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SEC Answers Questions About Executive Compensation Disclosure

The SEC has issued a series of questions and answers relating to the executive compensation disclosure required by Regulation S-K Item 402 and has provided interpretive responses with respect to particular situations that may arise. The January 24, 2007 guidance replaces the Item 402 interpretations in the staff Telephone Interpretation Manual.

A company that is restating its financial statements and has not filed its Form 10-K for the fiscal year ended December 31, 2005 is not required to comply with the new rules when it files the 10-K for the 2005 fiscal year.

The disclosure provisions in the new Compensation Discussion and Analysis that relate to option grants also govern the disclosure about restricted stock and other nonoption equity awards. It may be appropriate to discuss how the award dates were granted. Companies may be required to disclose information about programs, plans or practices that occurred outside the scope of the information contained in the tables.

In determining whether a company may omit the disclosure of performance target levels, the company should use the same standard it uses when requesting confidential treatment. A confidential treatment request is not required in connection with the omission of performance target levels or other factors or criteria, but the company must determine whether the disclosure would cause competitive harm as outlined in case law. The company may be required to demonstrate that withholding the information meets the confidential treatment standard. If the staff determines that the standard is not met, the performance target levels will have to be disclosed.

If a perquisite or other personal benefit has no aggregate incremental cost, it still must be identified by type. If an executive officer has fully reimbursed the company for the cost, it would not be considered a perquisite or other personal benefit and would not have to be separately identified by type.

In the table for grants of plan-based awards, if all of the awards pursuant to an equity incentive plan are denominated in dollars but payable in stock, the registrant should include the dollar value and a footnote to explain that the number of shares will be paid in a number that the dollar amount translates into at the time of payout. If all of the awards are structured in this manner, the column captions may be changed to ($) instead of (#).

Outstanding in-kind earnings at the end of a fiscal year should be included in the Outstanding Equity Awards at Fiscal Year-End Table. In-kind earnings that vested during the fiscal year or that are already vested when the dividends are declared should be reported in the Option Exercises and Stock Vested Table.

With respect to pension benefits, companies may not deviate from the assumptions used for accounting purposes to reflect the individual circumstances of a named executive or the pension plan. When a pension plan has a "normal" retirement age but permits an executive officer to receive benefits at a younger age without any reduction in benefits, the younger age should be used to determine the benefits. The older age may be included as an additional column.

For purposes of calculating the actuarial present value for the Pension Benefits Table, the registrant should assume that each named executive officer will live to and retire at the plan's normal retirement age, or at the earlier age at which the officer may retire without any reduction in benefits. The registrant should ignore what actuaries refer to as preretirement decrements for purposes of the calculation.

Jacquelyn Lumb