Executive Compensation Reporting in Proxy Statements

Executive Compensation Executive Compensation Reporting in Proxy Reporting in Proxy

StatementsStatements

Executive Compensation Executive Compensation Reporting in Proxy Reporting in Proxy

StatementsStatementsPiecing Together All The Parts of the

PuzzlePiecing Together All The Parts of the

Puzzle

Executive Compensation Executive Compensation Reporting in Proxy StatementsReporting in Proxy Statements


Another

sponsored training program 12/21/06

Another

sponsored training program 12/21/06

U.S. SEC August 11, 2006 Final RulingU.S. SEC August 11, 2006 Final Ruling

ExecutiveIncentive

s

Stock Options

Perks: Flowers,

Jewelry, Cars, Apartments

Retirement Plans

Piecing Together All The Parts of the Puzzle

Piecing Together All The Parts of the Puzzle

WHYWHY??

WHENWHEN

??

WHAT?WHAT?

WHO?WHO?

Executive Compensation in Proxy Executive Compensation in Proxy StatementsStatements


Why The Change?Why The Change?

Shareholders demanding more accountability from corporate executives.

Why The Change?Why The Change?

Shareholders demanding more accountability from corporate executives.

• Pay-For-Performance measurements

• Transparency in reporting to prevent abuse

• Better information for shareholders to consider when voting on issues at annual meeting

• Pay-For-Performance measurements

• Transparency in reporting to prevent abuse

• Better information for shareholders to consider when voting on issues at annual meeting



SEC’s growing irritation with companies’ failure to provide “full and fair” disclosure

regarding executive compensation arrangements.

SEC’s growing irritation with companies’ failure to provide “full and fair” disclosure

regarding executive compensation arrangements.

“Item 402 always required disclosures of all compensation even if not specifically mentioned

in the rules.”

-Allen Beller, SEC Director of Corporation Finance

-October 2004

“Item 402 always required disclosures of all compensation even if not specifically mentioned

in the rules.”

-Allen Beller, SEC Director of Corporation Finance

-October 2004

Why The Change?Why The Change? Why The Change?Why The Change?



2006 final rule makes a major statement to corporate executives that the games must

STOP!


STOP!

• Requires disclosure for ALL compensation;

• Includes a new Compensation Disclosure & Analysis (CD&A) which becomes part of the CEO’s and CFO’s Sarbox Certification stating that there are no material misstatements or material omissions in the disclosures.

• Requires disclosure for ALL compensation;

• Includes a new Compensation Disclosure & Analysis (CD&A) which becomes part of the CEO’s and CFO’s Sarbox Certification stating that there are no material misstatements or material omissions in the disclosures.




“You know what we mean by executive compensation… so don’t play games

anymore…”

The new requirements are “principles-based” rather than “rules-based”…

“You know what we mean by executive compensation… so don’t play games

anymore…”

The new requirements are “principles-based” rather than “rules-based”…

“Principles matter.” – John White, SEC Director of Corporation Finance, September 2006

“Principles matter.” – John White, SEC Director of Corporation Finance, September 2006


STOP!


STOP!




When Will You See The Changes?When Will You See The Changes?

2006 final rule is effective for all companies with fiscal years ending on or after 12/15/06.

When Will You See The Changes?When Will You See The Changes?

2006 final rule is effective for all companies with fiscal years ending on or after 12/15/06.

Proxy statements issued in 2007 will reflect the new format.

Since most companies will not modify prior periods reported, it will take three years to get all the information to be on a comparable basis.

Proxy statements issued in 2007 will reflect the new format.

Since most companies will not modify prior periods reported, it will take three years to get all the information to be on a comparable basis.



What Changes Will You See?What Changes Will You See?

•Compensation Discussion & Analysis “CD&A”

•Expanded Tabular Format


•Compensation Discussion & Analysis “CD&A”

•Expanded Tabular Format



What Changes Will You See?What Changes Will You See?What Changes Will You See?What Changes Will You See?

