SECURITIES AND EXCHANGE COMMISSION 

17 CFR PARTS 229, 239, 240, 249 and 274 

[RELEASE NOS. 33-9089; 34-61175; IC-29092; File No. S7-13-09] 

RIN 3235-AK28 

PROXY DISCLOSURE ENHANCEMENTS 

AGENCY: Securities and Exchange Commission. 

ACTION: Final rule. 

SUMMARY: We are adopting amendments to our rules that will enhance information provided 

in connection with proxy solicitations and in other reports filed with the Commission. The 

amendments will require registrants to make new or revised disclosures about: compensation 

policies and practices that present material risks to the company; stock and option awards of 

executives and directors; director and nominee qualifications and legal proceedings; board 

leadership structure; the board’s role in risk oversight; and potential conflicts of interest of 

compensation consultants that advise companies and their boards of directors. The amendments 

to our disclosure rules will be applicable to proxy and information statements, annual reports and 

registration statements under the Securities Exchange Act of 1934, and registration statements 

under the Securities Act of 1933 as well as the Investment Company Act of 1940. We are also 

transferring from Forms 10-Q and 10-K to Form 8-K the requirement to disclose shareholder 

voting results. 

EFFECTIVE DATE: February 28, 2010 

FOR FURTHER INFORMATION CONTACT: N. Sean Harrison, Special Counsel, at (202) 

551-3430 or Anne Krauskopf, Senior Special Counsel, at (202) 551-3500, in the Division of 

Corporation Finance; or with respect to questions regarding investment companies, Alberto 
 

Zapata, Senior Counsel, Division of Investment Management, at (202) 551-6784, U.S. Securities 

and Exchange Commission, 100 F Street, NE, Washington, DC 20549. 

SUPPLEMENTARY INFORMATION: We are adopting amendments to Items 401,1 402,2 

and 4073 of Regulation S-K;4 Schedule 14A5 and Forms 8-K,6 10-Q,7 and 10-K8 under the 

Securities Exchange Act of 1934 (“Exchange Act”);9

 and Forms N-1A,10 N-2,11 and N-3,12 

registration forms used by management investment companies to register under the Investment 

Company Act of 1940 (“Investment Company Act”)13 and to offer their securities under the 

Securities Act of 1933 (“Securities Act”).14 

TABLE OF CONTENTS 

I. Background and Overview of the Amendments 

II. Discussion of the Amendments 

1

 17 CFR 229.401. 

2

 17 CFR 229.402. 

3

 17 CFR 229.407. 

4

 17 CFR 229.10 et al. 

5

 17 CFR 240.14a-101. 

6

 17 CFR 249.308. 

7

 17 CFR 249.308a. 

8

 17 CFR 249.310. 

9 15 U.S.C. 78a et seq.
 

10 17 CFR 239.15A and 274.11A. 

11 17 CFR 239.14 and 274.11a-1. 

12 17 CFR 239.17a and 274.11b. 

13 15 U.S.C. 80a-1 et seq. 

14 15 U.S.C. 77a et seq. 

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 A. Enhanced Compensation Disclosure 

1. Narrative Disclosure of the Company’s Compensation Policies and 

 Practices as They Relate to the Company’s Risk Management 

a. Proposed Amendments 

b. Comments on the Proposed Amendments 

 c. Final Rule 

2. Revisions to the Summary Compensation Table 

a. Proposed Amendments 

b. Comments on the Proposed Amendments 

 c. Final Rule

 d. Transition

 e. Comment Responses Regarding Rulemaking Petition and Other 

 Requests for Comment 

B. Enhanced Director and Nominee Disclosure 

1. Proposed Amendments 

2. Comments on the Proposed Amendments 

3. Final Rule 

C. New Disclosure about Board Leadership Structure and the Board’s Role in 

 Risk Oversight 

1. Proposed Amendments 

2. Comments on the Proposed Amendments 

3. Final Rule 

D. New Disclosure Regarding Compensation Consultants 

1. Proposed Amendments 

2. Comments on the Proposed Amendments 

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 3. Final Rule 

E. Reporting of Voting Results on Form 8-K 

1. Proposed Amendments 

2. Comments on the Proposed Amendments 

3. Final Rule 

III.	 Paperwork Reduction Act 

IV. Cost-Benefit Analysis 

V. Consideration of Impact on the Economy, Burden on Competition and Promotion 

of Efficiency, Competition and Capital Formation 

VI. Final Regulatory Flexibility Analysis 

VII. Statutory Authority and Text of the Amendments 

I. BACKGROUND AND OVERVIEW OF THE AMENDMENTS 

On July 10, 2009, we proposed a number of revisions to our rules that were designed to 

improve the disclosure shareholders of public companies receive regarding compensation and 

corporate governance.15 As discussed in detail below, we have taken into consideration the 

comments received on the proposed amendments and are adopting several amendments to our 

rules. Among other improvements, the new disclosure requirements adopted today enhance the 

information provided in annual reports, and proxy and information statements to better enable 

shareholders to evaluate the leadership of public companies. 

As discussed more fully in the Proposing Release, during the past few years, investors 

have increasingly focused on corporate accountability and have expressed the desire for 

additional information that would enhance their ability to make informed voting and investment 

decisions. The disclosure enhancements we are adopting respond to this focus, and will 

15 See Release No. 33-9052 (July 10, 2009) [74 FR 35076] (“Proposing Release”). 

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significantly improve the information companies provide to shareholders with regard to the 

following: 

•	 Risk: by requiring disclosure about the board’s role in risk oversight and, to the 

extent that risks arising from a company’s compensation policies and practices are 

reasonably likely to have a material adverse effect on the company, disclosure about 

such policies and practices as they relate to risk management; 

•	 Governance and Director Qualifications: by requiring expanded disclosure of the 

background and qualifications of directors and director nominees and new disclosure 

about a company’s board leadership structure, and accelerating the reporting of 

information regarding voting results; and 

•	 Compensation: by revising the reporting of stock and option awards in the Summary 

Compensation Table16 and Director Compensation Table,17 and requiring disclosure of 

potential conflicts of interest of compensation consultants in certain circumstances. 

We believe that providing a more transparent view of these key risk, governance and 

compensation matters will help shareholders make more informed voting and investment 

decisions. 

We received over 130 comment letters in response to the proposed amendments.18 These 

letters came from corporations, pension funds, professional associations, trade unions, 

accounting firms, law firms, consultants, academics, individual investors and other interested 

parties. In general, the commenters supported the objectives of the proposed new requirements. 

16 Item 402(c) and 402(n) of Regulation S-K [17 CFR 229.402(c) and 229.402(n)]. 

17 Item 402(k) and 402(r) of Regulation S-K [17 CFR 229.402(k) and 229.402(r)]. 

18 The public comments we received are available on our Web site at http://www.sec.gov/comments/s7-13-

09/s71309.shtml. Comments are also available for Web site viewing and copying in the Commission’s Public 

Reference Room, 100 F Street, NE, Washington, DC 20549, on official business days between the hours of 10:00 

a.m. and 3:00 p.m. 

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Most investors supported the manner in which we proposed to achieve these objectives and, in 

some cases, urged us to require additional disclosure from companies. Other commenters, 

however, opposed some of the proposed revisions and suggested modifications to the proposals. 

We have reviewed and considered all of the comments that we received on the proposed 

amendments. The adopted rules reflect changes made in response to many of these comments. 

We discuss our revisions with respect to each proposed rule amendment in more detail 

throughout this release. The amendments that we are adopting will require: 

•	 To the extent that risks arising from a company’s compensation policies and practices 

for employees are reasonably likely to have a material adverse effect on the company, 

discussion of the company’s compensation policies or practices as they relate to risk 

management and risk-taking incentives that can affect the company’s risk and 

management of that risk; 

•	 Reporting of the aggregate grant date fair value of stock awards and option awards 

granted in the fiscal year in the Summary Compensation Table and Director 

Compensation Table to be computed in accordance with Financial Accounting 

Standards Board Accounting Standards Codification Topic 718, Compensation— 

Stock Compensation (“FASB ASC Topic 718”),19 rather than the dollar amount 

recognized for financial statement purposes for the fiscal year, with a special 

instruction for awards subject to performance conditions; 

19 Both our rule proposal and the former disclosure requirement used the nomenclature Financial Accounting 

Standards Board Statement of Financial Accounting Standards No. 123 (revised 2004) Share-Based Payment (FAS 

123R). We are updating our references in this release and the final rules to reflect that the FASB Accounting 

Standards Codification has superseded all references to previous FASB standards for interim or annual periods 

ending on or after September 15, 2009. 

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•	 New disclosure of the qualifications of directors and nominees for director, and the 

reasons why that person should serve as a director of the company at the time at 

which the relevant filing is made with the Commission; the same information would 

be required in the proxy materials prepared with respect to nominees for director 

nominated by others; 

•	 Additional disclosure of any directorships held by each director and nominee at any 

time during the past five years at any public company or registered investment 

company; 

•	 New disclosure regarding the consideration of diversity in the process by which 

candidates for director are considered for nomination by a company’s nominating 

committee; 

•	 Additional disclosure of other legal actions involving a company’s executive officers, 

directors, and nominees for director, and lengthening the time during which such 

disclosure is required from five to ten years; 

•	 New disclosure about a company’s board leadership structure and the board’s role in 

the oversight of risk; 

•	 New disclosure about the fees paid to compensation consultants and their affiliates 

under certain circumstances; and 

•	 Disclosure of the vote results from a meeting of shareholders on Form 8-K generally 

within four business days of the meeting. 

With respect to management investment companies that are registered under the 

Investment Company Act (“funds”),20 the amendments we are adopting will require expanded 

20 Management investment companies typically issue shares representing an interest in a changing pool of securities, 

and include open-end and closed-end companies. An open-end company is a management company that is offering 

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disclosure regarding director and nominee qualifications; past directorships held by directors and 

nominees; and legal proceedings involving directors, nominees, and executive officers to funds; 

and new disclosure about leadership structure and the board’s role in the oversight of risk. 

The Proposing Release also included several proposed amendments to our rules 

governing the proxy solicitation process. We have decided to defer consideration of those 

proposed amendments at this time, pending our consideration of our proposal intended to 

facilitate shareholder director nominations in companies’ proxy materials.21 

II. DISCUSSION OF THE AMENDMENTS 

A. Enhanced Compensation Disclosure 

1. Narrative Disclosure of the Company’s Compensation Policies and Practices 

as They Relate to the Company’s Risk Management 

We proposed amendments to our Compensation Discussion and Analysis (“CD&A”) 

requirements to broaden their scope to include a new section regarding how the company’s 

overall compensation policies for employees create incentives that can affect the company’s risk 

and management of that risk. We are adopting the disclosure requirements generally as 

proposed, but we are revising the placement of the new required disclosures and the disclosure 

threshold, as suggested by commenters. 

a.	 Proposed Amendments 

Under the amendments we proposed, companies would be required to discuss and 

analyze their broader compensation policies and overall actual compensation practices for 

employees generally, including non-executive officers, if risks arising from those compensation 

for sale or has outstanding any redeemable securities of which it is the issuer. A closed-end company is any 

management company other than an open-end company. See Section 5 of the Investment Company Act [15 U.S.C. 

80a-5]. 

21 See Release No. 33-9046 (June 10, 2009) [74 FR 29024]. 

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policies or practices may have a material effect on the company. As we stated in the Proposing 

Release, we believe that disclosure of a company’s compensation policies and practices in 

certain circumstances can help investors identify whether the company has established a system 

of incentives that can lead to excessive or inappropriate risk taking by employees. 

The proposed amendments enumerated a non-exclusive list of situations where 

compensation programs may raise material risks to companies, and several examples of the types 

of issues that would be appropriate for a company to discuss and analyze. The illustrative 

examples, consistent with the principles-based approach of the CD&A, were intended to help 

identify the types of situations in which the disclosure may be required. 

b. Comments on the Proposed Amendments 

Comments on the proposal were mixed. Individual investors, trade unions, institutional 

investors and pension funds supported the proposals.22 Some of these commenters believed the 

new CD&A disclosure would improve the ability of investors to make informed investment 

decisions.23 Other commenters believed the amendments would significantly improve 

shareholders’ understanding of both the process by which pay is set and the substantive policies 

that guide companies’ risk assessment or incentive considerations in structuring compensation 

policies or awarding compensation.24 

22 See, e.g., letters from American Federation of Labor and Congress of Industrial Organizations (“AFL-CIO”), 

American Association of Retired Persons (“AARP”), Grahall Partners LLC, Institute of Internal Auditors (“IIA”), 

Pfizer Inc., Risk and Insurance Management Society, Inc. (“RIMS”), State of Connecticut Treasurer’s Office 

(“CTO”), State of Wisconsin Investment Board (“SWIB”), Ralph S. Saul, Teachers Insurance and Annuity 

Association of America - College Retirement and Equities Fund (“TIAA-CREF”), and Mark Whitton. 

23 See, e.g., letters from California State Teachers’ Retirement System (“CalSTRS”), and RIMS. 

24 See, e.g., letters from Service Employees International Union (“SEIU”), and Walden Asset Management. 

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Most companies, law firms and bar groups opposed the proposal.25 Concerns that were 

expressed included, for example, that the proposed amendments would not lead to meaningful 

disclosures,26 and that the CD&A was already long and the proposed amendments would add 

length without a corresponding benefit to shareholders.27 Another concern expressed by 

commenters was that the linkage between risk-taking and executive compensation is not well 

understood, and that the disclosures provided under the proposed amendments would likely be 

boilerplate that could give investors a false sense of comfort regarding risk and risk-taking.28 

Other commenters argued that it was not appropriate to expand the CD&A beyond the 

named executive officers to include disclosure of the company’s broader compensation policies 

and overall compensation practices for employees generally.29 Some of these commenters 

argued that expanding the CD&A would represent a fundamental shift in the approach to the 

CD&A.30 Concerns were also expressed that risk management, risk-taking incentives and related 

business strategy are complex subjects that could not be adequately analyzed in CD&A without 

adding voluminous text to an already lengthy proxy statement.31 

Comments also were mixed on the illustrative examples included with the proposed 

amendments. Some commenters supported the list, noting that the additional disclosures would 

25 See, e.g., letters from the American Bar Association (“ABA”), Robert Ahrenholz, American Electric Power, 

Business Roundtable, StanCorp Financial Group, and Wisconsin Electric Corporation.
 

26 See, e.g., letters from Association Corporate Counsel (“ACC”), BorgWarner Inc., NACCO Industries, Inc.
 

(“NACCO”), and Sullivan & Cromwell (“S&C”). 

27 See, e.g., letters from National Association of Corporate Directors (“NACD”) and S&C. 

28 See, e.g., letters from ABA and DolmatConnell Partners, Inc. (“DolmatConnell”). 

29 See, e.g., letters from BorgWarner, NACCO and the Society of Corporate Secretaries and Corporate Governance 

Professionals (“SCSGP”). 

30 See, e.g., letters from BorgWarner and NACCO. 

31 See e.g., letter of NACD. 

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provide investors with a better understanding of a company’s compensation policies and how 

such policies can create incentives that could affect the company’s risk profile and ability to 

manage that risk.32 Other commenters asserted that the proposed revisions would lead to 

boilerplate disclosures and information that would not be meaningful to investors.33 

Several commenters recommended that we revise the disclosure threshold in the 

proposed amendments, which we proposed as “may have a material effect” on the company.34 

Suggested alternatives included changing the standard to “likely to have a material effect,” 

“reasonably likely to have a material effect,” or “will likely have a material effect.”35 Some 

commenters believed the “may have a material effect” standard was too speculative and that 

basing the disclosure standard on whether the risks are “reasonably likely to have a material 

effect” would give companies more certainty and provide investors with more meaningful 

disclosure.36 Commenters also noted that, to avoid voluminous and extraneous disclosure, the 

requirement should focus on compensation arrangements that are likely to promote risk-taking 

behavior that could have a significant and damaging impact on the company’s operations.37

 c. Final Rule 

After considering the comments, we are adopting the disclosure requirement substantially 

as proposed with some modifications. We continue to believe that it is important for investors to 

32 See, e.g., letters from CalSTRS, Council of Institutional Investors (“CII”), Glass Lewis & Co (“Glass Lewis”), 

and RIMS. 

33 See e.g., letters of Business Roundtable and Cleary Gottlieb Steen & Hamilton LLP (“Cleary Gottlieb”). 

34 See letters from ACC, BorgWarner, Davis Polk & Wardwell LLP (“Davis Polk”), Honeywell International Inc. 

(“Honeywell”), NACCO, and SCSGP. 

35 See letters from ABA, ACC, BorgWarner, Davis Polk, Honeywell, NACCO, and SCSGP. 

36 See letters from ABA and Davis Polk. 

37 See letters from ABA and Pearl Meyer & Partners (“Pearl Meyer”). 

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be informed of the compensation policies and practices that are likely to expose the company to 

material risk, but we recognize that, consistent with the comments received, we should revise our 

proposals. We have tailored the final amendments to address many of the concerns expressed by 

commenters, consistent with the purposes to be advanced by the disclosure. 

The final rule requires a company to address its compensation policies and practices for 

all employees, including non-executive officers, if the compensation policies and practices create 

risks that are reasonably likely to have a material adverse effect on the company.38 As noted 

above, the proposed rules would have required discussion and analysis of compensation policies 

if risks arising from those compensation policies “may have a material effect on the company.” 

