Item 402 Of Sec Regulation S-k Pdf

Item 402 of sec regulation s-k pdf

The bracketed date following each interpretation is the latest date of publication or revision. Note: For ease of discussion, we refer to the disclosure requirements and related rules adopted in the Executive Compensation rulemaking, including the August Executive Compensation and Related Person Disclosure rulemaking Securities Act Release No.

Item 402 of sec regulation s-k pdf

Question: What was the effective date of the interim final rules adopted in Release No. Compliance with these amendments is required for proxy statements, information statements and registration statements filed on or after December 15, , that are required to include Item disclosure for fiscal years ending on or after December 15, , and for Forms K and KSB for fiscal years ending on or after December 15, Question: A company with a calendar year end plans to file a Form S-3 after December 15, , but before it files its Form K.

Can the company incorporate by reference the Form K for the fiscal year ended December 31, with disclosure under the old rules? Answer: Yes. The company would not be required to incorporate by reference the disclosure under the new rules until it is required to include that information in the Form K for the fiscal year ended December 31, Question: When a company that is in the process of restating its financial statements has not filed its Form K for the fiscal year ended December 31, , must the company comply with the new rules when it ultimately files the Form K for the fiscal year ended December 31, ?

Answer: The company is not required to comply with the new rules in the Form K for the fiscal year ended December 31, Question: If a company files a preliminary proxy statement under Exchange Act Rule 14a-6 which omits the executive and director compensation disclosure required by Item of Regulation S-K, would the staff request a revised preliminary proxy statement and deem that the calendar day waiting period specified in Rule 14a-6 does not begin to run until the required information is filed?

However, given that the executive and director compensation rules were substantially revised in , in a situation where a company that is complying with the new rules for the first time files a preliminary proxy statement excluding the required executive and director compensation disclosure, the staff will not request a revised preliminary proxy statement nor deem the calendar day waiting period specified in Rule 14a-6 to be tolled, so long as: 1 the omitted executive and director compensation disclosure is included in the definitive proxy statement; 2 the omitted disclosure does not relate to the matter or matters that caused the company to have to file preliminary proxy materials; and 3 the omitted disclosure is not otherwise made available to the public prior to the filing of the definitive proxy statement.

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Question: Is the guidance regarding Compensation Discussion and Analysis disclosure concerning option grants that is provided in Section II. Answer: The same disclosure provisions governing required disclosure about option grants also govern disclosure about restricted stock and other non-option equity awards.

This includes the example of potential material information identified in Item b 2 iv of Regulation S-K, which indicates that it may be appropriate to discuss how the determination is made as to when awards are granted, including awards of equity-based compensation such as options. Question: In presenting Compensation Discussion and Analysis disclosure about prior option grant programs, plans or practices, are companies required to provide disclosures about programs, plans or practices that occurred outside the scope of the information contained in the tables and otherwise disclosed pursuant to Item including periods before and after the information contained in the tables and otherwise disclosed pursuant to Item ?

Question: Are companies required to include disclosure about programs, plans or practices relating to option grants in the Compensation Discussion and Analysis disclosure for their first fiscal year ending on or after December 15, , or is this disclosure only required for future fiscal periods? Answer: Companies are required to include disclosure about programs, plans or practices relating to option grants in the Compensation Discussion and Analysis disclosure for fiscal years ending on or after December 15, , as well as any other periods where necessary as contemplated by Instruction 2 to Item b of Regulation S-K.

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Question: How does a company determine if it may omit disclosure of performance target levels or other factors or criteria under Instruction 4 to Item b? Answer: The new rules clarify that a company should use the same standard for evaluating whether target levels and other factors or criteria may be omitted as it would use when making a confidential treatment request under Securities Act Rule or Exchange Act Rule 24b-2; however, no confidential treatment request is required to be submitted in connection with the omission of a performance target level or other factors or criteria.