Compensation Discussion & Analysis “CD&A” Replaces the Compensation Committee ReportCompensation Discussion & Analysis “CD&A”

Replaces the Compensation Committee Report

• Details the objectives of the company’s compensation programs;

• What the programs are designed to reward;

• Explains each element of compensation;

• Why the company chooses to pay each element;

• Discloses how the company determines the amount (ie., the formula) for each element to pay; and

• Discusses how each compensation element and the company’s decisions regarding that element fit the overall compensation objectives and affect decisions regarding other elements.









What Changes Will You See?What Changes Will You See?What Changes Will You See?What Changes Will You See?

Compensation Discussion & Analysis “CD&A” Replaces the Compensation Committee ReportCompensation Discussion & Analysis “CD&A”

Replaces the Compensation Committee Report













Which narrative Which narrative document was document was

the CD&A the CD&A modeled after?modeled after?

Which narrative Which narrative document was document was

the CD&A the CD&A modeled after?modeled after?

The MD&A The MD&A in in

the 10-Kthe 10-K

““If it is material, it must If it is material, it must be discussed.”be discussed.”

The MD&A The MD&A in in

the 10-Kthe 10-K

““If it is material, it must If it is material, it must be discussed.”be discussed.”

....




Expanded Tabular Format


Expanded Tabular Format

Disclosure of Compensation over the last three years: • Summary Compensation Table

Disclosure of Outstanding Equity Interests: • Grants of Plan-Based Awards Table• Outstanding Equity Awards at FYE Table• Option Exercises and Stock Vested Table

Disclosure of Retirement Benefits: • Pension Benefits Table• Non-Qualified Deferred Compensation Table

•Disclosure of Director Compensation and Related Party

Transactions• Director Compensation Table• Related Party Transaction Narrative

Name and Principal Position

(a)

Year

(b)

Salary($)

(c)

Bonus($)

(d)

Stock Awards

($)

(e)

Non-Equity

Incentive Plan

Compen-sation

($)

(g)

Change in

Pension Value and

Nonquali-fied

Deferred Compen-

sation Earnings

($)

(h)

All other Compensa-

tion($)

(i)

Total($)

(j)

Principal Executive Officer

200620052004

Principal Financial Officer

Executive A

Executive B

Executive C

Named Executive Officers (NEOs):

•Two persons who served as PFO and PEO during the last fiscal year

• Three most highly compensated executive officers (other than PEO or PFO) who wereserving as executives at the end of the last fiscal year; and

•Up to two additional executives who served during, but not at the end of, the fiscal year, with total comp higher than those executive officers described above.

SUMMARY COMPENSATION TABLESUMMARY COMPENSATION TABLESUMMARY COMPENSATION TABLESUMMARY COMPENSATION TABLE




(a)

Year

(b)

Salary($)

(c)

Bonus($)

(d)

Stock Awards

($)

(e)

Non-Equity

Incentive Plan

Compen-sation

($)

(g)

Change in

Pension Value and

Nonquali-fied

Deferred Compen-

sation Earnings

($)

(h)

All other Compensa-

tion($)

(i)

Total($)

(j)


200620052004


Executive A

Executive B

Executive C

Effective for fiscal years ending after 12/15/06,

but restatement of prior years is not required; ‘05 and ‘04 values may not

be comparable





(a)

Year

(b)

Salary($)

(c)

Bonus($)

(d)

Stock Awards

($)

(e)

Non-Equity

Incentive Plan

Compen-sation

($)

(g)

Change in

Pension Value and

Nonquali-fied

Deferred Compen-

sation Earnings

($)

(h)

All other Compensa-

tion($)

(i)

Total($)

(j)


200620052004


Executive A

Executive B

Executive C

All compensation and bonuses (valued in $),

paid and deferred. Deferred compensation detail disclosed in notes





(a)

Year

(b)

Salary($)

(c)

Bonus($)

(d)

Stock Awards

($)

(e)

Non-Equity

Incentive Plan

Compen-sation

($)

(g)

Change in

Pension Value and

Nonquali-fied

Deferred Compen-

sation Earnings

($)

(h)

All other Compensa-

tion($)

(i)

Total($)

(j)


200620052004


Executive A

Executive B

Executive C

Contrary to prior years, 2006 awards must

include all dividends earned; whether paid or

not. Look for material disclosures in notes.





