The Securities and Exchange Commission just announced that it has amended its new executive officer and director compensation disclosure rules, effective immediately. The FASB requires companies to recognize the costs of equity awards over the period in which an employee must provide service in exchange for the award under Statement of Financial Accounting Standards No. 123 (revised 2004) Share-Based Payment. The new SEC amendments will more closely align the reporting of equity awards in the Summary Compensation Table and the Director Compensation Table to the amounts that are disclosed in the financial statements under FAS 123R.

This Update highlights the key features of these amendments — a more detailed Update that offers practical advice will follow.

Amendments Change How Companies Disclose Equity Compensation

Summary Compensation Table and Director Compensation Table.

Before these amendments, the new rules required companies to disclose the full FAS 123R grant date fair value in these tables for the year in which the grant is made. Under these amendments, Companies will report the FAS 123R grant date fair value of stock awards and option awards in the Stock Awards and Option Awards columns of the Summary Compensation Table and the Director Compensation Table in dollars, before reflecting forfeitures, over the requisite service period, and describe forfeitures in accompanying footnotes.

• May Affect Which Executive Officers Are "Named." Because these amendments will also change the amount of compensation included in the Total Compensation column of the Summary Compensation Table, they may affect which executive officers are among the three most highly compensated executive officers based on total compensation. These amendments may likewise affect which former executive officers companies must include as named executive officers.

Grants of Plan-Based Awards Table. Under these amendments, Companies will report the full FAS 123R grant date fair value of each individual equity award in the Grants of Plan-Based Awards Table, and disclose the same information in footnotes to the Director Compensation Table. Companies will also report the incremental FAS 123R fair value of any option or stock appreciation right that was repriced or otherwise materially modified during the last completed fiscal year, computed as of the repricing or modification date, and disclose the same information in footnotes to the Director Compensation Table.

Effective Dates

These amendments are effective on December 29, 2006 (subject to a 30-day comment period). Companies must comply with these amendments using the same dates established by the underlying rules for each applicable filing type:

• Proxy Statements. For proxy and information statements, companies must comply with the new rules for filings made on or after December 15, 2006 that contain compensation and related person disclosures for fiscal years ending on or after December 15, 2006.

   

• Annual Reports. For Form 10-K, companies must comply with the new rules for fiscal years ending on or after December 15, 2006.

   

• Current Reports on Form 8-K. For Form 8-K, companies must comply with the new rules for triggering events that occur on or after November 7, 2006.

   

• Registration Statements. Companies must comply with the new rules for registration statements filed under the Securities Act of 1933 and under the Securities Exchange Act of 1934 filed on or after December 15, 2006 that contain compensation and related person disclosures for fiscal years ending on or after December 15, 2006.

Additional Information

You can find a copy of the full text of the SEC's press release at http://www.sec.gov/news/press/2006/2006-219.htm.
You can find a copy of the full text of the SEC's final rule release at http://www.sec.gov/rules/final/2006/33-8765.pdf.
You can find discussions of other recent cases, laws, regulations and rule proposals of interest to public companies on our website.