The Advisors' Blog

– Liz Dunshee

In our “Q&A Forum,” a member recently asked (#1232):

A non-NEO is being promoted to Chief Operating Officer, which will be announced under Item 5.02(c). The new COO won’t enter into an employment agreement or any other new plan, contract or arrangement – however, they’ll receive a base salary increase.

Is this a material compensation change that’s reportable under either Item 5.02(c) or 5.02(e)? Is it a question of materiality – and if so, is that measured based on the impact for the officer or for the company? If the raise is reportable, can the company disclose just the amount of the increase or the officer’s total base salary?

John responded:

This is the type of situation that requires disclosure under Item 5.02(c), because the line item specifically calls out material arrangements entered into or amended in connection with the appointment. An employment contract isn’t necessary to trigger disclosure.

Materiality is typically viewed from the perspective of a reasonable investor, but when it comes to compensation, the focus of that inquiry is on the materiality of the compensation to the executive – not its overall materiality to the company.

And if disclosure is required, it should be comprehensive enough to give the complete picture. So I recommend disclosing the new total base salary that the COO will receive. Frankly, just saying that the person’s salary increased by x amount looks like you’re trying to hide the ball – which isn’t going to play well with the audience reading your 8-K.