As a result of excessive compensation and abuses by some corporations, the Securities and Exchange Commission adopted comprehensive changes to its executive and director compensation disclosure rules. Executive Compensation and Related Person Disclosure, Release No. 33-8732A (Aug. 29, 2006) [71 FR53158]. These revisions became effective on Nov. 7, 2006. The new rules amend compensation disclosure requirements in registration statements, proxy and information statements and in annual reports. The amended rules are intended “to provide investors with a clearer and more complete picture of compensation” of management. The new rules include additional tabular disclosure and narrative descriptions with the basic principle in mind of identifying and quantifying each piece of compensation.
The new rules are quite extensive, including an adopting release that is over 400 pages. These rules require public companies to disclose certain information regarding management never previously required, including compensation discussion and analysis, compensation committee reports, six tables of disclosure for executive officers, narrative discussion of severance agreements and change in control benefits (including estimation of dollar amounts) and a director compensation table. One of the most important features of the new rules is that there will now be one total compensation number, including the value of all equity awards, for an executive’s total compensation, and it is intended that number will be comparable from one company to another.