The company must make its determination based on the established standards for what constitutes confidential commercial or financial information, the disclosure of which would cause competitive harm. These standards have largely been addressed in case law, including National Parks and Conservation Association v. Morton , F.

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Kleppe , F. NRC , F. To the extent that a performance target level or other factor or criteria otherwise has been disclosed publicly, a company cannot rely on the instruction to withhold the information. Because Compensation Discussion and Analysis will be subject to staff review, a company may be required to demonstrate that withholding target information meets the confidential treatment standard, and will be required to disclose the information if that standard is not met.

A company that relies on the instruction to withhold information must discuss how difficult it will be for the executive or how likely it will be for the company to achieve the undisclosed target level, factor or criteria, which was not required prior to the new rules. Question: If a person that was not a named executive officer in fiscal years 1 and 2 became a named executive officer in fiscal year 3, must compensation information be disclosed in the Summary Compensation Table for that person for all three fiscal years?

Answer: No, the compensation information only for fiscal year 3 need be provided in the Summary Compensation Table. Question: Should a discretionary cash bonus that was not based on any performance criteria be reported in the Bonus column column d of the Summary Compensation Table pursuant to Item c 2 iv or in the Non-equity Incentive Plan Compensation column column g pursuant to Item c 2 vii?

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Answer: The bonus should be reported in the Bonus column column d. In order to be reported in the Non-equity Incentive Plan Compensation column column g pursuant to Item c 2 vii , the bonus would have to be pursuant to a plan providing for compensation intended to serve as incentive for performance to occur over a specified period that does not fall within the scope of Financial Accounting Standards Board Statement of Financial Accounting Standards No.

The outcome with respect to the relevant performance target must be substantially uncertain at the time the performance target is established and the target is communicated to the executives. The length of the performance period is not relevant to this analysis, so that a plan serving as an incentive for a period less than a year would be considered an incentive plan under Item a 6 iii. Further, amounts earned under a plan that meets the definition of a non-equity incentive plan, but that permits the exercise of negative discretion in determining the amounts of bonuses, generally would still be reportable in the Non-equity Incentive Plan Compensation column column g.

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The basis for the use of various targets and negative discretion may be material information to be disclosed in the Compensation Discussion and Analysis. If, in the exercise of discretion, an amount is paid over and above the amounts earned by meeting the performance measure in the non-equity incentive plan, that amount should be reported in the Bonus column column d.

Question: Instruction 2 to Item c 2 iii and iv provides that companies are to include in the Salary column column c or the Bonus column column d any amount of salary or bonus forgone at the election of a named executive officer under which stock, equity-based, or other forms of non-cash compensation have been received instead by the named executive officer.

In a situation where the value of the stock, equity-based or other form of non-cash compensation is the same as the amount of salary or bonus foregone at the election of the named executive officer, does this mean the amounts are only reported in the Salary or Bonus column and not in any other column of the Summary Compensation Table?

Answer: Yes, under Instruction 2 to Item c 2 iii and iv the amounts should be disclosed in the Salary or Bonus column, as applicable.

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The result would be different if the amount of salary or bonus foregone at the election of the named executive officer was less than the value of the equity-based compensation received instead of the salary or bonus, or if the agreement pursuant to which the named executive officer had the option to elect settlement in stock or equity-based compensation was within the scope of FASR e.

In the former case, the incremental value of an equity award would be reported in the Stock Awards or Option Awards columns, and in the latter case the award would be reported in the Stock Awards or Option Awards columns. In both of these special cases, the amounts reported in the Stock Awards and Option Awards columns would be the dollar amounts recognized for financial statement reporting purposes with respect to the applicable fiscal year, and footnote disclosure should be provided regarding the circumstances of the awards.

Is the disclosure of valuation assumptions limited to awards made in the covered fiscal year or does it include any award reported in column e or f even if granted in an earlier fiscal year? Answer: The disclosure of valuation assumptions should relate to any award reported in the Option Awards column column e or the Stock Award column column f.