We agree with the suggestions of several commenters that the new requirements should have a 

“reasonably likely” disclosure threshold. Companies are familiar with the “reasonably likely” 

disclosure threshold used in our Management Discussion and Analysis (“MD&A”) rules,39 and 

this approach would parallel the MD&A requirement, which requires risk-oriented disclosure of 

known trends and uncertainties that are material to the business. We believe that the “reasonably 

likely” threshold also addresses concerns of some commenters that the proposed requirements 

might have caused companies attempting compliance to burden shareholders and investors with 

voluminous disclosure of potentially insignificant and unnecessarily speculative information 

about their compensation policies. By focusing on risks that are “reasonably likely to have a 

material adverse effect” on the company, the amendments are intended to elicit disclosure about 

incentives in the company’s compensation policies and practices that would be most relevant to 

38 See new Item 402(s) of Regulation S-K. As we noted in the Proposing Release, to the extent that risk 

considerations are a material aspect of the company’s compensation policies or decisions for named executive 

officers, the company is required to discuss them as part of its CD&A under the current rules. 

39 See Item 303 of Regulation S-K [17 CFR 229.303]. 

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investors.40 This change from the proposal also addresses concerns some commenters raised that 

the proposal did not allow companies to consider compensating or offsetting steps or controls 

designed to limit risks of certain compensation arrangements.41 If a company has compensation 

policies and practices for different groups that mitigate or balance incentives, these could be 

considered in deciding whether risks arising from the company’s compensation policies and 

practices for employees are reasonably likely to have a material adverse effect on the company 

as a whole. 

In addition, we have modified the proposal to provide that disclosure is only required if 

the compensation policies and practices are reasonably likely to have a material “adverse” effect 

on the company, as opposed to any “material effect” as proposed. As noted in the Proposing 

Release, well-designed compensation policies can enhance a company’s business interests by 

encouraging innovation and appropriate levels of risk-taking. By focusing the disclosure on 

material adverse effects, the final rule should help avoid voluminous and unnecessary discussion 

of compensation arrangements that may mitigate inappropriate risk-taking incentives. 

We are also moving the new requirements into a separate paragraph in Item 402 of 

Regulation S-K.42 As adopted, the new disclosure requirements will not be a part of the CD&A.43 

We were persuaded by commenters who asserted that it would be potentially confusing to 

expand the CD&A beyond the named executive officers to include disclosure of the company’s 

40 See note 36 above and accompanying text. 

41 See letters from ABA and Center on Executive Compensation. 

42 See new Item 402(s) of Regulation S-K. 

43 In making this change, we also revised the final rule from what was proposed by eliminating the term “generally.” 

Previously, we believed this term was helpful to distinguish the proposed amendments from the CD&A for the 

named executive officers by emphasizing that it also applied to non-executive officers. Because we are moving the 

new requirements into a separate paragraph, we do not believe the term is needed. Moreover, one commenter noted 

that the term could be confusing in light of the examples listed in the rule. See letter from ABA. 

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broader compensation policies and practices for employees. CD&A provides discussion and 

analysis of the compensation of the named executive officers and the information contained in 

the Summary Compensation Table and other required tables, and the new disclosure 

requirements would be inconsistent with that approach because they would cover all employees, 

not just the named executive officers.44 

The final rule will contain, as proposed, the non-exclusive list of situations where 

compensation programs may have the potential to raise material risks to companies, and the 

examples of the types of issues that would be appropriate for a company to address. Under the 

amendments, the situations that would require disclosure will vary depending on the particular 

company and its compensation program. We believe situations that potentially could trigger 

discussion include, among others, compensation policies and practices: 

•	 At a business unit of the company that carries a significant portion of the company’s risk 

profile; 

•	 At a business unit with compensation structured significantly differently than other units 

within the company; 

•	 At a business unit that is significantly more profitable than others within the company; 

•	 At a business unit where the compensation expense is a significant percentage of the 

unit’s revenues; and 

•	 That vary significantly from the overall risk and reward structure of the company, such as 

when bonuses are awarded upon accomplishment of a task, while the income and risk to 

the company from the task extend over a significantly longer period of time. 

44 See letters from BorgWarner, NACCO and SCSGP. 

14 
This is a non-exclusive list of situations where compensation programs may have the 

potential to raise material risks to the company. There may be other features of a company’s 

compensation policies and practices that have the potential to incentivize its employees to create 

risks that are reasonably likely to have a material adverse effect on the company. However, 

disclosure under the amendments is only required if the compensation policies and practices 

create risks that are reasonably likely to have a material adverse effect on the company. We note 

that in the situations listed above, a company may under appropriate circumstances conclude that 

its compensation policies and practices are not reasonably likely to have a material adverse effect 

on the company. 

We are adopting, as proposed, the illustrative examples of the issues that would 

potentially be appropriate for a company to address. As we stated in the Proposing Release, the 

examples are non-exclusive and that the application of an example should be tailored to the facts 

and circumstances of the company. We believe that a principles-based approach, similar to our 

CD&A requirements, utilizing illustrative examples strikes an appropriate balance that will 

effectively elicit meaningful disclosure. If a company determines that disclosure is required, we 

believe examples of the issues that companies may need to address regarding their compensation 

policies or practices include the following: 

•	 The general design philosophy of the company’s compensation policies and practices for 

employees whose behavior would be most affected by the incentives established by the 

policies and practices, as such policies and practices relate to or affect risk taking by 

those employees on behalf of the company, and the manner of their implementation; 

•	 The company’s risk assessment or incentive considerations, if any, in structuring its 

compensation policies and practices or in awarding and paying compensation; 

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•	 How the company’s compensation policies and practices relate to the realization of risks 

resulting from the actions of employees in both the short term and the long term, such as 

through policies requiring claw backs or imposing holding periods; 

•	 The company’s policies regarding adjustments to its compensation policies and practices 

to address changes in its risk profile; 

•	 Material adjustments the company has made to its compensation policies and practices as 

a result of changes in its risk profile; and 

•	 The extent to which the company monitors its compensation policies and practices to 

determine whether its risk management objectives are being met with respect to 

incentivizing its employees. 

We believe using illustrative examples helps to identify the types of disclosure that may 

be applicable. However, companies must assess the information that is identified by the example 

in light of the company’s particular situation. Thus, for example, we would not expect to see 

generic or boilerplate disclosure that the incentives are designed to have a positive effect, or that 

compensation levels may not be sufficient to attract or retain employees with appropriate skills in 

order to enable the company to maintain or expand operations. 

Consistent with the approach taken in the proposals, smaller reporting companies will not 

be required to provide the new disclosure, even though the new rule will not be part of CD&A.45 

At this time, we believe that such companies are less likely to have the types of compensation 

policies and practices that are intended to be addressed in this rulemaking.46 

45 Because smaller reporting companies are not required to provide CD&A disclosure, we did not propose to require 

that they provide the new disclosure. 

46 See, e.g., letter of Committee on Securities Law of the Business Law Section of the Maryland State Bar 

Association (“In our view smaller reporting companies and their compensation structures generally are not geared 

towards the kind of disclosure that would be required by the proposal”). The amendments will not alter the reporting 

requirements for smaller reporting companies under Item 402. Specifically, smaller reporting companies are 

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In the Proposing Release, we requested comment on whether we should require a 

company to affirmatively state that it has determined that the risks arising from its compensation 

policies are not reasonably expected to have a material effect on the company if it has concluded 

that disclosure was not required. Commenters were mixed in their response to this request. 

Several commenters believed that companies should be required to affirmatively state that they 

have determined that the risks arising from their broader compensation policies are not 

reasonably expected to have a material effect.47 Others believed that the proposed amendments 

should not require an affirmative statement because it would not provide investors with useful 

information and would create potential liability for companies.48 Another commenter noted that 

our disclosure rules have not traditionally required companies to address affirmatively matters 

that the company has determined are not applicable to it.49 We believe an approach consistent 

with our prior practice is appropriate and the final rule does not require a company to make an 

affirmative statement that it has determined that the risks arising from its compensation policies 

and practices are not reasonably likely to have a material adverse effect on the company. 

2. Revisions to the Summary Compensation Table 

We proposed to amend Item 402 of Regulation S-K to revise Summary Compensation 

Table and Director Compensation Table disclosure of stock awards and option awards to require 

disclosure of the aggregate grant date fair value of awards computed in accordance with FASB 

permitted to provide the scaled disclosures specified in Items 402(l) through (r) of Regulation S-K, rather than the 

disclosure specified in Items 402(a) through (k) of Regulation S-K. 

47 See, e.g., letters from Calvert Group, Ltd. (“Calvert”), Grahall Partners and Integrated Governance Solutions. 

48 See, e.g., letters from the Business Roundtable, Honeywell, Pfizer and S&C. 

49 See letter from ABA. 

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ASC Topic 718. The revised disclosure50 would replace previously mandated disclosure of the 

dollar amount recognized for financial statement reporting purposes for the fiscal year in 

accordance with FASB ASC Topic 718, and would affect the calculation of total compensation, 

including for purposes of determining who is a named executive officer.51 We are adopting the 

revisions substantially as proposed with some changes in response to comments. 

a. Proposed Amendments 

As we stated in the Proposing Release, we proposed these amendments because of 

comments we previously received from a variety of sources that the information that investors 

would find most useful and informative in the Summary Compensation Table and Director 

Compensation Table is the full grant date fair value of equity awards made during the covered 

fiscal year. Investors may consider compensation decisions made during the fiscal year, which 

usually are reflected in the full grant date fair value measure but not in the financial statement 

recognition measure, to be material to voting and investment decisions. 

We also proposed to rescind the requirement to report the full grant date fair value of 

each individual equity award in the Grants of Plan-Based Awards Table52 and the corresponding 

footnote disclosure to the Director Compensation Table53 because these disclosures may be 

considered duplicative of the aggregate grant date fair value to be provided in the amended 

Summary Compensation Table. In addition, we proposed to amend Instruction 2 to the salary 

and bonus columns of the Summary Compensation Table so that companies would not be 

50 Items 402(c)(2)(v) and (vi), 402(k)(2)(iii) and (iv), 402(n)(2)(v) and (vi), and 402(r)(2)(iii) and (iv) of Regulation
 

S-K. 

51 Items 402(a)(3)(iii) and (iv) and 402(m)(2)(ii) and (iii) of Regulation S-K. 

52 Item 402(d)(2)(viii) of Regulation S-K and Instruction 7 to Item 402(d). 

53 Instruction to Item 402(k)(2)(iii) and (iv) of Regulation S-K. 

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required to report in those columns the amount of salary or bonus forgone at a named executive 

officer’s election, and the non-cash awards received instead of salary or bonus would be reported 

in the column applicable to the form of award elected. As proposed, the Summary 

Compensation Table disclosure would reflect the form of compensation ultimately received by 

the named executive officer. 

b. Comments on the Proposed Amendments 

A broad spectrum of commenters supported the proposal to revise the Summary 

Compensation Table and Director Compensation Table disclosure of stock awards and option 

awards to require disclosure of the aggregate grant date fair value of awards.54 Most commenters 

agreed that because aggregate grant date fair value disclosure better reflects compensation 

committee decisions with respect to stock and option awards,55 it is more informative to voting 

and investment decisions56 and a better measure for purposes of identifying named executive 

officers.57 However, some commenters objected that use of grant date fair value to identify 

named executive officers may result in relatively frequent changes in the named executive 

54 See, e.g., letters from AARP, Business Roundtable, State of Wisconsin Investment Board (“SWIB”), Pfizer, 

SCSGP, S&C, United Brotherhood of Carpenters and Joiners of America (“United Brotherhood of Carpenters”), 

United States Proxy Exchange (“USPX”). 

55 See, e.g., letters from Business Roundtable (“Generally, we support the Proposed Rules, as they likely will 

produce disclosure that, in most situations, is more in line with how compensation committees view annual equity 

compensation – that is, disclosure of the equity compensation that a company grants in a particular year.”); and 

SCSGP (“We support this change. The aggregate grant date fair value is generally used by compensation 

committees in determining the amount of stock and options to award, whereas the current disclosure requirement 

confusingly focuses on accounting considerations that may have no bearing on compensation decisions.”). 

56 See, e.g., letter of United Brotherhood of Carpenters (“The proposed SCT reporting of equity awards will help 

inform investment decisions, as well as important investor voting decisions regarding executive compensation and 

director performance.”). 

57 See, e.g., letter of Mercer (“Because the value included in the SCT determines the identification of at least three of 

the named executive officers (other than the principal executive officer and the principal financial officer), 

disclosure of the full grant-date fair value would also better align the identification of these officers with company 

compensation decisions.”). 

19 
 

 

officer group based on grants of “one time” multi-year awards to newly hired executives or 

special awards to enhance retention.58 

As discussed in detail below, many commenters expressed concern that the amount to be 

reported in the table for performance awards would be calculated without regard to the likelihood 

of achieving the relevant performance objectives, which could discourage companies from 

granting these awards.59 Others, however, suggested that the design of equity awards is driven 

by numerous considerations, and companies would continue to make equity awards subject to 

performance conditions.60 

With respect to the proposal to rescind the requirement to report the full grant date fair 

value of each individual equity award in the Grants of Plan-Based Awards Table, the comments 

were mixed. While some commenters supported this proposal,61 others stated that retaining 

disclosure of the grant date fair value of individual awards would continue to provide investors 

valuable information. Because different companies may vary in the assumptions they apply to 

compute grant date fair value, some commenters noted that retaining this disclosure makes it 

easier for investors to assess how companies determined fair value for individual grants.62 

Further, different types of equity awards can have different incentive effects, making it important 

that shareholders understand the value associated with each type of award granted and the mix of 

58 See, e.g., letter of Protective Life Corporation. 

59 See, e.g., letters from ABA, Business Roundtable, Center on Executive Compensation, Cleary Gottlieb,
 

Compensia, Honeywell, Frederic W. Cook & Co., Inc., Pearl Meyer, Protective Life Corporation, Securities Industry
 

and Financial Markets Association (SIFMA), SCSGP, and Towers Perrin.
 

60 See, e.g., letter from Hewitt Associates LLC (“Hewitt”). 

61 See letters from Buck Consultants, Chadbourne Park, Mercer, Pfizer, Protective Life Corporation, and S&C.
 

62 See letters from AFL-CIO, Compensia and Graef Crystal. 

20 
 

 

values among various award types.63 Commenters pointed out that reporting the separate value 

of multiple individual awards provides investors more information regarding the specific 

decisions of the compensation committee, so that investors can better evaluate those decisions 

and understand pay for performance.64 

We also received a wide range of comments on our proposal to amend Instruction 2 to the 

salary and bonus columns of the Summary Compensation Table. Some commenters favored this 

amendment because, as stated in the Proposing Release, it would report compensation in the 

form actually received.65 Other commenters, however, said it is important to report the form of 

compensation that the compensation committee originally awarded, so that investors can 

understand the overall compensation strategy and the intended distribution of risk among 

different types of compensation.66

 c. Final Rule 

After considering the comments received, we are adopting the proposed amendments to 

revise Summary Compensation Table and Director Compensation Table disclosure of stock 

awards and option awards to require disclosure of the aggregate grant date fair value of awards 

computed in accordance with FASB ASC Topic 718, with a special instruction for awards 

subject to performance conditions as described below. We agree with commenters that 

aggregate grant date fair value disclosure better reflects the compensation committee's decision 

with regard to stock and option awards. We remain of the view that it is more meaningful to 

63 See letters from Compensia, Frederic W. Cook & Co., Inc., and Risk Metrics. 

64 See letters from Center on Executive Compensation, Hewitt, Pearl Meyer, Towers Perrin, and Universities 

Superannuation Scheme, et al. 

65 See, e.g,, letters from Pfizer and RiskMetrics. 

66 See letters from Center on Executive Compensation, and Pearl Meyer. 

21 
 

 

shareholders if company compensation decisions–including decisions to grant large “one time” 

multi-year awards–cause the named executive officers to change. In circumstances where such a 

large “new hire” or “retention” grant results in the omission from the Summary Compensation 

Table of another executive officer whose compensation otherwise would have been subject to 

reporting, the company can consider including compensation disclosure for that executive officer 

to supplement the required disclosures. 

Based on comments received, we are clarifying how performance awards67 are disclosed. 

Most commenters stated that reporting the aggregate grant date fair value of performance awards 

based on maximum performance could discourage companies from granting these awards.68 

Noting that compensation committees take performance-contingent conditions into account when 

granting such awards, commenters said that the grant date fair value reported for awards with a 

performance condition should instead be based on the probable outcome of the performance 

conditions, consistent with the recognition criteria in the accounting literature.69 As commenters 

stated, because performance awards generally are designed to incentivize attainment of target 

performance and set a higher maximum performance level as a “cap” on attainable 

compensation, requiring disclosure of an award’s value to always be based on maximum 

performance would overstate the intended level of compensation and result in investor 

misinterpretation of compensation decisions. This could also discourage the grant of awards 

67 Performance awards include only those awards that are subject to performance conditions as defined in the 

Glossary to FASB ASC Topic 718. 

68 See, e.g., letters from ABA, Business Roundtable, Center on Executive Compensation, Cleary Gottlieb, 

Compensia, Honeywell, Frederic W. Cook & Co., Inc., Pearl Meyer, Protective Life Corporation, SIFMA, SCSGP, 

and Towers Perrin. 

69 FASB ASC Topic 718. 

22 
 

with difficult – or any – performance conditions, and lead to inflated benchmarking values used 

to set equity award or total compensation levels at other companies. 

