The Advisors' Blog

Liz recently blogged about how the potential expansion of scaled disclosure eligibility is likely to mean more companies will be making more judgment calls about what to include in their proxy statements on a voluntary basis. Even for companies that don’t hold a say-on-pay vote, proxy statements remain a valuable communication tool, and some disclosures that may become voluntary provide helpful context for why boards and compensation committees made the decisions they made. Plus, companies that remove any disclosures investors want to see may face backlash.

Liz and I recently chatted about the importance of waiting for the final rules to understand the regulatory impact of any decision to provide voluntary disclosures. That’s because the proposed rule changes contemplate eliminating Item 10(f) of Regulation S-K, which is focused on smaller reporting companies (a category the release proposes to eliminate), but is also where the rules provide that scaling decisions be made on an item-by-item basis. In the talking points submitted for the course materials for our fall Proxy Disclosure & Executive Compensation Conferences, Cooley’s Brad Goldberg notes:

The Society for Corporate Governance comment letter asked the SEC to clarify in the final rule that “a-la-carte” voluntary disclosure will still be permitted and to further clarify that voluntary disclosure will not be limited to an item-by-item basis (i.e., a company could choose to include a CD&A and all compensation tables but omit pay ratio disclosure).

As Brad’s examples suggest, the ability to elect between scaled and non-scaled requirements within an item (so long as, as the Society comment letter notes, the disclosure, at a minimum, satisfies the scaled requirements of that item) would be particularly helpful for Item 402, which has so many subsections it’s almost to the end of the alphabet.

Depending on how this shakes out in the final rules, new “non-accelerated filers” may have the opportunity to decide which parts of Item 402 to omit or maintain, both to tell their compensation story and to satisfy investor preferences. In that case, understanding your investors’ disclosure preferences will be key. Though future engagement may be advisable, investor comment letters on the filer status proposal may help you understand which disclosures certain investors consider essential. This Pay Governance alert says:

One of the clearest messages from both EGC and Roundtable letters was that investor respondents generally support simplifying executive compensation disclosure but not eliminating disclosure.

…ICI stressed the importance of not eliminating the CD&A from all NAFs, as this information “provides transparency and enables investors to understand and evaluate the potential effects of executive compensation arrangements on a company’s stock price”.

This issue is only one of the practical implementation questions our speakers will be discussing at our Proxy Disclosure & Executive Compensation Conferences. We’ll be posting over 200(!) pages of course materials containing practical nuggets and real-life examples from our conference speakers to our conference platform in the weeks leading up to the conferences. Conference attendees get exclusive access to these course materials. It’s worth registering for the conference just for these alone!

You can register online or by contacting us at info@CCRcorp.com or 1-800-737-1271. Make sure to book your hotel room soon too because the block is filling up quickly!

– Meredith Ervine