Preparing for new executive comp proxy disclosures: as companies prepare for added disclosure materials to comply with new SEC rules, Financial Executives Research Foundation (FERF) asked experts and preparers to share insights on data-gathering, resources required and in which areas to focus.

• Author: de Mesa Graziano, Cheryl
• Position: Disclosure

In prior years, compensation committee activity has generally slowed slowed down after the middle of December. But, that was before the U.S. Securities and Exchange Commission (SEC) adopted its new rules on Executive Compensation and Related Person Disclosure.

Indeed, this December will be busy for committees, says Richard L. Alpern, a principal at compensation consultant Frederic W. Cook & Co. Likewise, under the direction of the committees, management has been and will continue to be actively gathering data to support the new disclosures. These include, among other items: new tabular disclosure, a Compensation Discussion & Analysis (CD & A) section, perquisites guidance and disclosure about post-termination or change-in-control payments.

From its original proposal in January, through the final rule adoption in August, the SEC has stressed the importance of updating executive and director compensation disclosure. The final release states that the amendments are intended to make proxy and information statements, reports and registration statements easier to understand and provide investors with a clearer and more complete picture of pay given to executives and directors.

Most recently, John White, director of the SEC's Division of Corporation Finance, addressed the specific role of the CFO in compliance: "It is very important to me, and to the commission, that all the necessary players are on board and on the team as these new rules go into effect for the next proxy season. All of you--as chief or principal financial officers--have a special place in that mix," he said.

According to White, CFOs should be involved in the substance of the disclosures, and particularly the new CD & A, refining and adjusting disclosure controls and procedures and working with the compensation committee of companies' boards on its new report.

The Layout: What Has Changed

The rule adopts amendments to compensation disclosures for directors, the CEO, CFO and the three most highly compensated executive officers other than these two officers. Changes apply to any SEC Forms 8-K filed for triggering events that occurred on or after Nov. 7, 2006; to proxy or information statements filed on or after Dec. 15, 2006; and to Forms 10-K and 10-KSB filed for fiscal years ending on or after Dec. 15, 2006.

Compensation disclosure will now begin the CD & A, a narrative on the material factors underlying compensation policies and decisions. The CD & A must be filed with the SEC, which means it is subject to certification by the CEO and CFO, and should reflect the data presented in seven supporting tables.

The first of those is the Summary Compensation table, which has been expanded to include grant date fair value of new stock option awards, changes in pension value and above-market nonqualified deferred compensation earnings and total compensation.

The most notable change, however, is the "Total" column, says Steve Seelig, executive compensation counsel for Watson Wyatt's Research and Innovation Center. He says that companies are making more qualitative decisions as to what goes in each column because of the detailed rules on discretionary versus nondiscretionary disclosures.

For example, in the past, annual bonuses would be in a certain...