We are persuaded that the value of performance awards reported in the Summary 

Compensation Table, Grants of Plan-Based Awards Table and Director Compensation Table 

should be computed based upon the probable outcome of the performance condition(s) as of the 

grant date because that value better reflects how compensation committees take performancecontingent vesting conditions into account in granting such awards. We are adopting new 

Instructions to these tables to clarify that this amount will be consistent with the grant date 

estimate of compensation cost to be recognized over the service period, excluding the effect of 

forfeitures.70 To provide investors additional information about an award’s potential maximum 

value subject to changes in performance outcome, we will also require in the Summary 

Compensation Table and Director Compensation Table footnote disclosure of the maximum 

value assuming the highest level of performance conditions is probable.71 Such footnote 

disclosure will permit investors to understand an award’s maximum value without raising the 

concerns associated with requiring its tabular disclosure.72 

We are requiring disclosure of awards granted during the year, as proposed. A number of 

commenters responded to our request for comment by indicating that they would prefer 

disclosure of the aggregate grant date fair value of equity awards granted for services in the 

relevant fiscal year, even if granted after fiscal year end, rather than awards granted during the 

70 See Instruction 3 to Item 402(c)(2)(v) and (vi), Instruction 8 to Item 402(d), and Instruction 3 to Item 402(n)(2)(v)
 

and (vi). 

71 See Instruction 3 to Item 402(c)(2)(v) and (vi), and Instruction 3 to Item 402(n)(2)(v) and (vi). 

72 See, e.g., letter from ABA. 

23 
 

 

 

 

relevant fiscal year, as proposed.73 Other commenters expressed concern that revising the 

proposal in this way would result in a lack of uniformity that would confuse investors, would be 

inconsistent with the FASB ASC Topic 718 grant date, and could invite manipulated reporting.74 

We recognize that a “performance year” standard for reporting equity awards in securities in the 

relevant fiscal year may sometimes better align compensation disclosure with compensation 

decision making, and may be more consistent with Summary Compensation Table salary and 

bonus disclosure.75 However, because it appears that multiple subjective factors, which could 

vary significantly from company to company, influence equity awards granted after fiscal year 

end, we are concerned that changing the approach to reporting could result in inconsistencies that 

would erode comparability. One commenter noted that many companies make equity awards 

after the end of the fiscal year based on executive performance during the last completed fiscal 

year, but determining whether an equity award was granted primarily for services performed 

during the last completed fiscal year can be a highly subjective determination and the factors that 

influence the decision of when to report an equity award may vary significantly from company to 

company.76 Companies should continue to analyze in CD&A their decisions to grant post-fiscal 

year end equity awards where those decisions could affect a fair understanding of named 

73 See, e.g., letters from ACC, Ameriprise Financial, Inc., BorgWarner, Business Roundtable, Cleary Gottlieb, 

Committee on Securities Law of the Business Law Section of the Maryland State Bar Association, Frederic W. 

Cook & Co., Inc., Graef Crystal, Davis Polk, General Mills, Inc., Glass Lewis, Grahall Partners, LLC., Honeywell, 

JP Morgan Chase & Co., RiskMetrics, SCSGP, SIFMA, and S&C. These commenters suggested this approach 

would better align the amounts reported in the Summary Compensation Table with the compensation decisions 

discussed in CD&A, and clarify the relationship between pay and performance 

74 See letters from Buck Consultants, Compensia, Pearl Meyer, Protective Life Corporation, and United Brotherhood 

of Carpenters. 

75 Instruction 1 to Item 402(c)(2)(iii) and (iv) provides that if the amount of salary or bonus earned for the fiscal year 

cannot be calculated as of the most recent practicable date, footnote disclosure of this fact and the date the amount is 

expected to be determined is required. When determined, the omitted amount and a recalculated total compensation 

figure must be reported in a filing under Item 5.02(f) of Form 8-K [17 CFR 249.308]. 

76 See letter from Compensia. 

24 
 

executive officers’ compensation for the last fiscal year,77 and consider including supplemental 

tabular disclosure where it facilitates understanding the CD&A. 

Although we proposed to revise Instruction 2 to the salary and bonus column of the 

Summary Compensation Table so that companies would not be required to report in those 

columns the amount of salary or bonus forgone at a named executive officer’s election and the 

non-cash awards received instead of salary or bonus would be reported in the column applicable 

to the form of award elected, we have decided not to adopt this amendment. We agree with 

commenters that disclosing the amounts of salary and bonus that the compensation committee 

awarded better enables investors to understand the relative weights the company applied to 

annual incentives and salary.78 This information provides investors more insight into the extent 

to which a company’s compensation strategy pays for performance, may be heavily weighted in 

salary, or may be heavily weighted in annual incentives. Consistent with our decision to amend 

our rules to require disclosure enabling investors to better understand the risks involved in 

compensation programs, we are retaining the current version of this instruction, so that investors 

can understand overall compensation strategy and the intended distribution of risk among 

different types of compensation. Companies will continue to report the forgone amounts in the 

salary or bonus column, with footnote disclosure of the receipt of non-cash compensation that 

refers to the Grants of Plan-Based Awards Table where the stock, option or non-equity incentive 

plan award the named executive officer elected is reported.79 

77 Instruction 2 to Item 402(b).
 

78 See, e.g., letters from Center on Executive Compensation and Pearl Meyer. 

79 Instruction 2 to Item 402(c)(2)(iii) and (iv). 

25 
 

Finally, based on the comments received, we have decided not to rescind, as was 

proposed, the requirement to report the full grant date fair value of each equity award in the 

Grants of Plan-Based Awards Table and the Director Compensation Table. We agree with 

commenters that, because this disclosure reveals the value associated with each type of equity 

award granted and the mix of values among various awards with different incentive effects, 

retaining it will help investors better evaluate the decisions of the compensation committee.80 

d. Transition 

To facilitate year-to-year comparisons, consistent with our proposal, we will implement 

the Summary Compensation Table amendments by requiring companies providing Item 402 

disclosure for a fiscal year ending on or after December 20, 2009 to present recomputed 

disclosure for each preceding fiscal year required to be included in the table, so that the stock 

awards and option awards columns present the applicable full grant date fair values, and the total 

compensation column is correspondingly recomputed.81 The stock awards and option awards 

columns amounts should be computed based on the individual award grant date fair values 

reported in the applicable year’s Grants of Plan-Based Awards Table, except that awards with 

performance conditions should be recomputed to report grant date fair value based on the 

probable outcome as of the grant date, consistent with FASB ASC Topic 718. In addition, if a 

person who would be a named executive officer for the most recent fiscal year (2009) also was 

disclosed as a named executive officer for 2007, but not for 2008, the named executive officer’s 

80 See letters from Center on Executive Compensation and Pearl Meyer. 

81 Commenters generally favored this approach as a means of ensuring year-to-year comparability, and said it would 

not be difficult to comply. See, e.g., letters from Glass Lewis, Mercer, and Pfizer. 

26 
 

 

compensation for each of those three fiscal years must be reported pursuant to the amendments.82 

However, companies are not required to include different named executive officers for any 

preceding fiscal year based on recomputing total compensation for those years pursuant to the 

amendments, or to amend prior years’ Item 402 disclosure in previously filed Forms 10-K or 

other filings. 

e. Comment Responses Regarding Rulemaking Petition and Other Requests for 

Comment 

We requested comment regarding a rulemaking petition recommending Summary 

Compensation Table disclosure of stock and option awards based on the annual change in value 

of awards.83 We also requested comment on whether any potential amendments to the Grants of 

Plan-Based Awards Table or the Outstanding Equity Awards at Fiscal Year-End Table should be 

considered to better illustrate the relationship between pay and company performance. Most 

commenters did not support the petition’s recommendation because they believed it would not 

report the board’s compensation decisions, on which investors focus in making voting and 

investment decisions, and could result in disclosure of negative numbers.84 However, several 

commenters recommended other tabular revisions to highlight how compensation may be related 

to the company’s performance.85 Most of these suggestions were in anticipation that legislation 

82 However, a smaller reporting company, which is required to provide disclosure only for the two most recent fiscal 

years, could provide Summary Compensation Table disclosure only for 2009 if the person was a named executive 

officer for 2009 but not for 2008. 

83 See May 26, 2009, rulemaking petition submitted by Ira T. Kay and Steven Seelig, Watson Wyatt Worldwide, 

File No. 4-585, at http://www.sec.gov/rules/petitions/2009/petn4-585.pdf. 

84 See, e.g., letters from Protective Life Corporation, RiskMetrics. 

85 See, e.g., letters from Center on Executive Compensation, Graef Crystal, Paul Hodgson, Don Meiers and Dan 

Gode. 

27 
 

 

 

 

 

 

 

 

 

establishing an annual “say-on-pay” shareholder advisory vote may be enacted.86 Commenters 

most frequently recommended adding a column to the Outstanding Equity Awards at Fiscal 

Year-End Table to report the fiscal year end intrinsic value of outstanding options and stock 

appreciation rights (“SARs”).87 

In addition, we solicited comment on whether there are other initiatives we should 

consider proposing to improve executive compensation disclosure, such as including disclosure 

of each executive officer’s compensation, not just the named executive officers; eliminating the 

instruction providing that performance targets can be excluded based on the potential adverse 

competitive effect on the company of their disclosure; making the CD&A part of the 

Compensation Committee Report, and requiring the report to be “filed;” additional disclosure 

regarding “hold to retirement” and/or claw back provisions; and internal pay ratios.88 

Commenters who addressed these topics expressed mixed views.89 

86 The United States House of Representatives has passed H.R. 3269, the Corporate and Financial Institution 

Compensation Fairness Act of 2009, which would provide shareholders an advisory vote to approve the 

compensation of executives in any proxy, consent, or authorization for an annual meeting. 

87 See, e.g., letters from Cleary Gottlieb, Compensia, Grant Thornton, Hewitt, Pearl Meyer, and Towers Perrin. We 

would not object if companies voluntarily add a column captioned “Value of unexercised in-the-money 

options/SARs at fiscal year end ($)” to the Outstanding Awards at Fiscal Year-End Table to report these fiscal year 

end intrinsic values. 

88 See Proposing Release at Section II.H. 

89 Commenters who addressed these topics generally opposed expanding executive compensation disclosure beyond 

the named executive officers, stating that it would not add meaningful information. See, e.g., letters from 

BorgWarner, Business Roundtable, Hewitt, Pearl Meyer, SCSGP and SIFMA. Some commenters opposed 

eliminating the ability to omit disclosure of performance targets based on competitive harm to the company, stating 

that disclosure would discourage use of performance targets or that adverse consequences to the company would 

outweigh the targets’ informative value to investors. See, e.g., letters from BorgWarner, Business Roundtable, 

SCSGP, and Pearl Meyer (supporting disclosure of the percentage of target awards actually earned). Other 

commenters supported requiring retrospective disclosure of performance targets for awards in completed periods. 

See letters from RiskMetrics, SEIU, State Board of Administration of Florida, and Towers Perrin (supporting the 

competitive harm exclusion for performance cycles in effect when the proxy statement is distributed). Some 

commenters supported making CD&A part of the Compensation Committee Report as a means to improve CD&A 

disclosure quality, often recommending that the combined document be “filed.” See letters from AFL-CIO, Jesse 

M. Brill, United Brotherhood of Carpenters, Hodak Value Advisors, RiskMetrics, and SEIU. Others supported 

retaining the current disclosure roles and status of the CD&A and Compensation Committee Report, finding no 

compelling reasons to change them. See, e.g., letters from Ameriprise Financial, Pearl Meyer, and SIFMA. Some 

28 
 

 

Our goal at this stage is to adopt discrete amendments to improve compensation 

disclosure in proxy statements, such as the changes to option reporting in the Summary 

Compensation Table and Director Compensation Table, that can be implemented for the 2010 

proxy season. Therefore, we are not adopting any other changes to executive compensation 

disclosure at this time. However, we will consider the comments received in connection with 

future rulemaking initiatives on compensation disclosure. 

B. Enhanced Director and Nominee Disclosure 

We proposed to amend Item 401 of Regulation S-K to expand the disclosure 

requirements regarding the qualifications of directors and nominees, past directorships held by 

directors and nominees, and the time period for disclosure of legal proceedings involving 

directors, nominees and executive officers. We are adopting the changes generally as proposed, 

but have made revisions in response to comments. 

1. Proposed Amendments 

Under the proposed amendments, a company would be required to disclose for each 

director and any nominee for director the particular experience, qualifications, attributes or skills 

that qualified that person to serve as a director of the company, and as a member of any 

committee that the person serves on or is chosen to serve on, in light of the company’s business. 

In addition to the expanded narrative disclosure regarding director and nominee qualifications, 

the proposed amendments would require disclosure of any directorships held by each director 

commenters favored requiring enhanced disclosure of hold-to-retirement and clawback policies to demonstrate 

whether compensation practices foster a long-term value approach. See letters from Jesse M. Brill, SEIU, and State 

Board of Administration of Florida. Others opposed adding specific requirements, often noting that if such policies 

are material to compensation decisions, principles-based CD&A currently subjects them to disclosure. See, e.g., 

letters from Buck Consultants, Business Roundtable, Pearl Meyer, and Towers Perrin. Commenters similarly 

divided about requiring disclosure of internal pay ratios. See letters from Jesse M. Brill, Pearl Meyer, SCSGP and 

SIFMA. One commenter opposed all of the potential initiatives on which we solicited comment, stating that they 

“would generate extensive disclosures of questionable relevance.” See letter from Pfizer. 

29 
 

 

 

and nominee at any time during the past five years at public companies and registered investment 

companies, and would lengthen the time during which disclosure of legal proceedings involving 

directors, director nominees and executive officers is required from five to ten years. As 

proposed, this expanded disclosure would apply to incumbent directors, to nominees for director 

who are selected by a company’s nominating committee, and to any nominees put forward by 

another proponent in its proxy materials. 

We proposed that the disclosures under the Item 401 amendments would appear in proxy 

and information statements on Schedules 14A and 14C, annual reports on Form 10-K and 

registration statements on Form 10 under the Exchange Act, as well as in registration statements 

under the Securities Act. 

We also proposed to apply the expanded disclosure requirements regarding director and 

nominee qualifications, past directorships held by directors and nominees, and the time frame for 

disclosure of legal proceedings involving directors, nominees, and executive officers to funds. 

Specifically, we proposed to amend Schedules 14A and 14C to apply these expanded 

requirements to fund proxy and information statements, where action is to be taken with respect 

to the election of directors, and to amend Forms N-1A, N-2, and N-3 to require that funds 

include the expanded disclosures regarding director qualifications and past directorships in their 

statements of additional information.90 

2. Comments on the Proposed Amendments 

Comments on the proposal were mixed. Individual investors, trade unions, institutional 

investors and pension funds supported the proposals. Several of these commenters noted that the 

90 Form N-1A is used by open-end management investment companies. Form N-2 is used by closed-end 

management investment companies. Form N-3 is used by separate accounts, organized as management investment 

companies, which offer variable annuity contracts. 

30 
 

amendments would be a helpful step forward in providing investors and shareholders with 

additional information they need to make more informed investment and voting decisions 

relating to corporate governance and the election of directors.91 Most companies, law firms and 

bar groups opposed the proposal. Many of the commenters opposed to the proposed 

amendments expressed concern about requiring companies to disclose the qualifications, 

attributes and skills of directors and nominees on a person-by-person basis.92 Some of these 

commenters believed that requiring disclosure of the qualifications, attributes and skills of 

directors and nominees on a person-by-person basis would not elicit meaningful disclosure. 

They asserted that well-assembled boards usually consist of a diverse collection of individuals 

who bring a variety of complementary skills that nominating committees and boards generally 

consider in the broader context of the board’s overall composition, with a view toward 

constituting a board that, as a body, possesses the appropriate skills and experience to oversee 

the company’s business. Another concern expressed by commenters opposed to the proposed 

amendments was that the disclosure of specialized knowledge or background of particular 

directors could lead to heightened liability.93 

Commenters also objected to the use of term “qualify” in the proposed amendment. They 

noted that the term “qualify” would only be relevant to the extent that a company’s governing 

instruments create minimum qualifications for directors, such as a requirement to own a certain 

amount of shares in the company.94 Other commenters believed that “risk assessment skills” 

91 See, e.g., letters from Board of Directors Network, Forum of Executive Women, Integrated Governance Solutions, 

Norges Bank Investment Management (“Norges Bank”), and Ralph Saul. 

92 See, e.g., letters from ABA, Ameriprise, Business Roundtable, BorgWarner, Davis Polk, Honeywell, JPMorgan, 

Southern Company (“Southern”), and Wisconsin Energy. 

93 See, e.g., letters from ABA, Ameriprise and Business Roundtable. 

94 See letter from ABA. 

31 
 

should not be singled out for specific discussion, but rather should be considered as part of the 

discussion of the board’s aggregate skills and attributes.95 These commenters stated that a better 

alternative may be to address risk as separate disclosure topic to elicit more detailed disclosure 

about risk. 

