Iveth P. Durbin Senior Counsel

The Securities and Exchange Commission recently adopted final rules to require enhanced compensation and corporate governance disclosure for public company proxy statements and other SEC filings.  The final rules reflect changes that clarify, and in some instances broaden, the proposed rules issued on July 17, 2009.  The SEC designed these amendments to improve corporate disclosures and allow shareholders to make more informed voting and investment decisions.

On July 1, 2009, the Securities and Exchange Commission (SEC), in a 3-to-2 vote, approved a proposed amendment to New York Stock Exchange (NYSE) Rule 452 that will prohibit discretionary broker voting in director elections.

The deadline is fast approaching for amending deferred compensation arrangements that are subject to Section 409A of the Internal Revenue Code.

The IRS recently issued Revenue Ruling 2008-13, which clarifies the IRS's new position with
respect to the applicability of the performance-based compensation exception for purposes of Section 162(m) of the Internal Revenue Code and grants transition relief to provide public companies an opportunity to review outstanding compensation plans, agreements and other arrangements in light of the IRS's new position.

Last week the IRS issued Notice 2007-86, which delays until January 1, 2009 the deferred compensation final regulations of Internal Revenue Code Section 409A and generally provides expanded relief and guidance.  The IRS also separately issued Notice 2007-89, which generally extends for the 2007 tax year prior IRS guidance to employers and other service providers regarding reporting and withholding obligations for annual deferrals of compensation and amounts includible in gross income due to Section 409A violations.  This update summarizes key aspects of both notices and provides practical guidance.

This week the IRS issued guidance on identifying "covered employees" for purposes of Section 162(m) of the Internal Revenue Code in response to the SEC's recent amendments to its executive compensation disclosure rules. This Update summarizes the key highlights from this IRS guidance.

Last week the IRS issued the long-awaited final regulations under Section 409A of the Internal Revenue Code, which generally provides that amounts deferred under a "nonqualified deferred compensation plan" are currently includible in taxable income if not subject to a substantial risk of forfeiture, unless the plan meets specified design and operational requirements. Failure to comply with the applicable requirements of Section 409A can result in significant income tax consequences, including a 20% additional tax imposed on the employee or independent contractor.

Last week the SEC Division of Corporation Finance released much-anticipated new Staff guidance on the rest of its new proxy disclosure requirements under amended Regulation S-K, completing its interpretations of the new rules and complementing its guidance on the new executive compensation disclosure requirements released in January 2007. This new SEC Staff guidance addresses a wide variety of topics covering a diverse set of specific circumstances and replaces or revises prior Staff interpretation of Items 201, 403, 404, and 407 of Regulation S-K as previously published in the SEC's Manual of Publicly Available Telephone Interpretations and its supplements.

Perkins Coie is pleased to announce a revised version of the Executive Compensation Disclosure Handbook: A Practical Guide to the SEC's New Rules, a publication written by Perkins Coie attorneys that provides a complete, plain English explanation of the SEC's executive compensation and related disclosure requirements.

The Securities and Exchange Commission amended its new executive officer and director compensation disclosure rules in December 2006 and released Staff guidance on these rules in 2007. The substantial changes to the rules will likely increase the attention and scrutiny the SEC, investors and the public apply to proxy statements and annual reports during ongoing proxy and annual reporting seasons. The revised edition of the Executive Compensation Disclosure Handbook: A Practical Guide to the SEC's New Rules provides an overview of the most significant changes and requirements through mid-February 2007 under the new rules and guidance and offers practical advice to help companies understand, and comply with, the new disclosure requirements.

Perkins Coie is pleased to announce the Executive Compensation Disclosure Handbook: A Practical Guide to the SEC's New Rules. This handbook is the most practical, plain English guide available for public company management, directors and general counsel on the SEC's new requirements for public company disclosure and reporting of executive and director compensation and related issues.

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.

The federal securities laws require clear, concise and understandable disclosure about the amount and type of all compensation paid to chief executive officers and other highly compensated executives of public companies. In recent years widespread and increasing interest in executive pay and the perceived inadequacy of current disclosure spawned frequent front-page headlines and heated rhetoric from members of Congress and shareholder advocates. The Securities and Exchange Commission recently adopted comprehensive amendments to its executive officer and director compensation disclosure rules. The new rules retain the combined tabular and narrative format, but attempt to elicit a clearer, more complete picture of all compensation paid to specified executive officers and to directors. The SEC also significantly revised disclosure rules for financial transactions and relationships between companies and executive officers, directors, significant shareholders, and their respective family members, as well as with respect to director independence and other corporate governance matters. Companies must make all disclosures under the new rules in plain English. These changes affect disclosures in proxy and information statements, annual and periodic reports, and registration statements, as well as Form 8-K reporting of compensation arrangements.

Internal Revenue Code Section 409A, along with recent changes in financial accounting rules, has significantly increased the focus of private companies on accurately valuing their common stock for purposes of granting options and other equity incentive awards. Section 409A has upped the ante by imposing severe tax consequences on individuals for certain stock-based compensation that does not comply with the new deferred compensation tax rules, including stock options granted with an exercise price that is less than the fair market value of the company's common stock on the grant date.

The IRS has issued proposed regulations that expand the guidance available for complying with the deferred compensation tax rules of Section 409A of the Internal Revenue Code. Section 409A generally provides that amounts deferred under a nonqualified deferred compensation plan are currently includible in income if not subject to a substantial risk of forfeiture, unless the plan meets specified design and operational requirements. Failure to comply can result in significant federal income tax consequences, including a 20% additional tax.

The Delaware Court of Chancery recently rejected as inadequate a proposed settlement in a derivative action brought against directors and officers of the Fairchild Corporation. This Update highlights the key issues in the Court's rejection and offers practical guidance.

The SEC has adopted a new rule that delays required stock option and other share plan expensing under the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (FAS 123R), for most public companies until their first fiscal year beginning after June 15, 2005; the compliance date for small business issuers is their first fiscal year beginning after December 15, 2005.

The FASB has published FASB Statement No. 123 (revised 2004), Share-Based Payment, which requires that the compensation cost relating to stock options, stock appreciation rights, restricted stock or units, employee stock purchase plans and other share-based payment transactions, measured based on the fair value, be recognized in financial statements. FAS 123(R) replaces FAS 123, Accounting for Stock-Based Compensation, and supersedes APB 25, Accounting for Stock Issued to Employees.

Earlier this month, Allan Beller of the Securities and Exchange Commission and Mark Corallo of the Department of Justice announced that neither current reports on Forms 6-K and 8-K nor employee benefit plan reports on Form 11-K are required to include the certifications mandated by Section 906 of the Sarbanes-Oxley Act of 2002. This announcement was made via telephone interviews and teleconference, and we do not know whether or when this conclusion will be announced in writing.

In early May, the Securities and Exchange Commission adopted final rules that require, no later than June 30, 2003:

The Securities and Exchange Commission has proposed rules that will require public companies' officers, directors and principal shareholders who are subject to Section 16(a) of the Securities Exchange Act of 1934 to electronically file their Forms 3, 4 and 5 beneficial ownership reports. The rules will also require public companies to post these reports on their Web sites.

NYSE and Nasdaq recently filed with the SEC final proposed rules (which the SEC has published for a brief comment period) that will require shareholder approval of most equity compensation plans and eliminate discretionary broker voting of proxies on these plans. The rules will be effective immediately upon SEC approval, which is expected as soon as mid to late November 2002.