Download Perquisites - Association of Corporate Counsel

New SEC
Executive Compensation
Disclosure Rules
A presentation for
DELVACCA
January 23, 2007
Sponsored By
Presenters
Brian North
Shareholder Buchanan Ingersoll & Rooney
Amy Pandit
Shareholder Buchanan Ingersoll & Rooney
Lisa Axt Alexander
Deputy General Counsel, InterDigital Communications
Overview
Named Executive Officers
Compensation Discussion and Analysis
(CD&A)
Tables
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Summary Compensation Table
Grants of Plan-Based Awards
Outstanding Equity Awards at Fiscal Year-End
Option Exercises and Stock-Vested
Pension Benefits
Nonqualified Deferred Compensation
Director Compensation
Overview
Potential Payments on Termination or Change in
Control
Compensation Committee Report
Form 8-K Revisions
Beneficial Ownership Disclosure
Certain Relationships and Related Person
Transactions
Corporate Governance
Overview
Principles-Based Approach
Under a principles-based approach, one starts
with laying out the key objectives of good
reporting in the subject area and then provides
guidance explaining the objective and relating
it to some common examples. While rules are
sometimes unavoidable, the intent is not to try to
provide specific guidance or rules for every
possible situation. Rather, if in doubt, the reader is
directed back to the principles
Overview
Principles-Based Approach
“ALL MEANS ALL”
Overview
Katie Couric Proposal
 Three highest compensated employees who
are not executive officers but earn more than
any of the named executive officers
Recent Changes to Disclosure of
Equity Compensation Awards
December 2006 Changes Affect
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Summary Compensation Table
Grant of Plan-Based Awards Table
Director Compensation Table
Total Compensation
Determination of Named Executive Officers
Recent Changes to Disclosure of
Equity Compensation Awards
August Revisions
 Summary Compensation and Director
Compensation Tables disclosure of full grant date
fair value of awards under FAS 123R of grants
during year
 FAS 123R requires
• Calculation of the fair value of stock options,
restricted stock, and similar equity awards as of
the date they are granted
• Recognition of the cost of the award over the
service period (generally the vesting period)
Recent Changes To Disclosure of
Equity Compensation Awards
December Amendment
 Disclose compensation cost recognized in
financial statements under FAS 123R of
awards made during year and prior years
 Disclose full grant date fair value of awards
under FAS 123R in new column in Grant of
Plan-Based Awards Table and in footnote to
Director Compensation Table, on award-byaward basis
Recent Changes To Disclosure of
Equity Compensation Awards
Effects
 Total compensation in Summary Compensation
Table
 Determination of Named Executive Officers
 Disclosure in Summary Compensation Table more
consistent with financial statement recognition
Some exceptions
 Do not include the estimate of forfeiture used under
FAS 123R in determining compensation cost
 Must use modified prospective transition method
and not the modified retrospective transition
method available under FAS 123R
Recent Changes to Disclosure of
Equity Compensation Awards
Treatment of election to forego salary or
bonus in favor of non-cash compensation
 Must still be reported in salary or bonus
column of Summary Compensation Table
 Footnote disclosure of receipt of the non-cash
compensation referring to the Grants of Plan
Based Awards Table
FAQs
Address early optional compliance
Transition rules
 Form 8-Ks on or after November 7, 2006
 Forms 10-K and 10-KSB for fiscal years ending
on or after December 15, 2006
 Proxy, information and registration statements
filed on or after December 15, 2006 that
include Item 402 and 404 disclosure for fiscal
years ending on or after December 15, 2006
FAQs
Can comply with the rules earlier than
required to
If elect early compliance, must comply with all
of the new rules
If elect early compliance, the Summary
Compensation Table for the next period would
include the information disclosed
 Form 10-K for fiscal year 2006
 Registration statement for year ending December
31, 2005
Compensation Discussion &
Analysis (CD&A)
Purpose
To explain the material elements of a reporting
company’s compensation objectives and
policies for named executive officers
A “principles-based” rule that describes the
required disclosure conceptually then
provides illustrative examples
Location
Item 402(b) of Regulation S-K, as amended
Required in proxy statements and in Part III of
Form 10-K (incorporation by reference)
CD&A is “filed” (as opposed to furnished) and
subject to CEO/CFO certifications
Required Disclosures
Discuss the compensation awarded to,
earned by, or paid to the named executive
officers (NEOs).