Several commenters believed that it would be inappropriate to require disclosure of the 

specific experience, qualifications or skills that qualify a person to serve as a member of a 

particular board committee.96 According to these commenters, other than having a least one 

member of the board with “financial expertise” satisfying the requirements for the audit 

committee, companies generally do not select individuals to serve on the board based on what 

committee they will serve on. These commenters noted that in many instances, companies will 

rotate directors among several committee positions during their tenure on the board.97 

On the question of how frequently the disclosure should be required, many commenters 

supported having the disclosure provided on an annual basis for all continuing directors and new 

nominees.98 These commenters noted that the overall composition of the board changes when 

new nominees are introduced and annual disclosure would facilitate shareholders’ assessments of 

the quality of the board as a whole, which must be analyzed in relation to any changes in the 

company’s strategy, relevant risks, operations and organization. However, several other 

commenters stated that if the requirements are adopted, they should only be required when a 

director is first nominated.99 

95 See, e.g., letters from Honeywell and Protective Life Corporation.
 

96 See letters from SCSGP, S&C and Southern. 

97 See, e.g., letters from SCSGP and S&C. 

98 See, e.g., letters from IIA, Norges Bank, Pax World Management Corporation, and RiskMetrics. 

99 See letters from BorgWarner, Business Roundtable, Cleary Gottlieb, SCSGP and S&C. 

32 
 

 

 

A broad spectrum of commenters supported the proposed amendments to require 

disclosure of any directorships at public companies held by each director and nominee at any 

time during the past five years instead of only currently held directorships, and to lengthen the 

time during which disclosure of legal proceedings is required from five to ten years.100 However, 

other commenters asserted that additional disclosure of past directorships would become 

voluminous and tend to obfuscate a nominee’s most relevant credentials.101 

We requested comment on whether we should retain Item 407(c)(2)(v) of Regulation S-K 

in light of the proposed amendments to Item 401 of Regulation S-K. This item, among other 

things, requires disclosure of any minimum qualifications that a nominating committee believes 

must be met by someone nominated by a committee for a position on the board. Several 

commenters believed we should retain the disclosure currently required by Item 407(c)(2)(v) 

because this information allows shareholders to gain an understanding of the overall quality of 

the board and the board’s priorities, and would improve the ability of shareholders to compare a 

nominee’s background to the standards set by the board itself and to further evaluate board and 

committee composition.102 

We also requested comment on whether there were additional legal proceeding 

disclosures that reflect on a director’s, executive officer’s, or nominee’s character and fitness to 

serve as a public company official that should be required to be disclosed, and we listed several 

possible additions to the current list. Several commenters agreed that the disclosure about the 

100 See, e.g., letters from AARP, AFL-CIO, CII, Evolution Petroleum, Pfizer, RILA, SCSGP, TIAA-CREF, United 

Brotherhood of Carpenters, and Universities Superannuation Scheme, et al. Cf. letters from AFSCME and Florida 

State Board of Administration (supporting the proposed amendment and also suggesting that the disclosure of legal 

proceedings involving fraud should not be subject to a time limit). 

101 See, e.g., letter from S&C. 

102 See, e.g., letters from ABA and CII. 

33 
 

additional legal proceedings noted was important information that reflected on an individual’s 

competence and integrity and as such, should be disclosed.103 Other commenters believed the 

current disclosure requirements were adequate.104

 3. Final Rule 

After considering the comments, we are adopting the amendments to Item 401, but with 

several revisions. We believe the amendments will provide investors with more meaningful 

disclosure that will help them in their voting decisions by better enabling them to determine 

whether and why a director or nominee is an appropriate choice for a particular company. 

The final rules require companies to disclose for each director and any nominee for 

director the particular experience, qualifications, attributes or skills that led the board to conclude 

that the person should serve as a director for the company as of the time that a filing containing 

this disclosure is made with the Commission.105 The same disclosure, with respect to any 

nominee for director put forward by another proponent, would be required in the proxy soliciting 

materials of that proponent. This new disclosure will be required for all nominees and for all 

directors, including those not up for reelection in a particular year. The final rule requires this 

disclosure to be made annually because the composition of the entire board is important 

information for voting decisions. Although we are adopting the amendments to Item 401, we are 

not eliminating the disclosure requirements in Item 407(c)(2)(v) of Regulation S-K regarding the 

specific minimum qualifications and specific qualities or skills used by the nominating 

committee. We agree with commenters that this requirement should be retained because it will 

103 See, e.g., letters from AARP, Colorado Public Employees’ Retirement Association (“COPERA”), and Interfaith 

Center on Corporate Responsibility. 

104 See, e.g., letters from American Electric Power and S&C. 

105 Consistent with the comments, we are revising the requirement to delete the term “qualify,” and instead we are 

focusing on the reasons for the decision that the person should serve as a director. 

34 
 

 

 

allow investors to compare and evaluate the skills and qualifications of each director and 

nominee against the standards established by the board.106 

The final rules do not require disclosure of the specific experience, qualifications or skills 

that qualify a person to serve as a committee member. In making this change from the proposal, 

we were persuaded by commenters who noted that many companies rotate directors among 

different committee positions to allow directors to gain different perspectives of the company.107 

However, if an individual is chosen to be a director or a nominee to the board because of a 

particular qualification, attribute or experience related to service on a specific committee, such as 

the audit committee, then this should be disclosed under the new requirements as part of the 

individual’s qualifications to serve on the board. 

The final amendments do not specify the particular information that should be disclosed. 

We believe companies and other proponents should be afforded flexibility in determining the 

information about a director’s or nominee’s skills, qualifications or particular area of expertise 

that would benefit the company and should be disclosed to shareholders. Accordingly, we have 

deleted the reference to “risk assessment skills” that was included in the proposed 

amendments.108 However, we note that if particular skills, such as risk assessment or financial 

reporting expertise, were part of the specific experience, qualifications, attributes or skills that 

led the board or proponent to conclude that the person should serve as a director, this should be 

disclosed. 

106 See, e.g., letter from CII. 

107 See, e.g., letters from Davis Polk and Pfizer. 

108 See, e.g., letters from Honeywell and Protective Life Corporation.
 

35 
 

We are adopting substantially as proposed the amendments to require disclosure of any 

directorships at public companies and registered investment companies held by each director and 

nominee at any time during the past five years. Item 401 presently requires disclosure of any 

current director positions held by each director and nominee in any company with a class of 

securities registered pursuant to Section 12 of the Exchange Act,109 or subject to the requirements 

of Section 15(d) of that Act,110 or any company registered as an investment company under the 

Investment Company Act. We believe that expanding this disclosure to include service on 

boards of those companies for the past five years (even if the director or nominee no longer 

serves on that board) will allow investors to better evaluate the relevance of a director’s or 

nominee’s past board experience, as well as professional or financial relationships that might 

pose potential conflicts of interest (such as past membership on boards of major suppliers, 

customers, or competitors). 

In addition to these amendments, we are adopting amendments as proposed to lengthen 

the time during which disclosure of legal proceedings involving directors, director nominees and 

executive officers is required from five to ten years. We believe it is appropriate to extend the 

required reporting period from five to ten years as a means of providing investors with more 

extensive information regarding an individual’s competence and character. We were persuaded 

by commenters who believed that disclosures of legal proceedings during the ten-year period 

would provide investors with additional important information.111 We are also adopting 

amendments to expand the list of legal proceedings involving directors, executive officers, and 

109 15 U.S.C. 78l. 

110 15 U.S.C. 78o(d). 

111 See, e.g., letters from ABA, AARP and COPERA. 

36 
 

 

nominees covered under Item 401(f) of Regulation S-K. Some commenters agreed that certain 

legal proceedings can reflect on an individual’s competence and integrity to serve as a director, 

and that the additional disclosure noted in the proposing release would provide investors with 

valuable information for assessing the competence, character and overall suitability of a director, 

nominee or executive officer.112 

In addition, consistent with our request for comment and comments received,113 we are 

amending Item 401(f) to require disclosure of additional legal proceedings. These new legal 

proceedings include: 

•	 Any judicial or administrative proceedings resulting from involvement in mail or wire 

fraud or fraud in connection with any business entity; 

•	 Any judicial or administrative proceedings based on violations of federal or state 

securities, commodities, banking or insurance laws and regulations, or any 

settlement114 to such actions; and 

•	 Any disciplinary sanctions or orders imposed by a stock, commodities or derivatives 

exchange or other self-regulatory organization. 

We believe this amendment will provide investors with information that is important to an 

evaluation of an individual’s competence and character to serve as a public company official.115 

112 See, e.g., letters from AARP, CII, COPERA, SEIU, and USPX. 

113 See note 103 above and accompanying text. 

114 This does not include disclosure of a settlement of a civil proceeding among private parties. We are including an 

instruction as part of the amendments to clarify this. 

115 Consistent with the current disclosure requirement regarding legal proceedings, the additional legal proceedings 

included in the new requirements will not need to be disclosed if they are not material to an evaluation of the ability 

or integrity of the director or director nominee. See 17 CFR 229.401(f). 

37 
 

 

 

In the Proposing Release, we also requested comment on whether we should amend our 

rules to require disclosure of additional factors considered by a nominating committee when 

selecting someone for a board position, such as board diversity. A significant number of 

commenters responded that disclosure about board diversity was important information to 

investors.116 Many of these commenters believed that requiring this disclosure would provide 

investors with information on corporate culture and governance practices that would enable 

investors to make more informed voting and investment decisions.117 Commenters also noted 

that there appears to be a meaningful relationship between diverse boards and improved 

corporate financial performance, and that diverse boards can help companies more effectively 

recruit talent and retain staff.118 We agree that it is useful for investors to understand how the 

board considers and addresses diversity, as well as the board’s assessment of the implementation 

of its diversity policy, if any. Consequently, we are adopting amendments to Item 407(c) of 

Regulation S-K to require disclosure of whether, and if so how, a nominating committee 

considers diversity in identifying nominees for director.119 In addition, if the nominating 

committee (or the board) has a policy with regard to the consideration of diversity in identifying 

director nominees, disclosure would be required of how this policy is implemented, as well as 

how the nominating committee (or the board) assesses the effectiveness of its policy. We 

116 See, e.g., letters from Board of Directors Network, Boston Common Asset Management, CalPERS, CalSTRS, 

Calvert, Council of Urban Professionals, Ernst & Young LLP (“E&Y”), Greenlining Institute, Hispanic Association 

on Corporate Responsibility, Interfaith Center on Corporate Responsibility, InterOrganization Network, Latino 

Business Chamber of Greater Los Angeles, Pax World Management Corporation, Prout Group, Inc., RiskMetrics, 

Sisters of Charity BVM, Sisters of St. Joseph Carondelet, and Trillium Asset Management Corporation. 

117 See, e.g., letters from the Boston Club, Boston Common Asset Management, CalPERS, Pax World Management 

Corporation, Trillium Asset Management Corporation, and Social Investment Forum. 

118 See, e.g., letters from Catalyst and the Social Investment Forum. 

119 See Item 407(c)(2)(vi) of Regulation S-K. Funds will be subject to the diversity disclosure requirement of Item 

407(c)(2)(vi) of Regulation S-K under Item 22(b)(15)(ii)(A) of Schedule 14A. See 17 CFR 240.14a-101, Item 

22(b)(15)(ii)(A). 

38 
recognize that companies may define diversity in various ways, reflecting different perspectives. 

For instance, some companies may conceptualize diversity expansively to include differences of 

viewpoint, professional experience, education, skill and other individual qualities and attributes 

that contribute to board heterogeneity, while others may focus on diversity concepts such as race, 

gender and national origin. We believe that for purposes of this disclosure requirement, 

companies should be allowed to define diversity in ways that they consider appropriate. As a 

result we have not defined diversity in the amendments. 

C. New Disclosure about Board Leadership Structure and the Board’s Role 

 in Risk Oversight 

We proposed a new disclosure requirement to Item 407 of Regulation S-K and a 

corresponding amendment to Item 7 of Schedule 14A to require disclosure of the company’s 

leadership structure and why the company believes it is the most appropriate structure for it at 

the time of the filing. The proposal also required disclosure about the board’s role in the 

company’s risk management process. We are adopting the proposals with some changes. 

1. Proposed Amendments 

Under the proposed amendments, companies would be required to disclose their 

leadership structure and the reasons why they believe that it is an appropriate structure for the 

company. As part of this proposed disclosure, companies would be required to disclose whether 

and why they have chosen to combine or separate the principal executive officer and board chair 

positions. In addition, in some companies the role of principal executive officer and board 

chairman are combined, and a lead independent director is designated to chair meetings of the 

independent directors. For these companies, the proposed amendments would require disclosure 

of whether and why the company has a lead independent director, as well as the specific role the 

lead independent director plays in the leadership of the company. In proposing this requirement, 

39 
 

we noted that different leadership structures may be suitable for different companies depending 

on factors such as the size of a company, the nature of a company’s business, or internal control 

considerations, among other things. Irrespective of the type of leadership structure selected by a 

company, the proposed requirements were intended to provide investors with insights about why 

the company has chosen that particular leadership structure. 

We also proposed to require additional disclosure in proxy and information statements 

about the board’s role in the company’s risk management process. Disclosure about the board’s 

approach to risk oversight might address questions such as whether the persons who oversee risk 

management report directly to the board as whole, to a committee, such as the audit committee, 

or to one of the other standing committees of the board; and whether and how the board, or board 

committee, monitors risk. 

We also proposed that funds provide the new Item 407 disclosure about leadership 

structure and the board’s role in the risk management process in proxy and information 

statements and similar disclosure as part of registration statements on Forms N-1A, N-2 and N-3. 

The proposed amendments were tailored to require that a fund disclose whether the board chair 

is an “interested person” of the fund, as defined in Section 2(a)(19) of the Investment Company 

Act. We proposed that if the board chair is an interested person, a fund would be required to 

disclose whether it has a lead independent director and what specific role the lead independent 

director plays in the leadership of the fund. 

2. Comments on the Proposed Amendments 

Comments were mostly supportive of the proposals.120 Commenters believed the 

disclosure regarding a company’s leadership structure and the board’s role in risk management 

120 See, e.g., letters from AFL-CIO, Chairmen’s Forum, Calvert, CII, CalSTRS, the General Board of Pension and 

Health Benefits of the United Methodist Church, Hermes, Norges Bank, Pfizer, RiskMetrics, and SEIU. 

40 
 

 

 

process would provide useful information to investors and improve investor understanding of the 

role of the board in a company’s risk management practices.121 Some commenters opposed the 

disclosures. Many of these commenters believed that the proposed amendments were too vague 

and would likely elicit boilerplate descriptions of a company’s management hierarchy and risk 

management that would not provide significant insight or meaning to investors.122 

Many commenters suggested revisions to the proposed disclosure requirements. For 

instance, several commenters recommended that we use the phrase “board leadership structure” 

rather than “company leadership structure” and noted that the discussion of the board leadership 

structure and the board’s role in risk management are two separate disclosure items.123 These 

commenters believed that the use of the phrase “company leadership structure” could be 

misinterpreted to require a discussion of a company’s management leadership structures. Other 

commenters suggested that we replace the phrase “risk management” with “risk oversight” 

because the board’s role is to oversee management, which is responsible for the day-to-day 

issues of risk management.124 

Several commenters believed disclosure of the board’s role in risk management would be 

more effective as part of a comprehensive discussion of a company’s risk management 

processes, rather than as stand-alone disclosure.125 They suggested that companies be allowed to 

provide the required disclosure in the MD&A discussion included in the Form l0-K, and to 

121 See, e.g., letters from CII, the General Board of Pension and Health Benefits of the United Methodist Church, 

IGS, and RIMS. 

122 See, e.g., letters from Cleary Gottlieb, S&C and Theragenics. 

123 See, e.g., letters from Business Roundtable and Honeywell. 

124 See, e.g., letters from GovernanceMetrics and PLC. 

125 See, e.g., letters from ABA and JPMorgan. 

41 
 

 

 

 

incorporate by reference this information in the proxy statement rather than repeat the 

information. 

With respect to funds, commenters addressing the issue generally supported the proposal 

that funds disclose whether the board chair is an “interested person” as defined under the 

Investment Company Act.126 In addition, commenters noted the importance of fund board 

oversight of risk management,127 but commenters were split regarding whether we should require 

disclosure about fund board oversight of risk management.128

 3. Final Rule 

After consideration of the comments, we are adopting the proposals substantially as 

proposed with a few technical revisions in response to comments. We believe that, in making 

voting and investment decisions, investors should be provided with meaningful information 

about the corporate governance practices of companies.129 As we noted in the Proposing Release, 

one important aspect of a company’s corporate governance practices is its board’s leadership 

structure. Disclosure of a company’s board leadership structure and the reasons the company 

believes that its board leadership structure is appropriate will increase the transparency for 

investors as to how the board functions. 

As stated above, the amendments were designed to provide shareholders with disclosure 

of, and the reasons for, the leadership structure of a company’s board concerning the principal 

126 See, e.g., letters from Independent Directors Council (“IDC”) and Mutual Fund Directors Forum (“MFDF”). 

127 See, e.g., letters from IDC and MFDF. 

128 See letters from Calvert and MFDF (supporting disclosure). But see letters from the Investment Company 

Institute and IDC (opposing disclosure). 

129 See, e.g., National Association of Corporate Directors, Key Agreed Principles to Strengthen Corporate 

Governance for U.S. Publicly Traded Companies, (Mar. 2009) (“Every board should explain, in proxy materials and 

other communications with shareholders, why the governance structures and practices it has developed are best 

suited to the company.”). 

42 
 

executive officer, the board chairman position and, where applicable, the lead independent 

director position. We agree with commenters that the phrase “board leadership structure” instead 

of “company leadership structure” would avoid potential misunderstanding that the amendments 

require a discussion of the structure of a company’s management leadership.130 We also agree 

with commenters that the phrase “risk oversight” instead of “risk management” would be more 

appropriate in describing the board’s responsibilities in this area.131 

Under the amendments, a company is required to disclose whether and why it has chosen 

to combine or separate the principal executive officer and board chairman positions, and the 

reasons why the company believes that this board leadership structure is the most appropriate 

structure for the company at the time of the filing. In addition, in some companies the role of 

principal executive officer and board chairman are combined, and a lead independent director is 

designated to chair meetings of the independent directors. In these circumstances, the 

amendments will require disclosure of whether and why the company has a lead independent 

director, as well as the specific role the lead independent director plays in the leadership of the 

company. As we previously stated in the Proposing Release, these amendments are intended to 

provide investors with more transparency about the company's corporate governance, but are not 

intended to influence a company’s decision regarding its board leadership structure. 