Question: If an equity award is made after the end of the fiscal year but relates to services performed in that completed fiscal year, when should that equity award be reported in the Summary Compensation Table and the Grants of Plan-Based Awards Table?

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Answer: Under Item c 2 v and vi , the dollar amount recognized for financial statement reporting purposes with respect to the fiscal year must be reported in the Summary Compensation Table for stock and option awards. With respect to the Grants of the Plan-Based Awards Table, under Item d 1 , information as to the awards is to be reported in the fiscal year in which the award was made.

Regulation S-K Financial Disclosure Requirements

In preparing the Compensation Discussion and Analysis under Item b , companies should consider the application of Instruction 2 to Item b with respect to awards granted after the end of the fiscal year but relating back to service in that completed fiscal year.

Question: Instruction 3 to Item c 2 viii provides that where the amount of the change in the actuarial present value of the accumulated pension benefit computed pursuant to Item c 2 viii A is negative, the amount should be disclosed by footnote but should not be reflected in the sum reported in the Change in Pension Value and Nonqualified Deferred Compensation Earnings column column h. Answer: If a perquisite or other personal benefit has no aggregate incremental cost, it must still be separately identified by type.

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Any item for which an executive officer has actually fully reimbursed the company for its total cost should not be considered a perquisite or other personal benefit and therefore need not be separately identified by type.

Question: Item c 2 ix C indicates that stock purchased at a discount needs to be disclosed unless that discount is available generally to all security holders or to all salaried employees. The compensation cost, if any, is computed in accordance with FAS R. Footnote to Securities Act Release No. Does the footnote indicate that plans must be disclosed?

Answer: No. The footnote explains that even if there is some discount, there may not be compensation cost under the accounting standard.

Question: Item c 2 ix G requires disclosure of the dollar value of any dividends when those amounts were not factored into the grant date fair value required to be reported in the Grants of Plan-Based Awards Table. With regard to the treatment of dividends, dividend equivalents or other earnings on equity awards, is disclosure required in the All Other Compensation column column i if disclosure was not previously provided in the Grants of Plan-Based Awards Table for that named executive officer?

Answer: The company should analyze whether the dividends, dividend equivalents or other earnings would have been factored into the grant date fair value in accordance with FAS R. In this regard, the disclosure turns on how the rights to the dividends are structured and whether or not that brings them within the scope of FASR for the purpose of the grant date fair value calculation.

Item 402 of sec regulation s-k pdf

Question: Are deferred compensation payouts, lump sum distributions under Section k plans and earnings on k plans required to be disclosed in the Summary Compensation Table?

Lump sum distributions from k plans are not disclosed in the Summary Compensation Table, because the compensation that was deferred into the k plan was already disclosed in the Summary Compensation Table, as would be any company matching contributions.

Earnings on k plans are not disclosed in the Summary Compensation Table because the disclosure requirement only extends to above-market or preferential earnings on non-qualified deferred compensation.

Question: An equity award subject to disclosure pursuant to Item c 2 v or vi may be disclosed as a negative number because the expense is reversed under FAS R, such as when an award is forfeited during the fiscal year, achievement of a performance-based condition becomes no longer probable, or when liability accounting applies to an award such as a cash-settled stock unit program and the stock price declines during the year.

What portion of the award that was previously expensed and is reversed under FAS R may be deducted from the amount reported in, or shown as a negative number in, the Stock Awards or Option Awards Column?

Answer: Only the previously expensed portions of awards that were previously reported in the Summary Compensation Table may be reversed in the Summary Compensation Table. Therefore, an expensed amount that relates to periods before effectiveness of the new rules or before the person became a named executive officer should not be deducted from the amount reported in, or shown as a negative number in, the Stock Awards or Option Awards column.

For this purpose, what standard applies for determining whether such an amount is reportable because it is accrued?

Answer: Instruction 5 to Item c 2 ix states that for purposes of Item c 2 ix D an accrued amount is an amount for which payment has become due.