The discussion shall explain all material
elements of the reporting company’s
compensation of the NEOs.
Required Disclosures
The discussion shall describe the following:
 The objectives of the company’s compensation programs;
 What the compensation program is designed to reward;
 Each element of compensation;
 Why the company chooses to pay each element;
 How the company determines the amount (and, where
applicable, the formula) for each element to pay; and
 How each compensation element and the company’s
decisions regarding that element fit into the company’s
overall compensation objectives and affect decisions
regarding other elements.
“Suggested” Disclosures
Policies for allocating between long-term and current
compensation
Policies for allocating between cash and non-cash
compensation, and among different forms of non-cash
compensation
Basis for allocating long-term compensation to each
different form of award
 Such as relationship of the award to the achievement of longterm goals, management’s exposure to downside equity
performance risk, correlation between cost and expected
benefit to company
“Suggested” Disclosures
How determination is made as to when awards are
granted
What specific items of corporate performance are
taken into account in setting compensation policies
and making compensation decisions
How forms of compensation are structured to reflect
these items, including
 Whether discretion can be or has been exercised (either to
award compensation absent attainment of performance goals
or to reduce or increase size of any award or payout),
 Identifying any particular exercise of discretion and whether it
applied to NEOs or all compensation subject to the relevant
performance goals
“Suggested” Disclosures
How specific forms of compensation are structured and
implemented to reflect the NEO’s individual performance or
contribution to these items of the company’s performance,
describing the elements of individual performance
Company policies and decisions regarding the adjustment or
recovery of awards or payments if the relevant performance goals
are restated or otherwise adjusted in a manner that would reduce
the size of an award or payout
Factors considered in decisions to increase or decrease
compensation materially
How amounts realizable from prior awards are considered in setting
other elements of compensation (e.g., how gains from prior stock
options are considered in setting retirement benefits)
With respect to any arrangement that provides for payments related
to a change-in-control, the basis for selecting particular events as
triggering payment (e.g., rationale for single trigger)
“Suggested” Disclosures
Impact of the accounting and tax treatments of the
particular form of compensation
Company’s equity ownership guidelines and any
policies regarding hedging the economic risk of such
ownership
Whether the company engaged in any benchmarking
of total compensation, or any material element,
identifying the benchmark and its components
(including component companies)
The role of executive officers in determining executive
compensation
“Suggested” Disclosures
How specific forms of compensation are structured and
implemented to reflect the NEO’s individual performance or
contribution to these items of the company’s performance,
describing the elements of individual performance
Company policies and decisions regarding the adjustment or
recovery of awards or payments if the relevant performance
goals are restated or otherwise adjusted in a manner that
would reduce the size of an award or payout
Factors considered in decisions to increase or decrease
compensation materially
How amounts realizable from prior awards are considered in
setting other elements of compensation
 e.g., how gains from prior stock options are considered in
setting retirement benefits
With respect to any arrangement that provides for payments
related to a change-in-control, the basis for selecting
particular events as triggering payment
 e.g., rationale for single trigger
CD&A and Other Proxy Disclosures
CD&A should focus on the material principles
underlying the company’s executive
compensation policies and decisions – without
using boilerplate language or repeating the more
detailed information set forth in the tables and
related narrative disclosures that follow
CD&A should concern the information contained
in the tables and other narratives
Cross references may be appropriate
Period Covered
Must address compensation for the most recently
completed fiscal year
May be necessary to address post-termination and
on-going compensation arrangements and how
they interplay with annual and long-term
compensation
Should cover actions regarding executive
compensation taken after fiscal year-end
It may be necessary to discuss prior years’
compensation in order to give context to the
policies and decisions being analyzed
Confidential Information
Not required to disclose target levels with respect
to specific quantitative or qualitative performancerelated factors, or any other factors or criteria
involving confidential trade secrets, commercial or
financial information
Must disclose how difficult or likely it will be to
achieve undisclosed targets
Same standard as applies to confidential
treatment requests
Current Issues with CD&A
Disclose or not disclose specific target levels of
qualitative and quantitative performance criteria
