September 5, 2006

Less Than a Week Left!

Last chance to register to attend our blockbuster conference:”Implementing the SEC’s New Executive Compensation Disclosures: What You Need to Do Now.” Many of you are making the trek to Washington DC – and even more are will be taking in the Conference online (either live on September 11-12th or by archive). Here is check-in information if you will attend in DC – and here is testing information if you plan to watch by video or audio; you definitely should test in advance of the Conference to ensure that you have either Windows Media Player or RealPlayer properly installed.

For those attending online, simply to the home page of and on the days of the Conference and click on the prominent link that will then be available and log-in. Note that course materials will not be available until the first day of the Conference. They will be handed out in DC and posted online, adjacent to the links you will use to access the video/audio.

September E-Minders is Up!

We have posted the latest issue of our monthly e-mail newsletter.

Revisiting Deferred Compensation

In this Special September Supplement, we have compiled a bunch of Mark Borges’ recent blogs – from his “Proxy Disclosure Blog” – that have analyzed the SEC’s new executive compensation rules to give you a leg up on the type of practical guidance that will be imparted at our upcoming Conference. Below is an example of Mark’s latest handiwork:

“A couple weeks ago, I blogged about the the disclosure rules for nonqualified deferred compensation, but, as I’m starting to discover, I really only scratched the surface of the complexities involved in reporting deferral arrangements. Take, for example, a program that permits executive officers to defer all or a portion of their annual cash bonus into deferred stock units. each unit represents a share of stock at the deferral date. Let’s also assume that the DSUs are payable to a recipient at retirement (in other words, the arrangement contains no separate vesting condition).

It seems to me that, under Instruction 2 to Item 402(c)(2)(iii) and (iv), a bonus deferral into DSUs would be reportable as a stock award in the Stock Awards column of the Summary Compensation Table. (I reach this conclusion in spite of the literal language of the Instruction which says that it applies to amounts otherwise includable in the Salary or Bonus columns of the SCT. As we know, most performance-based annual incentives will be reportable in the Non-Equity Incentive Plan Compensation column and not the Bonus column of the SCT. I’m assuming that the Instruction can be applied to “bonuses” before their reporting status is determined. If I’m right, this Instruction has the curious effect of shifting an amount that may be otherwise reportable in the Non-Equity Incentive Plan Compensation column to the Stock Awards column. The result seems reasonable to me though, since by electing to defer the payment the executive officer has essentially converted a cash amount into a stock award.)

This deferral arrangement would have several additional reporting consequences as well:

– The DSUs would be reportable in the year of grant in the Grants of Plan-Based Awards Table (presumably, in column (i), the All Other Stock Awards column). The company would also be expected to describe the deferral arrangement as part of the narrative supplement to the Summary Compensation Table and the Grants of Plan-Based Awards Table required by Item 402((e).

– The DSUs would be reportable in the Nonqualified Deferred Compensation Table as nonqualified deferred compensation. They would show up in the year of grant as an executive contribution to a NQDC arrangement in column (b) and the year-end value of the DSUs would be included as part of the executive officer’s aggregate account balance in column (f). A footnote to the table would indicate where this amount was reported in the SCT (see the Instruction to Item 402(i)(2)). Again, the narrative discussion to accompany this table would need to describe the deferral arrangement (perhaps a cross-reference to the SCT discussion would be sufficient.)

– In subsequent years, the DSUs would be reportable:

= in the Outstanding Equity Awards at Fiscal Year-End Table (columns (g) and (h)) while outstanding and

= in the Option Exercises and Stock Vested Table in the year the executive officer retired. Even though the award doesn’t have vesting conditions, it seems to me that receipt at retirement is the equivalent of vesting for disclosure purposes. Also, if the executive officer has properly elected to defer receipt of the shares again, then a footnote to this table would be necessary to quantify the amount and disclose the terms of the subsequent deferral.

– The DSUs would also continue to be included each year in the Nonqualified Deferred Compensation Table as part of the executive officer’s aggregate account balance in column (f) and would be included as part of the footnote to the table quantifying amounts previously disclosed as compensation in the SCT (again, pursuant to the Instruction to Item 402(i)(2)).

= Unless further deferred, presumably the value of the DSUs at the time of retirement would be reported in the Aggregate Withdrawals/Distribution column of the table and would reduce the yearend account balance.

As I read back through this summary, I’m not sure that it’s right – or that I’ve even identified all of the relevant issues. In addition, my example doesn’t even get into how to treat any earnings on the DSUs while they were outstanding, which presents an additional set of reporting issues. That analysis will have to wait until tomorrow, or the next day.”