The Advisors' Blog

Last week, the SEC proposed an overhaul of filer status thresholds that – if adopted – could make approximately 80% of public companies eligible for scaled disclosure accommodations akin to those currently available to smaller reporting companies. As noted in this Willis Towers Watson memo, that would mean:

– No shareholder advisory votes: No say-on-pay proposals, no say-on-frequency, and no say-on-golden-parachute

– Substantially reduced disclosure requirements:

– No CD&A required

– Three NEOs instead of five (the Principal Executive Officer plus the next two highest-paid executive officers; this means that the CFO’s compensation would not necessarily be required disclosure)

– Two years of Summary Compensation Table information instead of three

– Fewer compensation tables with only the Summary Compensation Table, Outstanding Equity Table, and Potential Payments upon Termination Table required; no requirement to include:

– Grants of Plan-Based Awards Table

– Options Exercised and Stock Vested Table

– Nonqualified Deferred Compensation Table

– Pension Benefits Table

– No pay vs. performance disclosure and no CEO pay ratio

– Other reports and disclosures not required:

– Compensation committee report and compensation policies and practices related to risk management

– Compensation committee interlocks and insider participation disclosure

– Item 201 performance graph disclosure in 10-Ks

– Disclosure of risk factors required in 10-Ks or 10-Qs

– Auditor attestation report under Sarbanes-Oxley section 404(b)

It’s important to note that while that would ease the requirements for a large number of companies, these companies represent less than 7% of aggregate public float across the market. But as this Cooley memo notes, if the rules are adopted as proposed, companies that become eligible for scaled compensation disclosure would likely still need to consider the potential wrath of investors – and thus need to think carefully before ditching say-on-pay. Here’s why:

Currently, in general, if a company includes a shareholder advisory say-on-pay vote, Institutional Shareholder Services (ISS) addresses its compensation-related recommendations to that proposal. However, if there is no say-on-pay proposal on the ballot, any adverse recommendations related to executive compensation are typically applied to compensation committee members. Without a say-on-pay proposal on the ballot for NAFs, more public company compensation committee members may find themselves subject to adverse recommendations related to executive compensation.

Comments on the proposal are due on or before July 20th, and eligibility for scaled disclosure would begin with the first filing following the effective date of the final rules and completion of the initial filer status assessment (which would occur at the end of the fiscal year, based on public float as of the end of the two most recently completed second fiscal quarters). We’re posting memos in our “SEC Rules” Practice Area.

– Liz Dunshee