More notes on the SEC‘s 370-page proposed regulations on executive compensation disclosures and related issues, as posted on the agency’s website last Friday afternoon. [No. S7-03-06] The proposed effective dates of the new rules would be based on the date of publication of final regulations in the Federal Register -
- Forms 10-K and 10-KSB – For fiscal years ending on or after 60 days after publication.
- Form 8-K – For triggering events on or after 60 days after publication.
- Proxy Statements – For statements filed on or after 90 days after publication.
- Registration Statements under the Securities Act, the Investment Company Act, or the Exchange Act – For statements that become effective on or after 120 days after publication.
The proposed Summary Compensation Table changes and disclosures for related person transactions would effectively be phased in over a 3-year period (or over a 2-year period for small business issuers). For instance, for the first year that the new rules apply, the Summary Compensation Table would follow those new rules only for the most recent fiscal year, using compensation numbers as had been determined under the old rules for the preceding years shown in the table.
During the phase-in period, significant disjunctures may occur in the Summary Compensation Table between the compensation amounts under the old rules versus those under the new rules, adversely affecting comparability of the year-to-year numbers during those early years. For example, if a named executive officer participates under one or more defined benefit pension plans, then the total compensation numbers under the old rules exclude those benefits entirely, whereas the total compensation numbers under the new rules include the increase in the actuarial value of those benefits, as described in my previous post here. Although the new disclosure rules do not explicitly require discussion of the transition or phase-in, conceivably the effect of the change to the new rules may be a material factor that should be included in the required narrative discussion accompanying the compensation table.