(a)

Year

(b)

Salary($)

(c)

Bonus($)

(d)

Stock Awards

($)

(e)

Non-Equity

Incentive Plan

Compen-sation

($)

(g)

Change in

Pension Value and

Nonquali-fied

Deferred Compen-

sation Earnings

($)

(h)

All other Compensa-

tion($)

(i)

Total($)

(j)


200620052004


Executive A

Executive B

Executive C

All awards (including restricted stock, phantom

stock, etc) valued at grant date fair value;

cross-referenced to 10-K and FAS 123(R)

discussion




Caution! Full Grant Date Fair Value for stock awards is inconsistent with the value

reported in the co.’s financial statementsYTD Compensation may seem

overstated; Not consistent with the presentation of non-equity incentive plan compensation


(a)

Year

(b)

Salary($)

(c)

Bonus($)

(d)

Stock Awards

($)

(e)

Non-Equity

Incentive Plan

Compen-sation

($)

(g)

Change in

Pension Value and

Nonquali-fied

Deferred Compen-

sation Earnings

($)

(h)

All other Compensa-

tion($)

(i)

Total($)

(j)


200620052004


Executive A

Executive B

Executive C

Look for explanatory disclosures by

companies that think these inconsistencies

may mislead the users of the financial statements.




Caution! Full Grant Date Fair Value for stock awards is inconsistent with the value

reported in the co.’s financial statementsYTD Compensation may seem

overstated; Not consistent with the presentation of non-equity incentive plan compensation


(a)

Year

(b)

Salary($)

(c)

Bonus($)

(d)

Stock Awards

($)

(e)

Non-Equity

Incentive Plan

Compen-sation

($)

(g)

Change in

Pension Value and

Nonquali-fied

Deferred Compen-

sation Earnings

($)

(h)

All other Compensa-

tion($)

(i)

Total($)

(j)


200620052004


Executive A

Executive B

Executive C

The dollar value of all amounts earned during the fiscal year from non-equity incentive plans.





(a)

Year

(b)

Salary($)

(c)

Bonus($)

(d)

Stock Awards

($)

(e)

Non-Equity

Incentive Plan

Compen-sation

($)

(g)

Change in

Pension Value and

Nonquali-fied

Deferred Compen-

sation Earnings

($)

(h)

All other Compensa-

tion($)

(i)

Total($)

(j)


200620052004


Executive A

Executive B

Executive C

Includes all awards from incentive plans except those that are equity-based (stock awards, option awards, etc) whether or not cash

payment is actually made in that year.

Reporting is based on the year that the

executive was awarded the compensation – not

when it was actually received




Also includes earnings on nonqualified deferred compensation. The rate

at which obligation grows annually must also be disclosed in the notes.





(a)

Year

(b)

Salary($)

(c)

Bonus($)

(d)

Stock Awards

($)

(e)

Non-Equity

Incentive Plan

Compen-sation

($)

(g)

Change in

Pension Value and

Nonquali-fied

Deferred Compen-

sation Earnings

($)

(h)

All other Compensa-

tion($)

(i)

Total($)

(j)


200620052004


Executive A

Executive B

Executive C


(a)

Year

(b)

Salary($)

(c)

Bonus($)

(d)

Stock Awards

($)

(e)

Non-Equity

Incentive Plan

Compen-sation

($)

(g)

Change in

Pension Value and

Nonquali-fied

Deferred Compen-

sation Earnings

($)

(h)

All other Compensa-

tion($)

(i)

Total($)

(j)


200620052004


Executive A

Executive B

Executive C

Aggregate increase in actuarial value of all defined benefit and

actuarial plans accrued during the year.

