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Disclosures re: Compensation Committees
Summary
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 SEC
adopts new S-K Item 407
- Consolidates corporate governance
disclosure requirements
- Part of rule-making to revise
executive compensation disclosures
- SEC Release 33-8732A August 2006
Affects
required disclosures about
- Director independence
- Director attendance
- Board committees
- Other corporate governance matters
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Final release commentary §VE
See also
recent developments with regard to executive compensation
Consultant Disclosure
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S-K 407(e) Compensation committee
 S-K
407(e)(1) If no compensation committee ... |
S-K
407(e)(2) Committee charter  |
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S-K
407(e)(3) Committee processes |
S-K
407(e)(4) Compensation Committee Interlocks
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Compensation Committee Interlocks and Insider Participation
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Rule
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Carry-over of old S-K 402(j)
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Instruction
to 407(e)(4) |
S-K
407(e)(5) Compensation Committee Report
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Rule
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Included or incorporated by reference in Form 10-K
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Required only one time during any
fiscal year
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Committee member names must appear below report
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Furnished not filed
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PEO and PFO may look to Compensation Committee Report in providing their
certifications under Exchange Act Rules 13a-14
and 15d-14
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Instructions
to 407(e)(5) |
Instructions
to 407
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Instruction
1 Definitions
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Instruction
2 Availability of committee charter
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S-K 407(e)(1)-(2) Compensation committee
/ Charter
S-K
Item
- 1. If the registrant does not have a standing compensation committee
or committee performing similar functions, state the basis for the view of the
board of directors that it is appropriate for the registrant not to have such a
committee and identify each director who participates in the consideration of
executive officer and director compensation.
- 2. State whether or not the compensation committee has a charter. If
the compensation committee has a charter, provide the disclosure required by
Instruction 2 to this Item regarding the compensation committee charter.
- 3. Provide a narrative description of the registrant's processes and
procedures for the consideration and determination of executive and director
compensation, including:
(i)
(A) The scope of authority of the compensation committee (or persons performing
the equivalent functions); and
(B) The extent to which the compensation committee (or persons performing the
equivalent functions) may delegate any authority described in paragraph (e)(3)(i)(A)
of this Item to other persons, specifying what authority may be so delegated and
to whom;
(ii) Any role of executive officers in determining or recommending the amount or
form of executive and director compensation; and
(iii) Any role of compensation consultants in determining or recommending the
amount or form of executive and director compensation, identifying such
consultants, stating whether such consultants are engaged directly by the
compensation committee (or persons performing the equivalent functions) or any
other person, describing the nature and scope of their assignment, and the
material elements of the instructions or directions given to the consultants
with respect to the performance of their duties under the engagement. |
S-K 407(e)(3) Compensation committee
processes
S-K
Item
- 3. Provide a narrative description of the registrant's processes and
procedures for the consideration and determination of executive and director
compensation, including:
(i)
(A) The scope of authority of the compensation committee (or persons performing
the equivalent functions); and
(B) The extent to which the compensation committee (or persons performing the
equivalent functions) may delegate any authority described in paragraph (e)(3)(i)(A)
of this Item to other persons, specifying what authority may be so delegated and
to whom;
(ii) Any role of executive officers in determining or recommending the amount or
form of executive and director compensation; and
(iii) Any role of compensation consultants in determining or recommending the
amount or form of executive and director compensation, identifying such
consultants, stating whether such consultants are engaged directly by the
compensation committee (or persons performing the equivalent functions) or any
other person, describing the nature and scope of their assignment, and the
material elements of the instructions or directions given to the consultants
with respect to the performance of their duties under the engagement. |
S-K 407(e)(4) Compensation committee
interlocks
S-K
Item
- 4. Under the caption "Compensation Committee Interlocks and Insider
Participation":
(i) Identify each person who served as a member of the compensation committee of
the registrant's board of directors (or board committee performing equivalent
functions) during the last completed fiscal year, indicating each committee
member who:
(A) Was, during the fiscal year, an officer or employee of the registrant;
(B) Was formerly an officer of the registrant; or
(C) Had any relationship requiring disclosure by the registrant under any
paragraph of Item 404. In this event, the disclosure required by Item 404 shall
accompany such identification.
(ii) If the registrant has no compensation committee (or other board committee
performing equivalent functions), the registrant shall identify each officer and
employee of the registrant, and any former officer of the registrant, who,
during the last completed fiscal year, participated in deliberations of the
registrant' board of directors concerning executive officer compensation.