The final rules also require companies to describe the board’s role in the oversight of risk. 

We were persuaded by commenters who noted that risk oversight is a key competence of the 

board, and that additional disclosures would improve investor and shareholder understanding of 

130 See letter from Honeywell. 

131 See, e.g., letters from Ameriprise Financial and Protective Life Corporation. 

43 
 

the role of the board in the organization’s risk management practices.132 Companies face a 

variety of risks, including credit risk, liquidity risk, and operational risk. As we noted in the 

Proposing Release, similar to disclosure about the leadership structure of a board, disclosure 

about the board’s involvement in the oversight of the risk management process should provide 

important information to investors about how a company perceives the role of its board and the 

relationship between the board and senior management in managing the material risks facing the 

company. This disclosure requirement gives companies the flexibility to describe how the board 

administers its risk oversight function, such as through the whole board, or through a separate 

risk committee or the audit committee, for example. Where relevant, companies may want to 

address whether the individuals who supervise the day-to-day risk management responsibilities 

report directly to the board as a whole or to a board committee or how the board or committee 

otherwise receives information from such individuals. 

The final rules also require funds to provide disclosure about the board’s role in risk 

oversight. Funds face a number of risks, including investment risk, compliance, and valuation; 

and we agree with commenters who favored disclosure of board risk oversight by funds.133 As 

with corporate issuers, we believe that additional disclosures would improve investor 

understanding of the role of the board in the fund’s risk management practices. Furthermore, the 

disclosure should provide important information to investors about how a fund perceives the role 

of its board and the relationship between the board and its advisor in managing material risks 

facing the fund. 

132 See, e.g., letters from Norges Bank and RIMS. 

133 See letters from Calvert and MFDF. 

44 
D. New Disclosure Regarding Compensation Consultants 

We proposed amendments to Item 407 of Regulation S-K to require, for the first time, 

disclosure about the fees paid to compensation consultants and their affiliates when they played a 

role in determining or recommending the amount or form of executive and director 

compensation, and they also provided additional services to the company. The proposed 

amendments also would have required a description of the additional services provided to the 

company by the compensation consultants and any affiliates of the consultants. We are adopting 

the amendments with changes in response to comments. 

1. Proposed Amendments 

Under the proposed amendments to Item 407, if a compensation consultant or its 

affiliates played a role in determining or recommending the amount or form of executive and 

director compensation, and also provided additional services, then the company would be 

required to disclose the following: 

•	 The nature and extent of all additional services provided to the company or its affiliates 

during the last fiscal year by the compensation consultant and any affiliates of the 

consultant; 

•	 The aggregate fees paid for all additional services, and the aggregate fees paid for work 

related to determining or recommending the amount or form of executive and director 

compensation; 

•	 Whether the decision to engage the compensation consultant or its affiliates for nonexecutive compensation services was made, recommended, subject to screening or 

reviewed by management; and 

45 
 

 

•	 Whether the board of directors or the compensation committee has approved the other 

services provided by the compensation consultant in addition to executive compensation 

services. 

The proposed disclosure requirements would have applied to all services provided by a 

compensation consultant and its affiliates if the compensation consultant played any role in 

determining or recommending the amount or form of executive and director compensation. The 

proposed amendments did not distinguish between consultants engaged by the board and 

consultants engaged by management. We provided an exception from the proposed disclosure 

requirements for those situations in which the compensation consultant’s role in recommending 

the amount or form of executive and director compensation was limited to consulting on broadbased plans that did not discriminate in favor of executive officers or directors of the company, 

such as 401(k) plans or health insurance plans. We believed that when a compensation 

consultant’s services were limited to consulting on broad-based, non-discriminatory plans, these 

services did not give rise to the type of potential conflict of interest intended to be addressed by 

our proposed amendments.134 

2. Comments on the Proposed Amendments 

A significant number of commenters generally supported the proposed amendments to 

Item 407 of Regulation S-K to require disclosure of the fees paid to compensation consultants as 

well as a description of other services provided by compensation consultants.135 Many of these 

134 We also proposed to amend Item 407 along the same lines to clarify that the current disclosure requirements 

under the item were not triggered for a compensation consultant whose only services with regard to executive or 

director compensation were limited to these types of broad-based, non-discriminatory plans. Many commenters 

supported this amendment and we are adopting it as proposed. 

135 See, e.g., letters from AFL-CIO, AFSCME, Business Roundtable, CalSTRS, CII, COPERA, Evolution 

Petroleum, Glass Lewis, Grahall, Hermes Equity Ownership Services, NACD, Oppenheimer Funds, Pax World 

Management Corporation, State of Connecticut Treasurer’s Office, TIAA-CREF, Trillium Asset Management 

Corporation, and Walden Asset Management. 

46 
 

commenters believed investors would benefit from disclosure regarding the potential conflicts of 

interests of compensation consultants when they advise on the amount or form of executive and 

director compensation and also provide additional services to the company.136 These commenters 

believed that disclosure of the fees paid to compensation consultants would go a long way 

towards minimizing potential conflicts of interests and would allow shareholders to assess the 

potential conflicts of interest in regard to the compensation advice given to companies. 

However, several commenters, primarily multi-service compensation consulting firms, 

opposed the proposed amendments.137 These commenters believed the proposed amendments 

were too narrowly focused on fees paid to multi-service consulting firms and ignored important 

considerations relating to the consultant’s qualifications, selection, and role.138 They also 

asserted that the proposed disclosure could give investors a distorted view of how companies use 

and select compensation consultants. Because the role of consultants is not uniform and varies 

considerably from company to company, these commenters asserted that investors should be 

given an understanding not only of the role consultants serve for each company, but also of the 

board’s or compensation committee’s selection process. This would include how it assessed the 

consultant’s qualifications and how any potential conflicts of interest that may have been 

identified are mitigated by formal processes, or by the internal controls and processes maintained 

by the consulting firm.139 

136 See, e.g., letters from AFL-CIO, Frank Inman, Hermes Equity Ownership Services Ltd., TIAA-CREF, and 

Trillium Asset Management. 

137 See letters from ABA, Hewitt, Mercer, Pfizer, Protective Life Corporation, Radford, Towers Perrin, Value 

Alliance, and Watson Wyatt. 

138 See, e.g., letters from Hewitt, Mercer and Towers Perrin. 

139 See, e.g., letter from Hewitt. 

47 
 

 

Several commenters opposed to the proposed amendments asserted that the amendments 

would decrease the compensation consulting resources available to companies.140 Other 

commenters asserted that the proposed amendments would cause competitive harm to multiservice consulting firms who provide services other than executive compensation consulting, as 

companies would be discouraged from using multi-service compensation consulting firms in 

more than one capacity.141 These commenters also claimed that the proposed amendments would 

cause competitive harm because disclosure of the nature and extent of all additional services 

provided by the consultant would reveal confidential and competitively sensitive pricing 

information that could allow competitors to determine the fee structure for these additional 

services.142 

These commenters also expressed concern that the proposed amendments did not address 

potential conflicts of interest that may occur when a compensation consultant that only provides 

executive-compensation related services to the board is overly reliant on the fees it receives from 

a particular client. They suggested an alternative rule that would require disclosure of fees paid 

to a compensation consultant when a significant portion of the annual revenues of the 

compensation consultant were generated from any one client.143 

Several commenters expressed concern that the scope of the proposed amendments was 

too broad. These commenters believed that when a compensation committee engages its own 

compensation consultant, it mitigates any concerns about potential conflicts of interest involving 

140 See, e.g., letters from Hewitt and Mercer. 

141 See, e.g., letters from Mercer, Towers Perrin and Watson Wyatt. 

142 See, e.g., letter from Mercer. 

143 See, e.g., letters from Hewitt, Mercer, Towers Perrin and Watson Wyatt. 

48 
 

 

consultants engaged by management.144 According to these commenters, from that perspective, a 

compensation consulting firm that provides executive compensation consulting services to the 

company, and also provides other services to the company, would not present a conflict of 

interest issue when the compensation committee retains a different consultant.145 Noting that 

management should have broad access to compensation experts and other third parties when 

developing executive pay proposals for board consideration, and that it is the board’s 

responsibility to evaluate management’s compensation proposals when determining whether or 

not to approve them, some commenters expressed concerns about the potential effect of the 

proposed disclosure on the board’s discharge of its oversight responsibility.146 

In the Proposing Release, we requested comment on whether there were other consulting 

services that do not give rise to potential conflicts of interest that should be excluded from the 

proposed disclosure requirements similar to the proposed exemption for consulting services that 

are limited to broad-based, non-discriminatory plans. Several commenters responded by 

suggesting that we exclude consulting services where the compensation consultant only provides 

the board with peer surveys that provide general information regarding the forms and amounts of 

compensation typically paid to executive officers and directors within a particular industry.147 

Another commenter suggested that surveys that are either not customized for a particular 

company, or that are customized based on parameters that are not developed by the 

compensation consultant, should be excluded from the amendments.148 These commenters 

144 See, e.g., letters from E&Y and Deloitte. 

145 Id.
 

146 See letters from Hewitt and E&Y. 

147 See, e.g., letters from BorgWarner, Davis Polk, Honeywell, JPMorgan and Wisconsin Energy. 

148 See letter from ABA. 

49 
 

 

 

 

believed that in situations where the compensation consultant’s services provided to a company 

were limited to providing those types of surveys, such services did not raise the potential 

conflicts of interest that the proposed amendments were intended to address.149 

We also requested comment on whether we should establish a disclosure threshold based 

on the amount of the fees for the non-executive compensation related services, such as above a 

certain dollar amount or a percentage of income or revenues. Several commenters recommended 

that the proposed amendments should include a disclosure threshold, including many who 

suggested that we should require disclosure only if the aggregate fees for all additional services 

provided by the consultant and its affiliates exceeded $120,000.150 

3. Final Rule 

After considering the comments received, we are adopting a modified version of the 

proposed amendments. We believe the new disclosure requirements will provide investors with 

information that will enable them to better assess the potential conflicts a compensation 

consultant may have in recommending executive compensation, and the compensation decisions 

made by the board. As we noted in the Proposing Release, many companies engage 

compensation consultants to make recommendations on appropriate executive and director 

compensation levels, to design and implement incentive plans, and to provide information on 

industry and peer group pay practices. The services offered by compensation consultants, 

however, are often not limited to recommending executive and director compensation plans or 

149 See, e.g., letters from BorgWarner, Davis Polk and Honeywell. 

150 See, e.g., letters from ACC, Business Roundtable, Davis Polk, and SCSGP. Some commenters also suggested a 

disclosure threshold based on tests in effect under rules with a similar focus in self-regulatory organizations, such as 

the 2% (for New York Stock Exchange-listed companies) or 5% (for NASDAQ-listed companies) of gross revenues 

test for disclosure of business relationships between a company and a director-affiliated entity. See, e.g., letter from 

Cleary Gottlieb. See also, letter from ABA (suggesting a percentage threshold set at a level where the effect of such 

fees diminishes the possible appearance of a conflict of interest). 

50 
policies. Many compensation consultants, or their affiliates, are retained by management to 

provide a broad range of additional services, such as benefits administration, human resources 

consulting and actuarial services. The fees generated by these additional services may be more 

significant than the fees earned by the consultants for their executive and director compensation 

services. The extent of the fees and provision of additional services by a compensation 

consultant or its affiliate may create the risk of a conflict of interest that may call into question 

the objectivity of the consultant’s advice and recommendations on executive compensation. 

At the same time, we are persuaded that there are circumstances where this disclosure 

should not be required either because of the limited nature of the additional services or because 

of other factors that mitigate the concern that the board may be receiving advice potentially 

influenced by a conflict of interest. 

a. Summary of the Final Rule 

As more fully described below, under our final rule, in addition to the requirement under 

the current rule to describe the role of the compensation consultant in determining or 

recommending the amount or form of executive and director compensation, fee disclosure 

related to the retention of a compensation consultant will be required in certain circumstances. 

The final rules can be summarized generally as follows: 

•	 If the board, compensation committee or other persons performing the equivalent 

functions (collectively, “board”) has engaged its own consultant to provide advice or 

recommendations on the amount or form of executive and director compensation and the 

board's consultant or its affiliates provide other non-executive compensation consulting 

services to the company, fee and related disclosure is required, provided the fees for the 

non-executive compensation consulting services exceed $120,000 during the company’s 

51 
 

fiscal year. Disclosure is also required of whether the decision to engage the 

compensation consultant or its affiliates for non-executive compensation consulting 

services was made or recommended by management, and whether the board has 

approved these non-executive compensation consulting services provided by the 

compensation consultant or its affiliate; 

•	 If the board has not engaged its own consultant, fee disclosures are required if there is a 

consultant (including its affiliates) providing executive compensation consulting services 

and non-executive compensation consulting services to the company, provided the fees 

for the non-executive compensation consulting services exceed $120,000 during the 

company’s fiscal year; 

•	 Fee and related disclosure for consultants that work with management (whether for only 

executive compensation consulting services, or for both executive compensation 

consulting and other non-executive compensation consulting services) is not required if 

the board has its own consultant; and 

•	 Services involving only broad-based non-discriminatory plans or the provision of 

information, such as surveys, that are not customized for the company, or are customized 

based on parameters that are not developed by the consultant, are not treated as executive 

compensation consulting services for purposes of the compensation consultant disclosure 

rules. 

b. Disclosure required if the board’s compensation consultant provides 

additional services to the company 

If the board has engaged a compensation consultant to advise the board as to executive 

and director compensation, and such consultant or its affiliates provides other non-executive 

compensation consulting services to the company, the disclosures specified by the new rules are 

52 
 

 

 

required. We believe that in that situation, the receipt of fees for non-executive compensation 

consulting services by the board’s consultant presents the potential conflict of interest intended 

to be highlighted for investors by our new rules. Subject to the disclosure threshold discussed 

below, the final rule requires disclosure of the aggregate fees paid for services provided to either 

the board or the company with regard to determining or recommending the amount or form of 

executive and director compensation, and the aggregate fees paid for any non-executive 

compensation consulting services provided by the compensation consultant or its affiliates. 

In addition, the new rules require disclosure of whether the decision to engage the 

compensation consultant or its affiliates for the non-executive compensation consulting services 

was made, or recommended by, management, and whether the board approved such other 

services.151 

c. Disclosure required if the board does not have a compensation consultant, 

but the company receives executive compensation and non-executive 

compensation services from its consultant 

The new rule also requires disclosure of fees in situations where the board has not 

engaged a compensation consultant, but management or the company received executive 

compensation consulting services and other non-executive compensation consulting services 

from a consultant or its affiliates, and the fees from the non-executive compensation consulting 

services provided by that consultant or its affiliates exceed $120,000 for the company’s fiscal 

year.152 We recognize that in that situation the board, which generally is primarily responsible 

for determining the compensation paid to senior executives, may not be relying on the consultant 

used by management, and, therefore, conflicts of interest may be less of a concern. However, we 

151 Item 407(e)(3)(iii)(A) of Regulation S-K. 

152 Item 407(e)(3)(iii)(B). 

53 
 

 

 

believe that when management has a compensation consultant and the board does not have its 

own compensation consultant to help filter any advice provided by management’s compensation 

consultant, the concerns about board reliance on consultants that may have a conflict are 

sufficiently present to require this approach. Consequently, the final rule provides that in this 

fact pattern, fee disclosure is required if the fees from the non-executive compensation 

consulting services provided by the compensation consultant exceed the disclosure threshold 

described below. 

d. Disclosure not required if the board and management have different 

compensation consultants, even if management’s consultant provides 

additional services to the company 

In some instances, the board may engage a compensation consultant to advise it on 

executive or director compensation, and management may engage a separate consultant to 

provide executive compensation consulting services and one or more additional non-executive 

compensation consulting services. We believe there is less potential for a conflict of interest to 

arise when the board has retained its own compensation consultant, and the company or 

management has a different consultant to provide executive compensation consulting and other 

non-executive compensation consulting services.153 When the board engages its own 

compensation consultant, it mitigates concerns about potential conflicts of interest involving 

compensation consultants engaged by management.154 Accordingly, the final rules provide a 

limited exception to the disclosure requirements for fees paid to other compensation consultants 

retained by the company if the board has retained its own consultant that reports to the board. In 

addition to limiting disclosure to circumstances that are more likely to present potential conflicts 

153 See, e.g., letters from Hewitt and E&Y. 

154 See letter from E&Y. 

54 
 

of interests, we believe this approach should address some concerns about competitive harm that 

were raised by commenters. The exception would be available without regard to whether 

management’s consultant participates in board meetings. Where the board’s compensation 

consultant provides additional non-executive compensation consulting services to the company, 

the rule would, as described above, require fee and other related disclosures, which should 

address concerns about conflicts of interest by that consultant. Fee disclosure for services 

provided by management’s compensation consultant would be less relevant in this situation 

because the board is able to rely on its own compensation consultant’s advice, rather than the 

advice provided by management’s compensation consultant, when making its executive 

compensation decisions. 

e. Disclosure required only if fees for additional services exceed $120,000 

 during the company’s last completed fiscal year 

As noted previously, we agree with commenters that the final rule should have a 

disclosure threshold.155 We believe that when aggregate fees paid for the non-executive 

compensation consulting services are limited, the potential conflict of interest is likely to be 

commensurately reduced. A disclosure threshold would also reduce the compliance burdens on 

companies when the potential conflict of interest is minimal. Under the rule as adopted, if the 

board has engaged a compensation consultant to provide executive and director compensation 

consulting services to the board or if the board has not retained a consultant but there is a firm 

providing executive compensation consulting services, fee disclosure is required if the consultant 

or its affiliates also provides other non-executive compensation consulting services to the 

company, and the fees paid for the other services exceed $120,000 for the company’s fiscal year. 