Using same measurement dates for

financial reporting purposes.




Caution! Negative changes in actuarial value

should be disclosed and discussed in the notes, but not included in the table.


(a)

Year

(b)

Salary($)

(c)

Bonus

($)

(d)

Stock Awards

($)

(e)

Non-Equity

Incentive Plan

Compen-sation

($)

(g)

Change in

Pension Value and

Nonquali-fied

Deferred Compen-

sation Earnings

($)

(h)

All other Compensa-

tion($)

(i)

Total($)

(j)


200620052004


Executive A

Executive B

Executive C

Each item included in All Other Compensation that exceeds $10,000 must

be disclosed and quantified in a footnote.




Perquisites (Perks) and Other Personal Benefits

Not directly and integrally related to the job.

Conveys a benefit not generally available to all employees of the

company.

Includes amounts paid or accrued per termination

agreement

Includes company contributions to defined

benefit contribution plans

Includes the dollar value of any dividends paid on stock or option awards

not factored into the reported grant date fair

value.


(a)

Year

(b)

Salary($)

(c)

Bonus($)

(d)

Stock Awards

($)

(e)

Non-Equity

Incentive Plan

Compensation

($)

(g)

Change in Pension

Value and Nonqualified Deferred Compensa

tion Earnings

($)

(h)

All other Compensati

on($)

(i)

Total($)

(j)


200620052004


Executive A

Executive B

Executive C

The sum of all values reported in columns (a)

through (i).






Other Tabular Presentations and DisclosuresOther Tabular Presentations and DisclosuresOther Tabular Presentations and DisclosuresOther Tabular Presentations and Disclosures

Disclosure of Outstanding Equity Interests:

• Grants of Plan-Based Awards Table

• Outstanding Equity Awards at FYE Table

• Option Exercises and Stock Vested Table

Disclosure of Retirement Benefits:

• Pension Benefits Table

• Non-Qualified Deferred Compensation Table

•Disclosure of Director Compensation and Related Party

Transactions

• Director Compensation Table

• Related Party Transaction Narrative

Which of these Which of these tables are tables are completely completely

new?new?

Which of these Which of these tables are tables are completely completely

new?new? All are “essentially All are “essentially new”... Some names are new”... Some names are similar but similar but definitions aredefinitions arenew.new.

All are “essentially All are “essentially new”... Some names are new”... Some names are similar but similar but definitions aredefinitions arenew.new.

....


Disclosure of Outstanding Equity InterestsDisclosure of Outstanding Equity Interests



Grants of Plan-Based Awards TableGrants of Plan-Based Awards TableGrants of Plan-Based Awards TableGrants of Plan-Based Awards Table

Name

(a)

Grant Date

(b)

Threshold($)

(c)

Target($)

(d)

Maximum($)

(e)

Threshold($)

(f)

Target($)

(g)

Maximum($)

(h)

All Other Stock

Awards: Number of Shares of Stock or

Units(#)

(i)

All Other Stock

Awards: Number of Securities Underlying

Options(#)

(j)

Exercise or Base Price of Option Awards($/Sh)

(k)Principal Executive OfficerPrincipal Financial OfficerExecutive AExecutive BExecutive C

Estimated Future Payouts Under Non-Equity Incentive

Plan Awards

Estimated Future Payouts Under Equity Incentive Plan

Awards

Classifies awards as (1) an equity or non-equity award, and (2) performance incentive plan or non-incentive based (ie, tenure status).A supplemental column next to Grant Date column is required if the FAS 123R grant date is different from the grant date (the date on which the compensation committee took action).

Add’l column and footnote needed if the exercise price is less than closing market price of the underlying stock on the FAS 123(R) grant date.





