SEC Release 33-8765 TOC

Summary

More changes made to executive compensation tables

Summary compensation table
Grants of plan-based awards table
Director compensation table

to more closely conform the reporting of stock and option awards to [FAS 123R]
The new disclosure requirements will be easier for companies to prepare and for investors to understand, says SEC Chairman Christopher Cox
SEC press release 12.22.06

New quantitative measure for stock and option awards

Affects dollar value used in Stock Awards and Option Awards columns of the Summary Compensation Table and the Director Compensation Table
Has affect of spreading out value of award over the vesting period, rather than being fully reflected in year of grant

Must now use the compensation cost of awards over their requisite service period
Rather than their aggregate grant date fair value

Grant date fair value will instead be disclosed in a new column in the Grants of Plan-Based Awards Table
Forfeitures are required to be described in accompanying footnotes

New disclosures for Grants of Plan Based Awards Table

About repriced or materially modified options, SARs and other similar instruments
Must disclose the incremental fair value computed as of the
repricing or modification date per FAS 123R

Must also include related footnote disclosure to the Director Compensation Table

Changes are already effective

Interim final rules, effective upon Fed Register publication
Published on 12.29.06
SEC still seeks comment

Hyperlinked Index Interim Final Release 33-8765 12.22.06

Top of release

Background I

Discussion II

Summary Compensation Table II.A
Grants of Plan-Based Awards Table II.B

Administrative law matters - Request for comments III

Transition guidance IV

Miscellaneous sections

Paperwork Reduction Act V
Cost-benefit analysis VI
Promotion of capital formation, etc VII
Regulatory Flexibility Analysis VIII

Text of amendments IX

Published in Federal Register on 12.29.06

71 Fed Reg 78338 12.29.06

Comment letters to SEC

SEC webpage
Due 30 days after 12.29.06

Text of Rule Changes

S-K 402(c) Summary Compensation Table

Revise Instruction 2 to Item 402(c)(2)(iii) and (iv)

As amended

Registrants shall include in the salary column (column (c)) or bonus column (column (d)) any amount of salary or bonus forgone at the election of a named executive officer under which stock, equity-based or other forms of non-cash compensation instead have been received by the named executive officer. However, the receipt of any such form of non-cash compensation instead of salary or bonus must be disclosed in a footnote added to the salary or bonus column and, where applicable, referring to the Grants of Plan-Based Awards Table (required by paragraph (d) of this Item) where the stock, option or non-equity incentive plan award elected by the named executive officer is reported.

Before amendment

Registrants need not include in the salary column (column (c)) or bonus column (column (d)) any amount of salary or bonus forgone at the election of a named executive officer pursuant to a registrants program under which stock, equity-based or other forms of non-cash compensation may be received by a named executive officer instead of a portion of annual compensation earned in a covered fiscal year. However, the receipt of any such form of non-cash compensation instead of salary or bonus earned for a covered fiscal year must be disclosed in the appropriate column of the Summary Compensation Table corresponding to that fiscal year (e.g., stock awards (column (e)); option awards (column (f)); all other compensation (column (i)), or, if made pursuant to a non-equity incentive plan and therefore not reportable in the Summary Compensation Table when granted, a footnote must be added to the salary or bonus column so disclosing and referring to the Grants of Plan-Based Awards Table (required by paragraph (d) of this Item) where the award is reported.

See S-K 402(c)

Revise S-K 402(c)(v)

As amended

(v) For awards of stock, the dollar amount recognized for financial statement reporting purposes with respect to the fiscal year in accordance with FAS 123R (column (e));

Before amendment

(v) For awards of stock, the aggregate grant date fair value computed in accordance with FAS 123R (column (e));

See S-K 402(c)(v)

Revise S-K 402(c)(vi)

As amended

(vi) For awards of options, with or without tandem SARs, the dollar amount recognized for financial statement reporting purposes with respect to the fiscal year in accordance with FAS 123R (column (f));

Before amendment

(vi) For awards of options, with or without tandem SARs (including awards that subsequently have been transferred), the aggregate grant date fair value computed in accordance with FAS 123R (column (f));

See S-K 402(c)(vi)

Revise Instructions to S-K 402(c)(2)(v) and (vi)

As amended

For awards reported in columns (e) and (f), disregard the estimate of forfeitures related to service-based vesting conditions. Include a footnote describing all forfeitures during the year, and disclosing all assumptions made in the valuation. Disclose assumptions made in the valuation by reference to a discussion of those assumptions in the registrant's financial statements, footnotes to the financial statements, or discussion in the Management's Discussion and Analysis. The sections so referenced are deemed part of the disclosure provided pursuant to this Item.

Before amendment

1. For awards reported in columns (e) and (f), include a footnote disclosing all assumptions made in the valuation by reference to a discussion of those assumptions in the registrants financial statements, footnotes to the financial statements, or discussion in the Managements Discussion and Analysis. The sections so referenced are deemed part of the disclosure provided pursuant to this Item.
2. If at any time during the last completed fiscal year, the registrant has adjusted or amended the exercise price of options or SARs previously awarded to a named executive officer, whether through amendment, cancellation or replacement grants, or any other means (repriced), or otherwise has materially modified such awards, the registrant shall include, as awards required to be reported in column (f), the incremental fair value, computed as of the repricing or modification date in accordance with FAS 123R, with respect to that repriced or modified award.

