TheCorporateCounsel.net

This week, I am in California at the Northwestern Pritzker School of Law’s Securities Regulation Institute, which is celebrating its 50th anniversary. We are fortunate that, after two years of virtual Institutes, we are finally back in person at the Hotel Del Coronado.

During a panel yesterday featuring the Corp Fin Senior Staff, Erik Gerding, who has been named Director of Corp Fin effective February 3rd, noted that the Staff is planning to issue Compliance and Disclosure Interpretations on the pay versus performance disclosure requirements soon. While any Staff guidance will certainly be welcome on the new rules, the timing of the guidance may require many issuers to revisit disclosures that they have already drafted.

What types of topics might this guidance address? It is difficult to predict which topics ultimately may be addressed by the Staff in the CDIs, but some of the possibilities include:

– The potential use of the CD&A peer group for the TSR comparison, as I covered in the blog recently;
– How to determine which named executive officers are included in the average calculations, including “voluntary” named executive officers;
– Valuation approaches for options and performance-based equity awards when calculating compensation actually paid;
– Addressing equity awards that fail to vest but remain outstanding and situations where an executive departs and forfeits equity awards;
– Addressing modified equity awards in the compensation actually paid calculation;
– Applying the market capitalization weighting requirement when calculating peer group TSR;
– Addressing changes in peer groups over time;
– Dealing with unusual situations such as IPOs, spin-offs, mergers and acquisitions and bankruptcy when calculating peer group TSR;
– The time periods addressed by the required footnotes to the pay versus performance table;
– Disclosure required regarding assumptions for the pay versus performance table;
– Various issues with selecting measures for the tabular list and the Company Selected Measure;
– Presentation issues for newly public companies, merged companies and spun off companies; and
– Issues with presenting supplemental measures.

We understand that the Staff has been collecting a lot of questions on the pay versus performance disclosure requirements, so the Staff will no doubt have to be selective in which issues are ultimately addressed. Given the uncertainty as to when this guidance might be provided, it is advisable for issuers to keep moving forward with preparing the pay versus performance disclosure and then consider what adjustments may be necessary once the guidance is available.

– Dave Lynn