(The news featured below is a selection from the news covered in Federal Securities Law Reporter, which is distributed to subscribers of Federal Securities Law Reporter.)

SEC Adopts New Executive Compensation Disclosure Rules

The SEC has adopted significant new disclosure requirements on executive compensation, including more information about stock option grants, pension and post-retirement benefits, and perquisites. The new disclosure in Forms 10-K, proxy and information statements, and Securities Act registration statements is effective for filings made on or after December 15, 2006. The rules consolidate Form 8-K disclosure relating to employment arrangements under one item number. The Form 8-K disclosure becomes effective for triggering events that occur 60 days or more after publication of the release in the Federal Register. The proposal received more comments than any other in the SEC's history.

The heart of the new disclosure, according to Special Counsel Daniel Greenspan, is the new Compensation Disclosure and Analysis, which is patterned after Management's Discussion and Analysis. The CD&A will be filed with the SEC and subject to certification by the principal executive officer and the principal financial officer, rather than furnished as some commenters had requested. Corporation Finance Director John White said the Division struggled with this provision. Mr. White explained that the compensation committee reports adopted in 1992, which are furnished, did not result in better disclosure. By requiring the filing of CD&A, the Division believes the disclosure will improve.

CD&A is different from the compensation committee report, according to Mr. White. It reflects policies and decisions, not the compensation committee's activities and deliberations. The new compensation committee report will be very short and crisp, he said, similar to an audit committee report. The CEO and CFO may look to the compensation committee report in making their certification.

By popular demand, the SEC is retaining the performance graph which it initially had proposed to eliminate. The performance graph will be relocated from the executive compensation disclosure to the rules relating to the market price of common equity and related matters. The graph will be included in annual reports to shareholders that accompany or precede proxy statements relating to annual meetings at which directors will be elected.

The SEC adopted its proposal to require the disclosure of perquisites and all other compensation that does not fit within the other required tabular presentations. Perquisites with a value of at least $10,000 must be disclosed. The SEC will issue interpretive guidance for determining what constitutes a perquisite.

The SEC will repropose rules relating to the compensation of up to three of the most highly compensated employees who are not executive officers. The reproposed rules would apply only to accelerated filers and would require total compensation figures, job positions and whether the employees were executive officers during the last fiscal year. The proposal would not apply to employees with no responsibility for significant policy decisions, so generally would exclude sports and entertainment figures. It may apply, however, to the CEO of a subsidiary or large business unit of an international conglomerate.

The pension benefit table was revised to require the use of the same assumptions and periods that are used in the financial statements and will be based on current levels of compensation. Commissioner Annette Nazareth said the retirement benefits disclosure was particularly important, given some of the staggering retirement packages that have come to light. Boards must understand these packages, she said, and they are also critical to investors in determining whether the compensation committee is fulfilling its fiduciary duty.

The adopting release will include guidance on how to apply the rules to programs, plans and practices relating to the granting of stock options. White said the release draws no conclusions about the use of stock options. It does not refer to back-dating or springloading and does not seek to encourage or discourage any form of compensation or the validity of the timing of option grants. If the exercise price is not the closing price on the grant date, companies must disclose the methodology used for determining the exercise price. If option grants are timed to take advantage of material nonpublic information, companies must disclose the role of the compensation committee and any executive officers in the decision. Commissioner Paul Atkins said that the stock option guidance remains a work in progress.

Commissioner Roel Campos noted that the rules do not require companies to disclose performance targets related to executive compensation if the disclosure would cause competitive harm to a company. He asked how the staff would determine if companies are not disclosing the information even if it does not meet the confidentiality criteria. Associate Director Paula Dubberly said the disclosure would be part of the staff's issuer reviews. The staff will ask why performance disclosure would cause competitive harm, she said. The information has to truly be confidential, she said, and the company must take steps to keep it confidential. If a company does not meet the confidentiality criteria, Ms. Dubberly said the staff may require that the performance targets be disclosed in an amendment.

The adopting release will be published in a forthcoming Report.