See Instructions to S-K 402(c)(2)(v) and (vi)

Revise S-K 402(c)(2)(ix)(G)

As amended

The dollar value of any dividends or other earnings paid on stock or option awards, when those amounts were not factored into the grant date fair value required to be reported for the stock or option award in column (l) of the Grants of Plan-Based Awards Table required by paragraph (d)(2)(viii) of this Item; and

Before amendment

The dollar value of any dividends or other earnings paid on stock or option awards, when those amounts were not factored into the grant date fair value required to be reported for the stock or option award in columns (e) or (f); and

See S-K 402(c)(2)(ix)(G)

S-K 402(d) Grants of Plan-Based Awards Table

Revise S-K 402(d)(1)

Add new column l to table:

Grant Date Fair Value of Stock and Option Awards

text

See S-K 402(d)(1)

Add S-K 402(d)(2)(viii)

Add new subparagraph

The grant date fair value of each equity award computed in accordance with FAS 123R (column (l)). If at any time during the last completed fiscal year, the registrant has adjusted or amended the exercise or base price of options, SARs or similar option-like instruments previously awarded to a named executive officer, whether through amendment, cancellation or replacement grants, or any other means (''repriced''), or otherwise has materially modified such awards, the incremental fair value, computed as of the repricing or modification date in accordance with FAS 123R, with respect to that repriced or modified award, shall be reported.

See S-K 402(d)(2)(viii)

Add Instruction 7 to S-K 402(d)

Add new instruction

Options, SARs and similar option-like instruments granted in connection with a repricing transaction or other material modification shall be reported in this Table. However, the disclosure required by this Table does not apply to any repricing that occurs through a pre-existing formula or mechanism in the plan or award that results in the periodic adjustment of the option or SAR exercise or base price, an antidilution provision in a plan or award, or a recapitalization or similar transaction equally affecting all holders of the class of securities underlying the options or SARs.

See Instruction 7 to S-K 402(d)

S-K 402(k) Director Compensation Table

Revise S-K 402(k)(2)(iii)

As amended

For awards of stock, the dollar amount recognized for financial statement reporting purposes with respect to the fiscal year in accordance with FAS 123R (column (c));

Before amendment

For awards of stock, the aggregate grant date fair value computed in accordance with FAS 123R (column (c));

See S-K 402(k)(2)(iii)

Revise S-K 402(k)(2)(iv)

As amended

For awards of stock options, with or without tandem SARs, the dollar amount recognized for financial statement reporting purposes with respect to the fiscal year in accordance with FAS 123R (column (d));

Before amendment

For awards of stock options, with or without tandem SARs (including awards that subsequently have been transferred), the aggregate grant date fair value computed in accordance with FAS 123R (column (d));

See S-K 402(k)(2)(iv)

Revise Instruction to Item 402(k)(2)(iii) and (iv)

As amended

For each director, disclose by footnote to the appropriate column: the grant date fair value of each equity award computed in accordance with FAS 123R; for each option, SAR or similar option like instrument for which the registrant has adjusted or amended the exercise or base price during the last completed fiscal year, whether through amendment, cancellation or replacement grants, or any other means (''repriced''), or otherwise has materially modified such awards, the incremental fair value, computed as of the repricing or modification date in accordance with FAS 123R; and the aggregate number of stock awards and the aggregate number of option awards outstanding at fiscal year end. However, the disclosure required by this Instruction does not apply to any repricing that occurs through a preexisting formula or mechanism in the plan or award that results in the periodic adjustment of the option or SAR exercise or base price, an antidilution provision in a plan or award, or a recapitalization or similar transaction equally affecting all holders of the class of securities underlying the options or SARs.

Before amendment

For each director, disclose by footnote to the appropriate column, the aggregate number of stock awards and the aggregate number of option awards outstanding at fiscal year end.

See Instruction to Item 402(k)(2)(iii) and (iv)

Revise S-K 402(k)(2)(vii)(I)

As amended

The dollar value of any dividends or other earnings paid on stock or option awards, when those amounts were not factored into the grant date fair value for the stock or option award; and

Before amendment

The dollar value of any dividends or other earnings paid on stock or option awards, when those amounts were not factored into the grant date fair value required to be reported for the stock or option award in column (c) or (d); and

See S-K 402(k)(2)(vii)(I)

S-K 402 Instructions

Revise Instruction to S-K 402

As amended

In addition to the Instruction to paragraphs 402(k)(2)(iii) and (iv) and the Instructions to paragraph (k)(2)(vii) of this Item, the following apply equally to paragraph (k) of this Item: Instructions 2 and 4 to paragraph (c) of this Item; Instructions to paragraphs (c)(2)(iii) and (iv) of this Item; the Instruction to paragraphs (c)(2)(v) and (vi) of this Item; Instructions to paragraph (c)(2)(vii) of this Item; Instructions to paragraph (c)(2)(viii) of this Item; and Instructions 1 and 5 to paragraph (c)(2)(ix) of this Item. These Instructions apply to the columns in the Director Compensation Table that are analogous to the columns in the Summary Compensation Table to which they refer and to disclosures under paragraph (k) of this Item that correspond to analogous disclosures provided for in paragraph (c) of this Item to which they refer.

Before amendment

Specify the applicable fiscal year in the title to each table required under this Item which calls for disclosure as of or for a completed fiscal year.

See Instruction to S-K 402

Commentary

Law firms

Alston & Bird 1.03.07
Wachtell Lipton 1.03.07
Debevoise 12.28.06
Covington 12.28.06
Skadden 12.27.06

Compensation consultants

Frederic W Cook 12.28.06

News

Change has been criticized as "loosening reporting requirements" and "backtracking"

House Chairman Barney Frank press release 12.27.06

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