SEC Issues Final Executive Pay Rules

But the commission is still seeking comment on whether companies should reveal pay packages of highly-paid key managers who are not executive officers.

The Securities and Exchange Commission issued its final rules on compensation disclosures for financial statements on Friday. The rules require a tabular presentation of information related to stock option grants, a narrative about compensation issues, and more discussion about disclosing compensation of top policymaking executives beyond the top officers.

The compliance deadline for the 436-page rule is set for 60 days after it is published in the Federal Register, which means companies will have to start filing under the new rule by late October for Form 8-K triggered events. Companies with a fiscal year-end that falls on or after December 15, 2006, must file under the new rules in their annual reports.

The hotly debated rules have elicited over 20,000 public comment letters since January, the most responses ever generated by an issue in the SEC’s 72-year history. As previously announced, the SEC is requesting additional comment on the issue of disclosure requirements of three additional highly compensated employees. A version of this requirement, the so-called “Katie Couric” provision, which refers to the handsomely paid CBS news anchor, was struck down in July by the SEC staff. As a result, the SEC is encouraging interested parties to submit further comment on the subject by late September.

For now, the rules require that companies use a new tabular format to present stock option grant information. The tables, which will be filed as part of proxy and other financial statements, must include the grant date, the fair value of the option on the grant date, the closing market price on the grant date if it is higher that the exercised price of the award, and the date the board’s compensation committee—or full board—acted to award the grant if that date is different than the grant date.

The commission is also mandating a narrative disclosures about compensation, similar to the Management’s Discussion and Analysis section of an annual report.

Currently, the rules mandate that top executive officers must reveal their compensation in regulatory filings. The SEC is asking for comment on whether the three most highly-paid, non-executive policymaking employees should also be required to disclose their compensation. Such employees could include, for example, a news director at a major network; the principal creative leader of the entertainment division of a media conglomerate; or the head of a principal business unit developing a significant technological innovation.

The SEC is not, however, seeking to include compensation packages of star athletes, celebrities, high-earning traders, or investment officers if they don’t have management responsibilities.

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