155 See, e.g., letters from ACC, Davis Polk and SCSGP. This threshold requirement should also help address some 

of the competitive concerns expressed by some commenters. See, e.g., note 150 above and accompanying text. 

55 
 

 

 

We believe fees for other non-executive compensation consulting services below that threshold 

are less likely to raise potential conflicts of interest concerns, and note this disclosure threshold 

should reduce the recordkeeping burden on companies. This threshold is similar to the 

disclosure threshold for transactions with related persons in Item 404 of Regulation S-K, which 

also deals with potential conflicts of interest on the part of related persons who have financial 

transactions or arrangements with the company, and therefore provides some regulatory 

consistency.156 

f. Disclosure of nature and extent of additional services not required 

The rule, as adopted, does not require disclosure of the nature and extent of additional 

services provided by the compensation consultant and its affiliates to the company, as we 

proposed. We made this change from the proposal because we are persuaded by commenters 

who noted that requiring this disclosure could cause competitive harm by revealing confidential 

and sensitive pricing information, and we believe that the critical information about the potential 

conflict is adequately conveyed through the fee disclosure requirement. Although we are not 

adopting this requirement, companies may at their discretion include a description of any 

additional non-executive compensation consulting services provided by the compensation 

consultant and its affiliates where such information would facilitate investor understanding of the 

existence or nature of any potential conflict of interest. 

g. Exceptions to the disclosure requirement for consulting on broad-based 

plans and provision of survey information 

We are adopting substantially as proposed the exception from the disclosure requirements 

for situations in which the compensation consultant’s only role in recommending the amount or 

form of executive or director compensation is in connection with consulting on broad-based 

156 See 17 CFR 229.404. 

56 
 

plans that do not discriminate in favor of executive officers or directors of the company. In 

addition, in response to comments received, we are expanding the exception to include situations 

where the compensation consultant’s services are limited to providing information, such as 

surveys, that either is not customized for a particular company, or that is customized based on 

parameters that are not developed by the compensation consultant.157 We are persuaded by 

commenters who noted that surveys that provide general information regarding the form and 

amount of compensation typically paid to executive officers and directors within a particular 

industry generally do not raise the potential conflicts of interest that the amendments are 

intended to address.158 However, the exception would not be available if the compensation 

consultant provides advice or recommendations in connection with the information provided in 

the survey. 

h. Other concerns 

We did not propose, and do not at this time adopt, disclosure of consulting fees based on 

a percentage of revenues received from a company. We have considered the concern expressed 

by some commenters that compensation consultants, even if they are only retained by the board 

for executive compensation related services and do not provide any additional services to the 

company, may become overly reliant on a single client for revenues, which could affect the 

advice the consultant provides to the board.159 However, we are not currently persuaded that 

such reliance would cause a consultant to provide advice to the board that inappropriately 

157 See, e.g., letters from ABA, Mercer and Towers Perrin. 

158 See letters from Davis Polk and Mercer. 

159 See letters from Hewitt, Mercer, Pearl Meyer, and Towers Perrin. 

57 
 

 

 

reflects management’s influence as a result of fees for additional services, which is the primary 

concern addressed by the final rule. 

We also considered the suggestion provided by these commenters that companies be 

required to disclose various matters about the consideration of potential conflicts of interest.160 

We are not persuaded that we need to address this issue at this time and believe our final rule 

addresses our concerns without adding significant length to the disclosure or burdens on 

companies. 

Our amendments as adopted are intended to facilitate investors’ consideration of whether, 

in providing advice, a compensation consultant may have been influenced by a desire to retain 

other engagements from the company. This does not reflect a conclusion that we believe that a 

conflict of interest is present when disclosure is required under our new rule, or that a 

compensation committee or a company could not reasonably conclude that it is appropriate to 

engage a consultant that provides other services to the company requiring disclosure under our 

new rule. It also does not mean that we have concluded that there are no other circumstances 

that might present a conflict of interest for a compensation consultant retained by a compensation 

committee or company. Rather, the amendments are designed to provide context to investors in 

considering the compensation disclosures required to be provided under our rules, and, as 

explained above, are based on our understanding of the situations that are more likely to raise 

potential conflicts of interest concerns. 

E. Reporting of Voting Results on Form 8-K 

160 In their comment letters, several multi-service compensation consulting firms proposed an alternative disclosure 

requirement. Under their proposal, if the total fees paid to the consultant for all services provided to the company 

and its affiliates during the preceding fiscal year exceeded one-half of one percent of the total revenues of the 

consultant for that fiscal year, the company would be required to disclose, among other things, the protocols 

established by the compensation committee to ensure that the consultant is able to provide unbiased advice and is 

not inappropriately influenced by the company’s management. See letters from Hewitt, Mercer, Watson Wyatt, and 

Towers Perrin. 

58 
 

We proposed to transfer the requirement to disclose shareholder vote results from Forms 

10-Q and 10-K to Form 8-K, and to have that information filed within four business days after 

the end of the meeting at which the vote was held. We are adopting the proposal with some 

modifications in response to comments. 

1. Proposed Amendments 

Currently, Item 4 in Part II of Form 10-Q and Item 4 in Form 10-K require the disclosure 

of the results of any matter that was submitted to a vote of shareholders during the fiscal quarter 

covered by either the Form 10-Q or Form 10-K with respect to the fourth fiscal quarter. The 

proposed amendments would delete this requirement from Forms 10-Q and 10-K and move it to 

Form 8-K. As a result, voting results would be required to be filed on Form 8-K within four 

business days after the end of the meeting at which the vote was held. To accommodate timing 

difficulties in contested elections, we proposed a new instruction to the form that stated that if 

the matter voted upon at the shareholders’ meeting related to a contested election of directors and 

the voting results were not definitively determined at the end of the meeting, companies would 

be required to file the preliminary voting results within four business days after the preliminary 

voting results were determined, and then file an amended report on Form 8-K within four 

business days after the final voting results were certified. 

2. Comments on the Proposed Amendments 

The majority of comments we received on the proposed amendments supported requiring 

the filing of voting results on Form 8-K. Many commenters believed that more timely disclosure 

of the voting result would benefit shareholders and investors.161 Some noted that matters 

submitted for shareholder vote involve issues that directly impact shareholder interests—for 

161 See, e.g., letters from CalSTRS, CII, Hermes, IIA, Norges Bank, United Brotherhood of Carpenters and Walden. 

59 
 

example investment or divestments, changes in shareholder rights and capital changes—and that 

timely disclosure of voting results can be crucial.162 One commenter believed that majority vote 

requirements for director elections have introduced greater accountability and uncertainty into 

uncontested director elections, making it increasingly important that these election outcomes be 

reported in a timely manner to shareholders.163

 Several commenters recommended modifications to the proposed amendments. 

Specifically, some commenters expressed concern that preliminary voting results should not be 

required to be disclosed because disclosure of preliminary results could mislead investors if the 

definitive results reflect a different outcome than what was disclosed initially.164 Concerns were 

also expressed that the reporting of preliminary voting results could inadvertently influence 

voting if the disclosure is made at a time when the opportunity remains open for additional votes 

to be cast.165 Commenters also believed that the four business day reporting requirement should 

not be tied to the end of the shareholders’ meeting, but rather to the issuance of a certified report 

of an inspector of election.166 In addition, commenters suggested that the proposed instruction 

excepting the filing of voting results in contested elections of directors within four business days 

after the end of the shareholders’ meeting should be expanded to cover any matter for which 

final voting results are not available or “too close to call” within four business days following the 

end of the shareholders’ meeting.167 

162 See, e.g., letters from CalSTRS and Norges Bank. 

163 See letter from United Brotherhood of Carpenters. 

164 See e.g., letter from Chadbourne. 

165 See letter from ABA. 

166 See letter from Allen Goolsby, et al.
 

167 See, e.g., letters from BorgWarner, Business Roundtable, SCSG, S&C and Southern. 

60 
 

 

A few commenters opposed the proposed amendments.168 Commenters opposed to 

amendments expressed concern that it would be very difficult to meet the four business day 

filing requirement. One of these commenters noted that problems that stem from share lending 

and other practices can significantly delay the time that votes can be tabulated.169 

Several commenters believed that the disclosure of the results of shareholder votes should 

be added to the list of items on Form 8-K that are currently excluded from liability under Section 

10(b) of the Exchange Act and Exchange Act Rule 10b-5, and that do not result in a loss of Form 

S-3 eligibility under General Instruction I.A.3(b).170 One commenter, however, believed that an 

amendment to General Instruction I.A.3(b) of Form S-3 to add an exception to the Form S-3 

eligibility requirements for the reporting of voting results would not be necessary if we allowed 

preliminary voting results for contested elections and on proposals that are “too close to call” to 

be reported within four business days of the meeting and final voting results within four business 

days after the voting results become final.171

 3. Final Rule 

After evaluating the comments received, we are adopting the proposed amendments to 

Form 8-K, and are eliminating the requirement to disclose shareholder voting results on Forms 

10-Q and 10-K. Accordingly, new Item 5.07 to Form 8-K requires companies to disclose on the 

form the results of a shareholder vote and to have that information filed within four business 

days after the end of the meeting at which the vote was held. Tying the filing requirement to the 

end of the meeting will provide shareholders, investors and other users of this information with a 

168 See, e.g., letters from Keith Bishop, NACD, RILA and SCC. 

169 See letter from NACD. 

170 See letters from ABA, Business Roundtable, Honeywell and S&C. 

171 See letter from SCSGP. 

61 
 

 

 

readily identifiable and certain date upon which a company would be required to disclose 

information on the results of the vote. We believe more timely disclosure of the voting results 

from an annual or special meeting would benefit investors and the markets. Under our prior 

disclosure requirements, it could be a few months before voting results are disclosed in a Form 

10-Q or 10-K. Often, matters submitted for a shareholder vote at an annual or special meeting 

involve issues that directly impact shareholder interests, such as the election of directors, 

changes in shareholder rights, investments or divestments, and capital changes. The delay 

between the end of an annual or special meeting of shareholders and when the voting results of 

the meeting are disclosed in a Form 10-Q or 10-K can make the information less useful to 

investors and the markets. We also understand that technological advances in shareholder 

communications and the growing use of third-party proxy services have increased the ability of 

companies to tabulate vote results and disseminate this information on a more expedited basis. 

We agree with the suggestions of commenters that there may be situations other than 

contested elections where it may take a longer period of time to determine definitive voting 

results.172 As a result, we are expanding the instruction to Form 8-K as adopted to state that 

companies are required to file the preliminary voting results within four business days after the 

end of the shareholders’ meeting, and then file an amended report on Form 8-K within four 

business days after the final voting results are known.173 However, if a company obtains the 

definitive voting results before the preliminary voting results must be reported and decides to 

report its definitive results on Form 8-K, it will not be required to file the preliminary voting 

172 See, e.g., letters from Business Roundtable, S&C and Southern. 

173 See Instruction 1 to Item 5.07 of Form 8-K. We note that our amendments to Form 8-K are not intended to 

preclude a company from announcing preliminary voting results during the meeting of shareholders at which the 

vote was taken and before filing the Form 8-K, without regard to whether the company webcast the meeting. 

62 
 

 

results. For example, if a company obtains the definitive voting results two days after the end of 

the shareholders’ meeting, it could report its definitive voting results on Form 8-K within four 

business days after the meeting and would not be required to file its preliminary voting results. 

To the extent that companies are concerned that the disclosure of preliminary voting results 

could be confusing to investors, they may include additional disclosure that helps to put the 

preliminary voting disclosure in a proper context. 

In the Proposing Release, we requested comment on whether we should consider 

additional revisions to the requirement to report voting results, such as eliminating a portion of 

prior Instruction 4 to the disclosure item. One commenter responded by suggesting that we 

could consolidate and simplify some of the disclosure requirements and instructions to the 

item.174 We agree with the suggestions that were submitted, and believe that certain requirements 

and instructions to the Item can be simplified, without changing the substance of what is required 

to be reported. Accordingly, we are adopting the following revisions to new Item 5.07: 

•	 Adding to paragraph (a) of the item a statement that the information required by the 

item need be provided only when a meeting of shareholders is involved;175 

•	 Combining paragraphs (b) and (c) to the item into a single paragraph that requires 

disclosure of the quantitative results of each matter voted on at the meeting, and a 

brief description of each matter; and 

•	 Eliminating Instruction 3, Instruction 5 and Instruction 7 to the item, as well as 

deleting the first sentence of Instruction 4. 

174 See letter of ABA. 

175 But see current Instruction 1 to Item 4 of Form 10-Q with respect to matters that have been submitted to a vote 

otherwise than at a meeting of shareholders, which we are not amending and which will be retained as Instruction 2 

to new Item 5.07 of Form 8-K. 

63 
 

III.	 PAPERWORK REDUCTION ACT 

A. Background 

Certain provisions of the final amendments contain “collection of information” 

requirements within the meaning of the Paperwork Reduction Act of 1995 (“PRA”).176 We 

published a notice requesting comment on the collection of information requirements in the 

proposing release for the rule amendments, and we submitted these requirements to the Office of 

Management and Budget (“OMB”) for review in accordance with the PRA.177 The titles for the 

collection of information are: 

(1) “Regulation 14A and Schedule 14A” (OMB Control No. 3235-0059); 

(2) “Regulation 14C and Schedule 14C” (OMB Control No. 3235-0057); 

(3) “Form 10-K” (OMB Control No. 3235-0063); 

(4) “Form 10-Q” (OMB Control No. 3235-0070); 

(5) “Form 10” (OMB Control No. 3235-0064); 

(6) “Form S-1” (OMB Control No. 3235-0065); 

(7) “Form S-4” (OMB Control No. 3235-0324); 

(8) “Form S-11” (OMB Control No. 3235-0067); 

(9) “Form 8-K” (OMB Control No. 3235-0060); 

(10) “Rule 20a-1 under the Investment Company Act of 1940, Solicitations of 

 Proxies, Consents, and Authorizations” (OMB Control No. 3235-0158); 

(11) “Form N-1A” (OMB Control No. 3235-0307); 

(12) “Form N-2” (OMB Control No. 3235-0026); 

(13) “Form N-3” (OMB Control No. 3235-0316); and 

176 44 U.S.C. 3501 et seq. 

17744 U.S.C. 3507(d) and 5 CFR 1320.11.
 

64 
 (14) “Regulation S-K” (OMB Control No. 3235-0071). 

The regulations, schedules and forms were adopted under the Securities Act and the 

Exchange Act, except for Forms N-1A, N-2, and N-3, which we adopted pursuant to the 

Securities Act and the Investment Company Act, and Rule 20a-1, which we adopted pursuant to 

the Investment Company Act. The regulations, forms and schedules set forth the disclosure 

requirements for periodic reports, registration statements, and proxy and information statements 

filed by companies to help investors make informed investment and voting decisions. The hours 

and costs associated with preparing, filing and sending the form or schedule constitute reporting 

and cost burdens imposed by each collection of information. An agency may not conduct or 

sponsor, and a person is not required to respond to, a collection of information unless it displays 

a currently valid OMB control number. Compliance with the amendments is mandatory. 

Responses to the information collections will not be kept confidential and there is no mandatory 

retention period for the information disclosed. 

B. Summary of the Final Rules 

As discussed in more detail above, the amendments that we are adopting will require: 

•	 To the extent that risks arising from a company’s compensation policies and practices 

for employees are reasonably likely to have a material adverse effect on the company, 

discussion of the company’s compensation policies or practices as they relate to risk 

management and risk-taking incentives that can affect the company’s risk and 

management of that risk; 

•	 Reporting of the aggregate grant date fair value of stock awards and option awards 

granted in the fiscal year in the Summary Compensation Table and Director 

Compensation Table, computed in accordance with FASB ASC Topic 718, rather 

65 
than the dollar amount recognized for financial statement purposes for the fiscal year, 

with a special instruction for awards subject to performance conditions; 

•	 New disclosure of the qualifications of directors and nominees for director, and the 

reasons why that person should serve as a director of the company at the time at 

which the relevant filing is made with the Commission; 

•	 Additional disclosure of any directorships held by each director and nominee at any 

time during the past five years at any public company or registered management 

investment company; 

•	 Additional disclosure of other legal actions involving a company’s executive officers, 

directors, and nominees for director, and lengthening the time during which such 

disclosure is required from five to ten years; 

•	 New disclosure regarding the consideration of diversity in the process by which 

candidates for director are considered for nomination by a company’s nominating 

committee; 

•	 New disclosure about a company’s board leadership structure and the board’s role in 

the oversight of risk; 

•	 New disclosure about the fees paid to compensation consultants and their affiliates 

under certain circumstances; and 

•	 Disclosure of the vote results from a meeting of shareholders on Form 8-K generally 

within four business days of the meeting. 

