SEC Approves Rules on Proxy Enhancements

December 17, 2009 (PLANSPONSOR.com) - The Securities and Exchange Commission (SEC) has approved rules to enhance the information provided to shareholders to evaluate the leadership and compensation policies of public companies.

Beginning in the upcoming annual reporting and proxy season, the new rules will improve corporate disclosure regarding risk, compensation and corporate governance matters when voting decisions are made, the SEC said.

Included in the proxy enhancements is a rule that would help investors determine whether a company has incentivized excessive or inappropriate risk-taking by employees. Among other things, it would require a narrative disclosure about the company's compensation policies and practices for all employees, not just executive officers, if the compensation policies and practices create risks that are reasonably likely to have a material adverse effect on the company. Smaller reporting companies will not be required to provide the new disclosure.

The SEC approved revisions to the reporting of stock and option awards in the Summary Compensation Table and the Director Compensation Table to better reflect the compensation committees' decisions with regard to these awards. The amended rule requires companies to report the value of options when they are awarded to executives (the aggregate grant date fair value), instead of the current requirement to report the annual accounting charge. A special instruction addresses performance based awards to address concerns that the new rule might discourage use of these awards.

The SEC also approved rules requiring disclosure about the fees paid to compensation consultants and their affiliates in certain circumstances. The agency said this is intended to provide investors with information to help them better assess the potential conflicts of interest a compensation consultant may have in recommending executive compensation. The final rules are consistent with the rule proposal, but include exceptions for circumstances that should not raise the potential conflicts of interest.