(iii) Describe any of the following relationships that existed during the last
completed fiscal year:
(A) An executive officer of the registrant served as a member of the
compensation committee (or other board committee performing equivalent functions
or, in the absence of any such committee, the entire board of directors) of
another entity, one of whose executive officers served on the compensation
committee (or other board committee performing equivalent functions or, in the
absence of any such committee, the entire board of directors) of the registrant;
(B) An executive officer of the registrant served as a director of another
entity, one of whose executive officers served on the compensation committee (or
other board committee performing equivalent functions or, in the absence of any
such committee, the entire board of directors) of the registrant; and
(C) An executive officer of the registrant served as a member of the
compensation committee (or other board committee performing equivalent functions
or, in the absence of any such committee, the entire board of directors) of
another entity, one of whose executive officers served as a director of the
registrant.
(iv) Disclosure required under paragraph (e)(4)(iii) of this Item regarding a
compensation committee member or other director of the registrant who also
served as an executive officer of another entity shall be accompanied by the
disclosure called for by Item 404 with respect to that person.
___________________________
Instructions to Item 407(e)(4).
For purposes of paragraph (e)(4) of this Item, the term entity shall not include
an entity exempt from tax under section 501(c)(3) of the Internal Revenue Code.
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S-K 407(e)(5) Compensation committee
reports
S-K
Item
- 5. Under the caption "Compensation Committee Report:"
i. The compensation committee (or other board committee performing equivalent
functions or, in the absence of any such committee, the entire board of
directors) must state whether:
A. The compensation committee has reviewed and discussed the Compensation
Discussion and Analysis required by Item 402(b) with management; and
B. Based on the review and discussions referred to in paragraph (e)(5)(i)(A) of
this Item, the compensation committee recommended to the board of directors that
the Compensation Discussion and Analysis be included in the registrant?s annual
report on Form 10-K, proxy statement on Schedule 14A (Rule 240.14a-101 of this
chapter) or information statement on Schedule 14C (Rule 240.14c-101 of this
chapter). |
Instructions
to Item 407(e)(5)
- 1. The information required by paragraph (e)(5) of this Item shall not
be deemed to be "soliciting material," or to be "filed" with the Commission or
subject to Regulation 14A or 14C (17 CFR 240.14a-1 through 240.14b-2 or
240.14c-1 through 240.14c-101), other than as provided in this Item, or to the
liabilities of section 18 of the Exchange Act, except to the extent that the
registrant specifically requests that the information be treated as soliciting
material or specifically incorporates it by reference into a document filed
under the Securities Act or the Exchange Act.
- 2. The disclosure required by paragraph (e)(5) of this Item need not
be provided in any filings other than an annual report on Form 10-K, a proxy
statement on Schedule 14A (Rule 240.14a-101 of this chapter) or an information
statement on Schedule 14C (Rule 240.14c-101 of this chapter). Such information
will not be deemed to be incorporated by reference into any filing under the
Securities Act or the Exchange Act, except to the extent that the registrant
specifically incorporates it by reference. If the registrant elects to
incorporate this information by reference from the proxy or information
statement into its annual report on Form 10-K pursuant to General Instruction
G(3) to Form 10-K, the disclosure required by paragraph (e)(5) of this Item will
be deemed furnished in the annual report on Form 10-K and will not be deemed
incorporated by reference into any filing under the Securities Act or the
Exchange Act as a result as a result of furnishing the disclosure in this
manner.
- 3. The disclosure required by paragraph (e)(5) of this Item need only
be provided one time during any fiscal year.
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Instructions to Item 407
Instructions
to Item 407
- 1. For purposes of this Item:
a. Listed issuer means a listed issuer as defined in Rule 240.10A-3 of this
chapter;
b. National securities exchange means a national securities exchange registered
pursuant to section 6(a) of the Exchange Act;
c. Inter-dealer quotation system means an automated inter-dealer quotation
system of a national securities association registered pursuant to section
15A(a) of the Exchange Act; and
d. National securities association means a national securities association
registered pursuant to section 15A(a) of the Exchange Act that has been approved
by the Commission (as that definition may be modified or supplemented).