The disclosure enhancements we are adopting will significantly improve the information 

companies provide to investors with regard to risk, governance and director qualifications and 

66 
 

compensation. We believe that providing a more transparent view of these matters will help 

investors make more informed voting and investment decisions. 

C. Summary of Comment Letters and Revisions to Proposals 

In the Proposing Release, we requested comment on the PRA analysis. We received a 

response from one commenter that addressed our overall burden estimates for the proposed 

amendments. This commenter asserted that our PRA estimates underestimated the time and 

costs that companies would need to expend in complying with the proposed amendments.178 This 

commenter asserted that companies would need to expend many additional hours to update their 

director and officer questionnaires to obtain more detailed information; director nominees would 

need to spend additional time responding to these questionnaires and providing companies with 

information about their backgrounds and qualifications; and companies would need to spend 

time analyzing the responses, deciding what information to disclose, and preparing the 

disclosures. This commenter, however, did not provide alternative cost estimates or cost 

estimates that could be applied generally to all companies. In response to comments and 

modifications to the amendments as proposed, we have revised our estimates as discussed more 

fully in Section D. 

We have made several substantive modifications to the proposed amendments. First, new 

Item 402(s) of Regulation S-K requires a company to discuss its compensation policies and 

practices for employees if such policies and practices are reasonably likely to have a material 

adverse effect on the company. This change from the “may have a material effect” disclosure 

standard that was proposed should substantially mitigate some of the costs and burdens 

associated with the proposed amendments. By focusing on risks that are “reasonably likely to 

178 See letter from Business Roundtable. 

67 
have a material adverse effect” on the company, the amendments are designed to elicit disclosure 

on the company’s compensation policies and practices that would be most relevant to investors. 

Second, we have adopted amendments to expand the list of legal proceedings involving 

directors, executive officers, and nominees covered under Item 401(f) of Regulation S-K. Third, 

disclosure will be required of whether (and if so, how) the nominating committee considers 

diversity in identifying nominees for director. Fourth, we have adopted a disclosure threshold 

under the compensation consultant disclosure amendments that excludes fee and related 

disclosure where the fees for non-executive compensation consulting services do not exceed 

$120,000 for a company’s fiscal year. In addition, disclosure of fees for consultants engaged by 

management would not be required if the compensation committee or board has its own 

compensation consultant. 

D. Revisions to PRA Reporting and Cost Burden Estimates 

For purposes of the PRA, in the Proposing Release we estimated that the total annual 

increase in the paperwork burden for all companies (other than registered management 

investment companies) to prepare the disclosure that would be required under the proposed 

amendments would be approximately 247,773 hours of company personnel time and a cost of 

approximately $47,413,161 for the services of outside professionals. We further estimated the 

total annual increase in paperwork burden for registered management investment companies 

under the proposed amendments to be approximately 14,041 hours of company personnel time 

and a cost of approximately $7,048,900 for the services of outside professionals. As discussed 

above, we are revising the PRA burden and cost estimates that we originally submitted to the 

OMB in connection with the proposed amendments. 

68 
 

 

We derived our new burden hour and cost estimates by estimating the total amount of 

time it would take a company to prepare and review the disclosure requirements contained in the 

final rules. This estimate represents the average burden for all companies, both large and small. 

Our estimates have been adjusted to reflect the fact that some of the amendments would be 

required in some but not all of the documents listed above in Section A, and would not apply to 

all companies. In deriving our estimates, we recognize that the burdens will likely vary among 

individual companies based on a number of factors, including the size and complexity of their 

organizations, and the nature of their operations. We believe that some companies will 

experience costs in excess of this average in the first year of compliance with the amendments 

and some companies may experience less than the average costs. We estimate the annual 

incremental paperwork burden for all companies (other than registered management investment 

companies) to be approximately 223,426 hours of company personnel time and a cost of 

approximately $49,964,730 for the services of outside professionals. For registered management 

investment companies, we estimate the annual paperwork burden to be approximately 19,334 

hours of company personnel time and a cost of approximately $9,480,200 for the services of 

outside professionals. These estimates include the time and the cost of preparing and reviewing 

disclosure, filing documents and retaining records. 

With respect to reporting companies (other than registered management investment 

companies), the new rules and amendments will increase the existing disclosure burdens 

associated with proxy and information statements, Forms 10, 10-K, 8-K, S-1, S-4 and S-11. 

However, the disclosure requirements under new Item 402(s) of Regulation S-K are not 

applicable to smaller reporting companies.179 With respect to registered management investment 

179 Based on the number of proxy filings we received in the 2008 fiscal year, we estimate that approximately 3,922 

domestic companies are smaller reporting companies that have a public float of less than $75 million. 

69 
 

 

 

 

companies, the revisions will be reflected in certain Regulation S-K items, Schedule 14A, and 

Forms N-1A, N-2 and N-3. 

In the Proposing Release, we assumed that the burden hours of the amendments would be 

comparable to the burden hours related to similar disclosure requirements under existing 

reporting requirements, such as the disclosure of audit fees and non-audit services,180 CD&A and 

executive compensation reporting,181 and the disclosure of the activities of nominating 

committees.182 We have made several adjustments to these estimates to reflect the revisions we 

made to the amendments and the responses of commenters. We increased the burden estimate 

for the enhanced director and nominee disclosure by four hours to reflect the additional 

disclosures that will be required, such as the new legal proceedings and diversity policy, and to 

address concerns that our initial estimate may have been understated. At the same time, we have 

decreased the burden estimate related to new Item 402(s) of Regulation S-K from sixteen to eight 

hours, as well as the burden estimate related to the new compensation consultant disclosure from 

four to three hours to reflect the revisions to the proposed amendments. However, we made no 

change in our assumption that substantially all of the burdens associated with the amendments to 

Items 401 and 402 of Regulation S-K would be associated with Schedules 14A and 14C, as these 

would be the primary disclosure documents where the new disclosures would be prepared and 

presented.183 

180 Release No. 33-8183 (Jan. 28, 2003) [68 FR 6006] (which we estimated to be two hours). 

181 Release No. 33-8732A (Aug. 29, 2006) [71 FR 53518] (which we estimated to be 95 hours). 

182 Release No. 33-8340 (Nov. 24, 2003) [68 FR 69204] (which we estimated to be three hours). 

183 The burden estimates for Form 10-K assume that the amendments to Items 401 and 402 of Regulation S-K would 

be satisfied by either including the information directly in an annual report or incorporating the information by 

reference from the proxy statement or information statement on Schedule 14A or Schedule 14C. Our PRA estimates 

include an estimated 1 hour burden in the Form 10-K and schedules to account for the incorporation of the 

information that would be required under proposed amendments to Items 401 and 402 of Regulation S-K. 

70 
 

We made no change in our estimate that there would be no annual incremental increase in 

the paperwork burden for companies to comply with the amendments to the Summary 

Compensation Table, Director Compensation Table, and Grants of Plan-Based Awards Table. 

We believe that the amendments to the Summary Compensation Table, Grants of Plan-Based 

Awards Table and Director Compensation Table will simplify executive compensation 

disclosure because companies no longer will need to report two separate measures of equity 

compensation in their compensation disclosure. For purposes of Item 402 disclosure, companies 

no longer will need to explain or analyze a second, separate measure of equity compensation that 

is based on financial statement recognition rather than compensation decisions. In addition, we 

believe it is likely that these amendments will make companies’ identification of named 

executive officers more consistent from year-to-year, providing investors more meaningful 

disclosure and reducing executive compensation tracking burdens in determining which 

executive officers are the most highly compensated. 

We have added a special instruction for equity awards subject to performance conditions 

calling for tabular disclosure of the value computed based upon the probable outcome of the 

performance conditions as of the grant date. Because this value is already required to be 

computed under the accounting literature,184 it will not impose an incremental increase in 

paperwork burden. This instruction also requires footnote disclosure of the maximum value 

assuming the highest level of performance conditions is probable. We believe that any 

incremental burden associated with providing this footnote disclosure would be minimal. 

For each reporting company (other than registered management investment companies), 

we estimate that the amendments would impose on average the following incremental burden 

hours: 

184 FASB ASC Topic 718. 

71 
•	 Eight hours related to the amendments to discuss compensation policies and practices 

as they relate to risk management; 

•	 Eight hours for the enhanced director and nominee disclosure; 

•	 Six hours for the disclosures about board leadership structure and the board’s role in 

risk oversight; 

•	 Three hours for the disclosures regarding compensation consultants; and 

•	 One hour for the reporting of voting results on Form 8-K rather than on Forms 10-Q 

and 10-K. 

With respect to registered management investment companies, the amendments to Forms 

N-1A, N-2, and N-3 will increase existing disclosure burdens for such forms by requiring: 

•	 New disclosure of the qualifications of directors and nominees for director, and the 

reasons why that person should serve as a director of the company at the time at 

which the relevant filing is made with the Commission; 

•	 Additional disclosure of any directorships held by each director and nominee at any 

time during the past five years at public companies or registered management 

investment companies; and 

•	 New disclosure about a fund’s board leadership structure and the board’s role in the 

oversight of risk. 

We estimate that the amendments would impose on average the following incremental 

burden hours with respect to registered management investment companies: 

72 
 

• Eight hours for the enhanced director and nominee disclosure in proxy statements and 

six hours for such disclosure in registration statements;185 and 

• Six hours for the disclosures about company leadership structure and the board’s role 

in risk management. 

1. Proxy and Information Statements 

For purposes of the PRA, in the case of reporting companies (other than registered 

management investment companies) we estimate the annual incremental paperwork burden for 

proxy and information statements under the amendments would be approximately seventeen 

hours per form for companies that are smaller reporting companies, and twenty-five hours per 

form for companies that are either accelerated or large accelerated filers. In the case of 

registered management investment companies, we estimate the annual incremental paperwork 

burden for proxy and information statements under the amendments would be approximately 

fourteen hours per form. These estimates include the time and the cost of preparing disclosure 

that has been appropriately reviewed by management, in-house counsel, outside counsel, and 

members of the board of directors. 

2. Exchange Act Periodic Reports 

For purposes of the PRA, we estimate the annual incremental paperwork burden for Form 

10-K under the amendments would be approximately one hour per form. This estimate includes 

the time and the cost of preparing disclosure that has been appropriately reviewed by 

management, in-house counsel, outside counsel, and members of the board of directors. 

185 We estimate that the disclosure burden for registration statements on Forms N-1A, N-2, and N-3 is less than for 

proxy statements because the disclosures relating to involvement in legal proceedings for the past ten years applies 

only to proxy statements and not to registration statements. 

73 
 

 

 

3.	 Securities Act Registration Statements and Exchange Act Registration 

Statements 

For purposes of the PRA, in the case of reporting companies (other than registered 

management investment companies) we estimate the annual incremental paperwork burden for 

Securities Act registration statements under the amendments would be approximately sixteen 

hours per form.186 For registered management investment companies, we estimate that the annual 

incremental paperwork burden under the amendments to Forms N-1A, N-2, and N-3 would be 

approximately twelve hours per form. These estimates include the time and the cost of preparing 

disclosure that has been appropriately reviewed by management, in-house counsel, outside 

counsel, and members of the board of directors. 

The tables below illustrate the total annual compliance burden of the collection of 

information in hours and in cost under the amendments for annual reports; quarterly reports; 

current reports; proxy and information statements; Form 10; Forms S-1, S-4, S-11, N-1A, N-2, 

and N-3; and Regulation S-K.187 The burden estimates were calculated by multiplying the 

estimated number of responses by the estimated average amount of time it would take a company 

to prepare and review the disclosure requirements. For the Exchange Act reports on Forms 10-

K, 10-Q, and 8-K, and the proxy and information statements we estimate that 75% of the burden 

of preparation is carried by the company internally and that 25% of the burden of preparation is 

carried by outside professionals retained by the company at an average cost of $400 per hour. 

For the registration statements on Forms 10, S-1, S-4, S-11, N-1A, N-2, and N-3, we estimate 

186 We calculated the sixteen hours by adding eight hours for the requirements under Item 402(s) of Regulation S-K 

to eight hours for the enhanced director and nominee disclosure. 

187 Figures in both tables have been rounded to the nearest whole number. 

74 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

that 25% of the burden of preparation is carried by the company internally and that 75% of the 

burden of preparation is carried by outside professionals retained by the company at an average 

cost of $400 per hour. The portion of the burden carried by outside professionals is reflected as a 

cost, while the portion of the burden carried by the company internally is reflected in hours. 

There is no change to the estimated burden of the collections of information under Regulation SK because the burdens that this regulation imposes are reflected in our revised estimates for the 

forms. 

Table 1. Incremental Paperwork Burden under the amendments for annual reports; 

quarterly reports; proxy and information statements:

 Number of 

Responses188 

(A) 

Incremental 

Burden 

Hours/Form 

(B) 

Total 

Incremental 

Burden Hours 

(C)=(A)*(B) 

75% Company 

(D)=(C)*0.75 

25% 

Professional 

(E)=(C)*0.25 

Professional 

Costs 

(F)=(E)*$400 

10-K 13,545 1 13,545 10,159 3,386 $1,354,500 

10-Q189 32,462 (1) (7,300) (5,475) (1,825) $(730,000) 

8-K190 117,255 1 117,255 87,941 29,314 $11,725,500 

Sch. 14A191 7,300 

Accel. 

Filers 

3,378 25 84,450 63,338 21,113 $8,445,000

 SRC 3,922 17 66,674 50,006 16,669 $6,667,400 

188 The number of responses reflected in the table equals the actual number of forms and schedules filed with the 

Commission during the 2008 fiscal year, except for Form 8-K. The number of responses for Form 8-K reflects the 

number of Form 8-Ks filed during the 2008 fiscal year plus an additional 8,831 filings. See footnote 190 below. 

189 We calculated the reduction in the burden hours for Form 10-Q based on the number of proxy statements filed 

with the Commission during the 2008 fiscal year. We assumed that there would be, at a minimum, an equal number 

of Form 10-Qs filed to report the voting results from a meeting of shareholders. The reduction reflects the deletion 

of the disclosure of voting results from the form. 

190 We have included an additional 7,300 responses to Form 8-K to reflect the additional Form 8-Ks that would be 

filed to report final voting results. As explained in footnote 188 above, this number is based on the actual number of 

proxy statements filed in 2008. We adjusted this number upward by 20% to reflect our estimate of the additional 

Form 8-Ks that may be filed to report preliminary votes, and we have also included an additional 71 Form 8-Ks to 

reflect the number of Form 8-Ks that would be filed to report preliminary voting results because of a contested 

election, which we based on the actual number of proxy statements involving contested elections that were filed 

with the Commission during the 2008 fiscal year. 

191 The estimates for Schedule 14A and Schedule 14C are separated to reflect our estimate of the burden hours and 

costs related to new Item 402(s) of Regulation S-K which is applicable to companies that are either accelerated or 

large accelerated filers, but not applicable to companies that are non-accelerated filers, including smaller reporting 

companies. We estimate that 3,378 Schedule 14A responses were filed by accelerated or large accelerated filers, 

and 315 Schedule 14C responses were filed by accelerated or large accelerated filers. 

75 
 

 

 

 

 

 

 

 

 

 

 Filers 

Sch. 14C 680 

Accel. 

Filers 

315 25 7,867 5,900 1,967 $786,658

 SRC 

Filers 

365 17 6,211 4,658 1,553 $621,073 

Rule 20a-1 1,225 14 17,150 12,863 4,288 $1,715,000 

Reg. S-K N/A N/A N/A N/A N/A N/A 

Total 305,851 $30,585,130 

Table 2. Incremental Paperwork Burden under the amendments for registration 

 statements:

 Number of 

Responses192 

(A) 

Incremental 

Burden 

Hours/Form 

(B) 

Total 

Incremental 

Burden Hours 

(C)=(A)*(B) 

25% Company 

(D)=(C)*0.25 

75% 

Professional 

(E)=(C)*0.75 

Professional 

Costs 

(F)=(E)*$400 

Form 10 238 16 3,809 952 2,856 $1,142,500 

Form S-1 768 16 12,288 3,072 9,216 $11,579,500 

Form S-4 619 16 9,904 2,476 7,428 $3,686,400 

Form S-11 100 16 1,600 400 1,200 $2,971,200 

Form N-1A 1,935 12 23,220 5,805 17,415 $6,966,000 

Form N-2 205 12 2,460 615 1,845 $738,000 

Form N-3 17 12 204 51 153 $61,200 

Reg. S-K N/A N/A N/A N/A N/A N/A 

Total 53,485 $27,144,800 

IV. COST-BENEFIT ANALYSIS 

A. Introduction 

We are adopting amendments to enhance the disclosures with respect to a company’s 

overall compensation policy and its impact on risk taking, director and nominee qualifications 

and legal proceedings, board leadership structure and the board’s role in risk oversight, and the 

interests of compensation consultants. In addition, we are adopting amendments to transfer the 

requirement to disclose voting results from Forms 10-Q and 10-K to Form 8-K. 

We also are adopting amendments to the disclosure requirements for executive and 

director compensation to require stock awards and option awards reporting based on a measure 

192 The number of responses reflected in the table equals the actual number of forms filed with the Commission 

during the 2008 fiscal year, except for Forms N-1A and N-3. The number of responses for Forms N-1A and N-3 

reflect the number of open-ended management investment companies registered with the Commission as of the end 

of the 2008 fiscal year. 

76 
 

that will represent the aggregate grant date fair value of the compensation decision in the grant 

year, rather than the current rule, which allocates the grant date fair value over time 

commensurate with financial statement recognition of compensation costs.

