requested further testimony
and documents with regard to compensation of Messrs. Prince, O'Neal, and Mozilo
- Oversight Committee released staff memorandum
in advance of 3.07.08 hearing, together with related e-mails and other documents
- Focus on compensation and retirement benefits
awarded to chief executives at Countrywide, Merrill Lynch and Citigroup
Angelo
Mozilo forfeited $37.5 million in severance pay, fees, and perks 1.28.08
Home
Depot settles (quietly) shareholder lawsuits over Nardelli's severance package
- $14.5 million settlement
- Reported that company instituted stricter
guidelines for CEO pay, tying nearly 90 percent of compensation to performance
goals, including the company's stock price and earnings performance
- 2008 proxy statement page 13
- Atlanta Journal-Constitution
4.04.08
California
district court ordered return of $29.5 million in severance pay by former
Gemstar CEO
Commentary lenders cutting back on perks
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Governance Issues
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Disclosure
requirements call for quantification of benefits under various scenarios Institutional
investors and shareholder activists have called for shareholder approval of
severance arrangements
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Support for Pay Proposals Marks 2007 Season
Council
of Institutional Investors
- Employment contracts only in limited
circumstances, with specified termination date not to exceed 3 years
- Severance payments in non-control change
situations only in event of wrongful termination, death or disability
- "Double trigger" for any change-of-control
payments
- No tax gross-ups
- Transparent disclosure of terms and rationale for
compensation arrangements
- Tabular disclosure of dollar amounts, including
tax gross-ups and related taxes payable by company
- Timely disclosure on new or amended compensation
arrangements on Form 8-K and Form 10-K
- Shareowner ratification of arrangements that
provide payments to executives in excess of 2.99 times average pay over prior
three-year period
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Disclosure Precedent 2008
SEC_CODE_REF_0090001192884
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Tabular with footnote and/or other narrative
disclosures to
supplement tabular presentation
- Read together with
CD&A
disclosure on
Severance and Change-in-Control Benefits page 31
- Continuity Plan amended and restated in 2007
with double trigger severance benefits page 43
- Discretionary grant of other severance benefits page 43
- Narrative that precedes table provides notable
detail
on Quantification of Termination of Benefits page 45
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Disclosure Precedent 2007
Related Topics
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