- 2. With respect to paragraphs (c)(2)(i), (d)(1) and (e)(2) of this
Item, disclose whether a current copy of the applicable committee charter is
available to security holders on the registrant's Web site, and if so, provide
the registrant's Web site address. If a current copy of the charter is not
available to security holders on the registrant's Web site, include a copy of
the charter in an appendix to the registrant's proxy or information statement
that is provided to security holders at least once every three fiscal years, or
if the charter has been materially amended since the beginning of the
registrant's last fiscal year. If a current copy of the charter is not available
to security holders on the registrant's Web site, and is not included as an
appendix to the registrant's proxy or information statement, identify in which
of the prior fiscal years the
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SEC Interpretations
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S-K
Item 407 Interpretations
- Issued 3.14.07
- Replace prior S-K 407 interpretations in July
1997 Manual of Publicly Available Telephone Interpretations
- See
S-K 407 Interpretations
Law
Firm Commentary
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SEC Releases
SEC_CODE_REF_0090001192884
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Final
release 33-8732A August 2006
Proposal
release 33-8655 January 2006
- Corporate governance disclosure
§V.D
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Consultant Disclosure
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We
are seeing
more detailed information about role of compensation consultants in response to
new disclosure requirements of S-K 402(b) and S-K 407(e)(3)
2008
Developments
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Rep. Henry Waxman
requested information from compensation committee chairs of Fortune 250
companies about role of consultants in setting executive pay
- Oversight Committee press release
1.31.08
- Press release includes text of letter, which
requests responses by February 22, 2008
2007
Developments
- To examine role played by compensation
consultants in determining executive pay packages at largest publicly traded
corporations
- Corporate governance experts, institutional
investors, and compensation consulting firms testified with regard to role of consultants in setting executive pay,
efforts to prevent and manage conflicts of interest, and adequacy of public information
- Rep. Waxman released report
on conflicts of interest among compensation consultants, with these key
findings:
- Compensation consultant conflicts of interest are
pervasive
- Fees earned by compensation consultants for
providing other services often far exceed those earned for advising on executive
compensation
- Some compensation consultants received over $10
million in 2006 to provide other services
- Many Fortune 250 companies do not disclose their
compensation consultants conflicts of interest
- Correlation between extent of consultants
conflict of interest and level of CEO pay
2006
Developments
- AFL-CIO
and other institutional investors have requested supplemental disclosure from S&P 500
Index companies on independence of compensation consultants
- Did pay adviser perform other work for company?
- Would company adopt policy prohibiting such work?
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Rep. Henry Waxman
requested information from several leading compensation consulting firms
- Committee on Oversight and Government Reform is
conducting preliminary inquiry into executive compensation practices
- Firms requested to provide information on
executive compensation and other services provided to top 250 companies (by
revenue) on Fortune 500 list over 5-year period ending 12.31.06
- Click here
for access to letters
Sample
of Precedent Disclosures 2008
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Goodyear
Towers Perrin and Frederic W. Cook & Co.
- Compensation Committee has authority to retain
and terminate compensation consultants
- Neither Towers Perrin nor Frederic W. Cook & Co. provided any other advice or consulting services to us in 2007. Our compensation consultants work with management only under the direction of the Compensation Committee.
- Goldman Sachs
Semler Brossy Consulting Group and McLagan Partners
- Compensation Committee adopted
consultant policy in 2007 page 15
- ... at least one compensation consultant
... retained by our Compensation Committee must provide services solely to our Compensation Committee and not in any other capacity to the firm
- Detailed discussion of consultant's
responsibilities as well as 2007 projects
- Outlines criteria for selection of independent
consultant
- Also disclosed fees paid in 2006
- Compensation Committee has sole authority to
retain and terminate compensation consultants
- The Consultant has not performed any work for the Company's management since the date it was retained by the Committee.
- Committee also consults CEO and EVP, Human
Resources
Sample
of Precedent Disclosures 2007
- Compensation committee has sole authority for
retention and termination of compensation consultants
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Management Planning and Development Committee Charter
- See also company response and shareholder vote
with regard to
shareholder proposal
- Citrix Aon
Consulting / Radford
- Compensation Committee has authority to engage
advisors to assist with compensation programs pages 12 & 18
- Compensation consultant reported directly to
Compensation Committee page 18
- Notable detail with regard to instructions and
scope of engagement for compensation consultant pages 18 - 19
- Also disclosed fees paid in 2006
- Committee's consultant and legal advisor do no
other work for company
- Will retain new consultant in 2007 that does not
currently provide compensation advice to company
- Compensation committee must approve any
engagement of compensation consultant
- Compensation, Management Development and Succession
Committee
Charter
- Compensation committee
must pre-approve any engagement of committee's consultant by company for
services with fees to exceed $25,000
- Outlines criteria for selection of independent
consultant
- Also disclosed fees paid in 2006
- Compensation consultant reported directly to
Compensation Committee
- Management did not participate in Compensation
Committee's decision to retain compensation consultant
- Notable detail of scope of engagement by
Compensation Committee
- Consultant provided limited services to
management over past 5 years
- Tabular disclosure of all fees paid to consultant
and its affiliates for compensation-related and other services
- Table also reports "company sponsor" for each
engagement
- Company changed pay consultants in 2006
- New consultant only performs work for Human
Resources Committee
- Detail provided on services provided by
consultant
- Also disclosed fees paid in 2006
Sample
of Shareholder Proposals
- Stockholders did not
approve proposal
- Verizon board adopted policy that compensation
consultant will only provide services to Compensation Committee
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Verizon
press release 1.01.07
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Related Topics
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