Outstanding Equity Awards at Fiscal Year-Outstanding Equity Awards at Fiscal Year-EndEnd


Name

(a)

Number of Securities Underlying

Unexercised Options

(#)Exercisable

(b)


Unexercised Options

(#)Unexerc.

(c)

Equity Incentive

Plan Awards: Number of Securities Underlying

Unexercised Unearned Options

(#)

(d)

Option Exercise

Price($)

(e)

Option Exercise

Date

(f)

Number of Shares or Units of Stock

That Have Not

Vested(#)

(g)

Market Value of shares or s or Units of Stock

That Have Not

Vested($)

(h)

Equity Incentive

Plan Awards: Number of Unearned

Shares, Units or Other

Rights That Have Not Vested

(#)

(i)

Equity Incentive Plan

Awards: Market or

Payout Value of Unearned Shares, Units

or Other Rights That Have Not Vested

($)

(j)



Executive A

Executive B

Executive C

Option Awards Stock Awards

mmm

Instead of disclosing awards on an aggregate basis, all awards held by NEOs must be reported. Multiple awards are aggregated only when the expiration date and the exercise price are identical. Options must be presented on a grant-by-grant basis. The aggregate value and the number of shares subject to outstanding stock awards and Equity Incentive Plan Awards may be reported on a single line.



Name

(a)


Unexercised Options

(#)Exercisable

(b)


Unexercised Options

(#)Unexerc.

(c)

Equity Incentive

Plan Awards: Number of Securities Underlying

Unexercised Unearned Options

(#)

(d)

Option Exercise

Price($)

(e)

Option Exercise

Date

(f)

Number of Shares or Units of Stock

That Have Not

Vested(#)

(g)

Market Value of

s or Units of Stock

That Have Not

Vested($)

(h)

Equity Incentive

Plan Awards: Number of Unearned

Shares, Units or Other

Rights That Have Not Vested

(#)

(i)

Equity Incentive Plan

Awards: Market or

Payout Value of Unearned Shares, Units

or Other Rights That Have Not Vested

($)

(j)



Executive A

Executive B

Executive C


mmm

Specific footnote disclosure is required: (1) Explain the vesting dates for options, other stock awards (such as restricted stock) and awards under incentive plans; (2) Explain the nature of a transfer when an award is transferred by the NEO other than “for value”.





Name

(a)

Number of Shares

Acquired On

Exercise(#)

(b)

Value Realized

on Exercise

($)

(c)

Number of Shares

Acquired On

Exercise(#)

(b)

Value Realized

on Exercise

($)

(c)Principal Executive OfficerPrincipal Financial Officer

Executive A

Executive B

Executive C


Option Exercises and Stock Vested TableOption Exercises and Stock Vested TableOption Exercises and Stock Vested TableOption Exercises and Stock Vested Table

Discloses each NEO’s options exercised and other types of equity awards that vested during the year (restricted stock, or restricted stock units).

Footnotes to this table must include the values and the terms of any amount deferred upon exercise of an option or vesting of a stock award.

Discloses each NEO’s options exercised and other types of equity awards that vested during the year (restricted stock, or restricted stock units).

Footnotes to this table must include the values and the terms of any amount deferred upon exercise of an option or vesting of a stock award.

Shows amounts realized on equity compensation during the last fiscal year.






(a)

Plan Name

(b)

Number of Years

Credited Service

(#)

(c)

Present Value of

Accumulated Benefit

($)

(d)

Payments During Last Fiscal Year

($)

(e)Principal Executive OfficerPrincipal Financial OfficerExecutive AExecutive BExecutive C

Pension Benefits TablePension Benefits TablePension Benefits TablePension Benefits TablePension Benefits includes Supplemental Executive Retirement Plans (SERPS) in addition to traditional pension plans, but does not require disclosure of defined contribution plans, such as 401(k) plans.

The values are computed as of the pension plan measurement date, for financial statement reporting purposes, of the company’s last completed fiscal year.

A separate row must be included in the table for each different plan in which the NEO participates.