Coordination of CD&A with other narrative
sections of the proxy
Impact on disclosure controls and other company
processes
PERQUISITES
Perquisites
Disclosed in “All Other Compensation”
column
Reduced threshold to $10,000 aggregate
If meet threshold
 Must identify each perquisite
 Must disclose value of each perquisite that has
value of more than $25,000 or 10% of total
perquisites
Perquisites
Identification of perquisite must accurately
identify the particular nature of the benefit
received
Must report tax gross ups separately
Perquisites valued at the aggregate
incremental cost to the company
Perquisites
Interpretive guidance in proposed and final
release identified two factors
 An item is not a perquisite if it is integrally and
directly related to the performance of duties
 If not, an item is a perquisite if it confers a benefit
that has a personal aspect (even if provided for a
business reason) unless it is generally available to
all employees on a non-discriminatory basis
Perquisites
An item is integrally and directly related to
performance of duties if it is something
needed to do the job
Examples
 Office space at a company location
 Reserved parking space closer to business
facilities
 Additional secretarial services devoted to company
matters
 Blackberry or laptop
Perquisites
Examples of items not integrally and
directly related to performance of duties
 Company provided aircraft or yachts
 Commuter transportation services
 Additional secretarial support for personal
matters
 Investment management services
 Club memberships
 Housing or relocation assistance
Perquisites
Characterization as a necessary or
ordinary expense for tax purposes
irrelevant
Existence of company benefit not
controlling
 Use of company aircraft or vacation property
for security purposes
Perquisites
If an item is not integrally and directly
related to job performance, must
determine if it has a personal aspect
Following would not be perquisites
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Travel to and from business meetings
Business entertainment
Security during business travel
Expense account limited to business purpose
Perquisites
The following would be perquisites
 Club memberships not used exclusively for
business entertainment
 Personal travel using company vehicles
 Personal use of company property
 Security at residence
 Commuting expenses
 Housing and other living expenses
Perquisites
Spouse tag along on corporate aircraft when
executive flying for business reasons (no
incremental cost)
Director’s use of corporate aircraft to attend
board meeting
Travel costs of spouse to attend board
meeting where spouses are invited
Perquisites
Relocation expenses for executive the
company has required to relocate
Zero cost perquisites- executive reimburses
full incremental cost
Related Person Transactions
Lisa Axt Alexander
InterDigital Communications Corporation
Item 404(a)-Broad Principles-Based
Any transaction since the beginning of the
company’s last fiscal year or any currently
proposed transaction in which:
 The company was or is to be a participant;
 The amount involved exceeds $120,000; and
 Any related person had or will have a direct or
indirect material interest.
“Material Interest”
“Materiality” under 404(a) – no definition
Materiality of any interest will be determined
on basis of significance of information to
investors in light of all the circumstances
Relationship, importance of interest, amount
involved are among the factors to be
considered
“Related Person”
Includes directors, executive officers and their
immediate family members (and director
nominees and their immediate family members-if
disclosure were provided in proxy or information
statement), > 5% shareholders
Don’t need to have been a related person at the
time of the transaction (if an officer, director or
immediate family member of such person)
“immediate family member” includes in-laws, step
children, and any person sharing the household
(other than a tenant)
Some Exceptions to Disclosure
Compensation of executive officers if reported
under reported 402 of S-K or approved or
recommended by the Compensation Committee
Certain types of indebtedness
No “indirect material interest” if interest arises only
from person’s position as a director in the other
entity which is a party to the transaction or
ownership by such person and all other related
person in the aggregate of <10% equity interest in
other entity which is a party to the transaction or
both
Some Exceptions to Disclosure
No “indirect material interest” if interest arises only from
person’s position as a limited partner in a partnership in
which the person and all other related persons have an
interest of <10% (can’t be GP/ hold another position in the
partnership)
Transactions where charges are determined by competitive
bids or fixed by law or government authority
Transactions involving services as a bank depositary,
transfer agent, registrar, trustee or similar service
Interest arises solely from ownership of stock and all
holders of the class receive same benefit on a pro rata
basis
Additional Considerations
Prepare a written policy for review and
approval of related person transactions (to be
described in your proxy statement).
Update your internal controls (and DOQ)
Watch independence of directors and “nonemployee director” status under section 16