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For example, if the named executive officer has completed all performance to earn an amount, but payment is subject to a six-month deferral in order to comply with Internal Revenue Code Section A, the amount would be an accrued amount subject to Item c 2 ix D disclosure. Question: If an equity incentive plan award is denominated in dollars, but payable in stock, how is it disclosed in the Grants of Plan-Based Awards Table since the headings for equity-based awards columns f , g and h only refer to numbers and not dollars?

Answer: The award should be disclosed in the Grants of Plan-Based Awards Table by including the dollar value and a footnote to explain that it will be paid out in stock in the form of whatever number of shares that amount translates into at the time of the payout. Question: Should a company include in the Outstanding Equity Awards at Fiscal Year-End Table in-kind earnings on restricted stock awards that have earned share dividends or share dividend equivalents?

Outstanding in-kind earnings at the end of the fiscal year should be included in the table. However, in-kind earnings that vested during the fiscal year, or in-kind earnings that are already vested when the dividends are declared, instead should be reported in the Option Exercises and Stock Vested Table under Item g of Regulation S-K. Question: Instruction 3 to Item f 2 states that the issuer should report the market value of equity incentive plan awards using the closing market price at the end of the last completed fiscal year.

The next sentence, however, states that the number of shares or units reported should be based on achieving threshold performance goals, "except that if the previous fiscal year's performance" has exceeded the threshold, disclosure is based on the next higher measure. Answer: For this purpose, the "previous fiscal year" means the same year as the "last completed fiscal year.

Item 402 of sec regulation s-k pdf

Performance during was well above the maximum level. Performance during was below the threshold level. Is it permissible to base disclosure on the actual multi-year performance to date through the end of the last completed fiscal year? Question: When reporting on the exercise or settlement of a stock appreciation right in the Number of Shares Acquired on Exercise column column b of the Option Exercises and Stock Vested Table, should a company report the net number of shares received upon exercise, or the gross number of shares underlying the exercised stock appreciation right?

Answer: As would be the case with the cashless exercise of options, the total number of shares underlying the exercised stock appreciation right should be reported in column b , rather than just the amount representing the increase of the stock price since the grant of the award. A footnote or narrative accompanying the table could explain and quantify the net number of shares received.

May the company deviate from the assumptions used for accounting purposes given the individual circumstances of the named executive officer or the plan? While many plans have a specifically defined retirement age, some plans also have a provision that allows participants to retire at an earlier age without any benefit reduction.

In this case, which age should the company use in making its calculation? The older age may be included as an additional column.

Item 402 of sec regulation s-k pdf

Question: How do you measure the actuarial present value of the accumulated benefit of a pension plan in the situation where a particular benefit is earned at a specified age?

For instance, if a named executive officer at age 40 is granted an award if he stays with his company until age 60, how should the company measure this benefit when the executive is age 50 and the normal retirement age under the plan is age 65?

Answer: The computation should be based on the accumulated benefit as of the pension measurement date, assuming that the named executive continues to live and will work at the company until retirement and thus will reach age 60 and receive the award.

Item 402 of Regulation S-K — Executive Compensation

Therefore, the assumptions used for financial statement reporting purposes that should be used for calculating the actuarial present value are the discount rate, the lump sum interest rate if applicable , post-retirement mortality, and payment distribution assumptions. Any contingent benefits arising upon death, early retirement or other termination of employment events should be disclosed in the post-employment narrative disclosure required under Item j of Regulation S-K. Question: The instruction to Item i 2 of Regulation S-K requires footnote disclosure quantifying the extent to which amounts reported in the table were reported as compensation in the Summary Compensation Table in the last completed fiscal year and in previous fiscal years.

What should be noted by footnote when amounts were not previously reported either because of the transition guidance in Securities Act Release No. Answer: The purpose of the instruction is to facilitate an understanding that non-qualified deferred compensation is reported elsewhere within the executive compensation disclosure over time.