Disclosure of Retirement BenefitsDisclosure of Retirement Benefits



Name

Executive Contributions

in Last FY($)

(b)

Registrant Contributions

in Last FY($)

(c)

Aggregate Earnings in

Last FY($)

(d)

Aggregate Withdrawals/Distributions

($)

(e)

Aggregate Balance at Last FYE

($)

(f)

Principal Executive OfficerPrincipal Financial OfficerExecutive AExecutive BExecutive C

Non-Qualified Deferred CompensationNon-Qualified Deferred CompensationNon-Qualified Deferred CompensationNon-Qualified Deferred Compensation

In some cases, portions of “contributions” and “earnings” may also be reported on the same year’s Summary Compensation Table. In these cases, a footnote is required.

Similarly, a footnote is required for portions of the “aggregate balance” entry that had been reported on the Summary Compensation Table for the NEO in prior years.

Additional footnotes are required to explain the nature of certain deferred compensation arrangements.





Executive Compensation in Proxy Executive Compensation in Proxy

StatementsStatements Disclosure of Director Compensation and Related

Party Transactions

Executive Compensation in Proxy Executive Compensation in Proxy

StatementsStatements Disclosure of Director Compensation and Related

Party Transactions

Director Compensation TableDirector Compensation TableDirector Compensation TableDirector Compensation Table

Director Name

Fees Earned or

Paid in Cash($)

Stock Awards

($)

Option Awards

($)

Non-Equity Incentive Plan Compensation

($)

Change in Pension Value and Non-

Qualified Deferred Compensation

Earnings ($)

All Other Compensation

($)Total($)

A

B

C

D

E

•Only compensation for last fiscal year is required•Directors may be listed in single row if all elements of compensation are identical•Footnote for each director required showing aggregate number of stock awards and aggregate number of option awards outstanding at FYE

“All Other Compensation” example:•Perks and personal benefits (for aggregate greater than $10,000)•Consulting fees•Director legacy programs and charitable awards

What do these two men What do these two men have in common?have in common?

What do these two men What do these two men have in common?have in common?

Both are wearing red tiesBoth are wearing red ties

Both are wearing white shirts and black jacketsBoth are wearing white shirts and black jackets

Both have high foreheads and strong chinsBoth have high foreheads and strong chins

Both have great looking hair...Both have great looking hair...

Both are wearing red tiesBoth are wearing red ties

Both are wearing white shirts and black jacketsBoth are wearing white shirts and black jackets

Both have high foreheads and strong chinsBoth have high foreheads and strong chins

Both have great looking hair...Both have great looking hair...

Both have brought “music to the ears” of Both have brought “music to the ears” of analysts who are wrestling with the puzzle of analysts who are wrestling with the puzzle of

executive compensationexecutive compensation

Both have brought “music to the ears” of Both have brought “music to the ears” of analysts who are wrestling with the puzzle of analysts who are wrestling with the puzzle of

executive compensationexecutive compensation

2007... A different look to the proxies... 2007... A different look to the proxies... 2007... A different look to the proxies... 2007... A different look to the proxies...

A reason for investors to celebrate... A reason for investors to celebrate... So many new parts of the puzzle to study... So many new parts of the puzzle to study...

ExecutiveIncentive

s

Stock Options

Perks: Flowers,

Jewelry, Cars, Apartments

Retirement Plans


Executive Compensation Executive Compensation Reporting in Proxy StatementsReporting in Proxy StatementsU.S. SEC August 11, 2006 Final RulingU.S. SEC August 11, 2006 Final Ruling

““Celebrating the harmony and Celebrating the harmony and melodies of financial reporting”melodies of financial reporting”

Christopher Cox US SEC Chairman

Christopher Cox US SEC Chairman

Ludwig van Beethoven

German Composer 1770-1827

Ludwig van Beethoven

German Composer 1770-1827

Executive Compensation Reporting in Proxy Statements

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Transcript of Executive Compensation Reporting in Proxy Statements