 B. Benefits 

The amendments are intended to enhance transparency of a company’s compensation 

policies and its impact on risk taking; director and nominee qualifications; board leadership 

structure and the role of the board in risk oversight; potential conflicts of interest of 

compensation consultants; and voting results at annual and special meetings. 

1. Benefits Related to the New Narrative Disclosure of the Company’s 

Compensation Policies and Practices as They Relate to the Company’s Risk

 Management 

Incentive arrangements and other compensation for employees may affect risk-taking 

behavior in the company’s operations. To the extent that the risks arising from a company’s 

compensation policies and practices for employees are reasonably likely to have a material 

adverse effect on the company, investors will benefit through an enhanced ability to monitor it. 

They would also potentially benefit from the ability to use this additional information in 

allocating capital across companies, toward companies where employee incentives appear better 

aligned with operational success and investors’ appetite for risk. The new disclosure may also 

encourage the board and senior management to examine and improve incentive structures for 

management and employees of the company. These benefits may also lead to increased value to 

investors. 

2. Benefits Related to Revisions to Summary Compensation Table Disclosure 

As a result of the Summary Compensation Table and Director Compensation Table 

amendments, companies will no longer need to prepare and report the allocation of equity 

77 
awards’ grant date fair value over time commensurate with financial statement recognition of 

compensation costs for executive and director compensation tabular reporting. Further, in 

preparing stock awards and option awards disclosure in the Summary Compensation Table and 

Director Compensation Table, companies no longer will need to incur additional costs to exclude 

the estimate for forfeitures related to service-based vesting used for financial statement reporting 

purposes. The elimination of costs of preparing and reporting this information is a benefit of the 

amendments. 

The effects of the amendments in making information more readily available to investors 

may be useful to their voting and investment decisions. Reporting stock awards and option 

awards in the Summary Compensation Table based on aggregate grant date fair value is designed 

to make it easier for investors to assess compensation decisions and evaluate the decisions of the 

compensation committee. For example, under the amendments the Summary Compensation 

Table values will correspond to awards granted in the fiscal year, potentially allowing companies 

to better explain in CD&A how decisions with respect to awards granted for the year relate to 

other compensation decisions in the context of total compensation for the year. For awards 

subject to performance conditions, tabular disclosure will be based upon the probable outcome of 

the performance conditions as of the grant date. A special instruction for awards subject to 

performance conditions that requires footnote disclosure of the grant date fair value, assuming 

that the highest level of performance conditions will be achieved, will provide investors with 

further information as to the maximum potential payout of a particular grant. Further, the effect 

on total compensation of decisions to reprice options will be more evident because aggregate 

grant date fair value will be a component of total compensation reported in the Summary 

Compensation Table. 

78 
Under the amendments, the identification of named executive officers based on total 

compensation for the last completed fiscal year will reflect the aggregate grant date fair value of 

equity awards granted in that year. As a result, the named executive officers other than the 

principal executive officer and principal financial officer may change. Investors may benefit 

from receiving compensation disclosure with respect to executives who would not have been 

named executive officers under the former rules. To the extent that this change better aligns the 

identification of named executive officers with compensation decisions for the year, it should 

make it easier for companies to track executive compensation for reporting purposes. 

Although the amendments are not intended to steer behavior, changes in the way that 

executive compensation is represented in the Summary Compensation Table and other new, 

compensation-related disclosures may indirectly lead boards to reconsider pay structure, 

potentially changing the amount of pay in some cases. 

Smaller reporting companies are not required to provide a Grants of Plan-Based Awards 

Table or a CD&A, but are required to provide a Summary Compensation Table and Director 

Compensation Table. Investors in these companies should benefit from reporting stock awards 

and option awards based on aggregate grant date fair value in the grant year, as opposed to the 

current reporting approach based on financial statement recognition of the awards. 

3. Benefits Related to Enhanced Director and Nominee Disclosure 

The amendments to Item 401 of Regulation S-K, Schedule 14A and Forms N-1A, N-2 

and N-3 will potentially benefit investors by increasing the amount and quality of information 

that they receive concerning the background and skills of directors and nominees for director, 

enabling investors to make better-informed voting and investment decisions. Disclosure of 

board’s or other proponents’ rationale for their nominees’ membership on the board may benefit 

79 
 

investors by enabling them to better assess whether and why a particular nominee is an 

appropriate choice for a particular company. Investors would be able to make more informed 

voting decisions in electing directors. Investors would also be able to adjust their holdings, 

allocating more capital to companies in which they believe board members are most likely to be 

able to effectively fulfill their duties to shareholders. In particular, in cases that do not meet 

investors’ expectations, investors may respond by attempting to exert more influence on 

management or the board than would occur otherwise, thereby enhancing shareholder value. 

Required disclosure of whether, and if so, how a nominating committee (or the board) 

considers diversity in connection with identifying and evaluating persons for consideration as 

nominees for a position on the board of directors may also benefit investors. Board diversity 

policy is an important factor in the voting decisions of some investors.193 Such investors will 

directly benefit from diversity policy disclosure to the extent the policy and the manner in which 

it is implemented is not otherwise clear from observing past and current board selections. 

Although the amendments are not intended to steer behavior, diversity policy disclosure may 

also induce beneficial changes in board composition. A board may determine, in connection 

with preparing its disclosure, that it is beneficial to disclose and follow a policy of seeking 

diversity. Such a policy may encourage boards to conduct broader director searches, evaluating 

a wider range of candidates and potentially improving board quality. To the extent that boards 

branch out from the set of candidates they would ordinarily consider, they may nominate 

directors who have fewer existing ties to the board or management and are, consequently, more 

independent. To the extent that a more independent board is desirable at a particular company, 

the resulting increase in board independence could potentially improve governance. In addition, 

193 See, e.g., letters from Calvert, Trillium, Boston Common Asset Management, CII, Florida State Board of 

Administration, and Sisters of Charity BVM. See also letter from Lissa Lamkin Broome and Thomas Lee Hazen. 

80 
 

in some companies a policy of increasing board diversity may also improve the board’s decisionmaking process by encouraging consideration of a broader range of views. 

Expanded disclosure of membership on previous corporate boards may also benefit 

investors by making it easier for them to evaluate whether nominees’ past board memberships 

present potential conflicts of interest (such as membership on boards of major suppliers, 

customers, or competitors). Investors may also be able to more easily evaluate the performance, 

in both operations and governance, of the other companies on whose boards the nominees serve 

or have served. The public may also benefit from better understanding any potential positive or 

negative effects on corporate performance resulting from directors serving on other boards. 

The expanded list of legal proceedings involving directors, nominees and executive 

officers that must be disclosed, as well as the expanded disclosure of these legal proceedings 

from the current five-year requirement to ten years, would benefit investors by providing more 

information by which they could determine the suitability of a director or nominee. 

4. Benefits Related to New Disclosure about Board Leadership Structure and 

the Board’s Role in Risk Oversight 

Investors may benefit from new disclosure about board leadership structure. In 

particular, they may benefit from understanding management’s explanation regarding whether or 

not the principal executive officer serves as chairman of the board and, in the case of a registered 

management investment company, whether the chairman is an “interested person” of the fund. 

In deciding whether to separate principal executive officer and chairman positions, companies 

may consider several factors, including the effectiveness of communication with the board and 

the degree to which the board can exercise independent judgment about management 

performance, and shareholders may, in different cases, be best served by different decisions. 

Although the amendments are not intended to drive behavior, there may be possible benefits if a 

81 
 

 

company re-evaluates its leadership structure or the board’s role in risk oversight and decides to 

make changes as a result. 

Disclosures of the board’s role in risk oversight may also benefit investors. Expanded 

disclosure of the board’s role in risk oversight may enable investors to better evaluate whether 

the board is exercising appropriate oversight of risk. Investors would be able to adjust their 

holdings, allocating more capital to companies in which they believe the board is adequately 

focused on risks. Improved capital allocation will also benefit the financial markets by 

increasing market efficiency. 

5. Benefits Related to New Disclosure Regarding Compensation Consultants 

New disclosure regarding compensation consultants may benefit investors by 

illuminating potential conflicts of interest. Providing better, more complete information in cases 

where the value of non-executive compensation services is over $120,000 for the last fiscal year 

will allow investors to determine for themselves whether there are concerns related to the 

compensation consultants’ financial interests and objectivity. Compensation consultants may 

earn fees from other services to the company, including benefits administration, human resources 

consulting, and actuarial services. With an incentive to retain these significant additional 

revenue streams, they may face incentives to cater, to some degree, to management preferences 

in recommending executive compensation packages.194 The House Committee on Oversight and 

Government Reform’s Study on Executive Pay documented that 113 of 250 of the largest 

publicly traded companies hired compensation consultants that earned fees from other services, 

and that this practice was positively correlated with higher CEO pay.195 However, Cadman, 

194 See letter from Mary Ellen Carter. 

195 In December 2007, the U.S. House of Representatives Committee on Oversight and Government Reform issued a 

report on the role played by compensation consultants at large, publicly-traded companies (the “Waxman Report”). 

82 
 

Carter and Hilligeist (2009) studied a larger set of companies, but did not find statistically 

significant relations between certain factors thought to indicate conflicts of interest and the level 

of CEO pay.196 To the degree that these potential conflicts may be more transparent under the 

amendments, investors benefit through their ability to better monitor the process of setting 

executive pay. This potential conflict is substantially reduced when the compensation committee 

hires a compensation consultant that does not provide other services to the company. Benefits of 

the amendment may be limited to the degree that compensation consultants have other potential 

conflicts of interest not specifically enumerated in the amendments. 

Disclosures about compensation consultants may have effects on competition in the 

compensation consulting industry, introducing potential relative costs and benefits to both multiservice consulting firms and consulting firms exclusively specializing in executive 

compensation. Specific potential effects on competition are discussed in Section V below. 

Broadly, the disclosures may affect the level of competition in the compensation consulting 

industry. Any increase in competition could reduce prices of consulting services, benefiting 

client companies. Changes in competition may also affect the content of advice provided to 

companies. As discussed more fully in Section C below, it is possible that, if the level of 

competition in the industry decreases, compensation consultants may be less inclined to make 

recommendations favorable to management. This could potentially benefit shareholders. 

The Waxman Report found that the fees earned by compensation consultants for providing other services often far 

exceed those earned for advising on executive compensation, and that on average companies paid compensation 

consultants over $2.3 million for other services and less than $220,000 for executive compensation advice. See 

Staff of House Comm. on Oversight and Government Reform, 110th Cong., Report on Executive Pay: Conflicts of 

Interest Among Compensation Consultants (Comm. Print 2007). 

196 Cadman, Carter and Hilligeist, 2009, The Incentives of Compensation Consultants and CEO Pay, Journal of 

Accounting and Economics (forthcoming) and provided with the letter submitted by Mary Ellen Carter. 

83 
 

6. Benefits Related to Reporting of Voting Results on Form 8-K 

The amendments to Form 8-K will facilitate security holder access to faster disclosure of 

the vote results of a company’s annual or special meeting. To find this information, investors no 

longer would need to wait for this information to be disclosed in a Form 10-Q or 10-K, which 

could be filed months after the end of the meeting. 

C. Costs 

The amendments will impose new disclosure requirements on companies. Some of the 

disclosures are designed to build upon existing requirements to elicit a more detailed discussion 

of director and nominee qualifications, legal proceedings, and the interests of compensation 

consultants. To the degree that the amendments require collecting information currently 

available, costs related to information collection will be limited. 

1. Costs Related to the New Narrative Disclosure of the Company’s 

Compensation Policies and Practices as They Relate to the Company’s Risk

 Management 

We believe that there may be information gathering costs associated with the new 

disclosure of the company’s compensation policies and practices as they relate to the company’s 

risk management, even though the information required may be readily available, because this 

information may need to be reported up from business units and analyzed. Some commenters 

noted that the amendments would require companies to incur additional costs, such as costs 

related to conducting a risk analysis of compensation policies for all employees.197 This could 

also include the cost of hiring additional advisors to assist in the analysis, as well as additional 

costs in drafting the new disclosure. Using our PRA burden estimates, we estimate the aggregate 

197 See, e.g., letters from Business Roundtable and Robert Ahrenholz. 

84 
 

 

 

annual cost of the amendments to be approximately $12,215,326.198 As previously discussed, the 

proposed amendments would have required discussion and analysis of compensation policies if 

risks arising from those compensation policies “may have a material effect on the company.” 

We have revised the amendment to require a company to discuss its compensation policies and 

practices for employees if such policies and practices are “reasonably likely to have a material 

adverse effect” on the company. By focusing on risks that are “reasonably likely to have a 

material adverse effect” on the company, we believe the amendments will result in a smaller 

number of companies making this risk disclosure. This change from the “may have a material 

effect” disclosure should mitigate some of the costs and burdens associated with the 

amendments. 

Companies may also face costs related to the disclosure of the company’s compensation 

policies to the extent that it provides management with incentives to adopt risk-averse strategies 

that result in the abandonment of risky projects whose returns otherwise would compensate for 

the amount of additional risk. This could discourage beneficial risk-taking behavior. 

2. Costs Related to Revisions to Summary Compensation Table Disclosure 

Investors may face some costs related to revisions in executive compensation reporting. 

Under the amendments to the Summary Compensation Table and as noted in the Benefits 

section, the identification of named executive officers based on total compensation for the last 

completed fiscal year will reflect the aggregate grant date fair value of equity awards granted in 

that year, so that some executives subject to executive compensation disclosure may be different. 

198 This estimate is based on the estimated total burden hours of the amendments associated with the schedules and 

forms that would include the new disclosure, an assumed 75%/25% split of the burden hours between internal staff 

and external professionals with respect to proxy and information statements, an assumed 25%/75% split of the 

burden hours between internal staff and external professionals with respect to registration statements, and an hourly 

rate of $200 for internal staff time and $400 for external professionals. 

85 
Smaller reporting companies, which are not required to provide the Grants of Plan-Based 

Awards Table, may incur some costs on a transitional basis in switching from the previously 

required measure of stock awards and option awards to aggregate grant date fair value reporting. 

We expect that any such additional costs will be limited by the fact that grant date fair value 

information required under the amendments is also collected to comply with financial reporting 

purposes. Because companies other than smaller reporting companies previously were required 

to report the grant date fair value of individual equity awards in the Grants of Plan-Based 

Awards Table, we expect that they will incur only negligible costs in switching to the amended 

Summary Compensation Table and Director Compensation Table disclosure requirements. 

Moreover, grant date fair value guidelines under FASB ASC Topic 718 call for 

management to exercise judgment in valuing stock options. For financial statement recognition 

purposes, the grant date fair value measure of compensation cost is expensed over the expected 

term of the option. Compensation cost for awards containing a performance-based vesting 

condition is recognized only if it is probable that the performance condition will be achieved. To 

the extent that an investor believes that Summary Compensation Table and Director 

Compensation Table disclosure of stock awards and option awards should be measured based on 

financial statement recognition principles to take into account potential adjustments, the 

amendments may entail a cost. The special instruction for awards subject to performance 

conditions mitigates this potential cost to some extent by providing that such awards are reported 

in the Summary Compensation Table and Director Compensation Table based upon the probable 

outcome of the performance condition(s) as of the grant date. This instruction also requires 

footnote disclosure of the maximum value assuming the highest level of performance conditions 

86 
 

 

 

 

 

is probable. We believe that any incremental cost associated with providing this footnote 

disclosure would be minimal. 

3. Costs Related to Enhanced Director and Nominee Disclosure 

Companies may face some information gathering and reporting costs related to enhanced 

director and nominee disclosure. One commenter noted that companies may face costs related to 

the amendments to the extent that companies will need to update their director and officer 

questionnaires to obtain more detailed information, and will need to spend additional time 

analyzing the information as well as preparing the disclosures.199 Companies may also 

experience increased costs as it may be more difficult to find candidates willing to serve on 

boards if they do not want this information disclosed in a Commission filing. To the extent that 

information is available and verifiable through other sources, however, we expect the potential 

costs of the additional disclosure will be limited. Using our PRA burden estimates, we estimate 

the aggregate annual cost to operating companies to be approximately $20,790,000.200 With 

respect to our PRA burden estimates for registered management investment companies, we 

estimate the aggregate annual cost to be approximately $6,979,700.201 

In addition, although the amendments are not intended to steer behavior, a company may 

adopt a diversity policy in connection with preparing its disclosure regarding whether and, if so, 

how diversity is considered in connection with identifying and evaluating persons for 

199 See letter from Business Roundtable. 

200 This estimate is based on the estimated total burden hours of the amendments associated with the schedules and 

forms that would include the new disclosures, an assumed 75%/25% split of the burden hours between internal staff 

and external professionals with respect to proxy and information statements, an assumed 25%/75% split of the 

burden hours between internal staff and external professionals with respect to registration statements, and an hourly 

rate of $200 for internal staff time and $400 for external professionals. 

201 This estimate is based on the estimated total burden hours of 22,742, an assumed 75%/25% split of the burden 

hours between internal staff and external professionals with respect to proxy statements, an assumed 25%/75% split 

of the burden hours between internal staff and external professionals with respect to registration statements, and an 

hourly rate of $200 for internal staff time and $400 for external professionals. 

87 
 

 

consideration as nominees for a position on the board of directors. If this policy turns out to be 

difficult to implement, companies could incur economic costs as a result in the form of recruiting 

costs or otherwise. 

4. Costs Related to New Disclosure about Board Leadership Structure and the 

Board’s Role in Risk Oversight 

Companies may face some costs related to new disclosure about board leadership 

structure. Disclosure of the board’s role in risk oversight may have some similar costs. The 

information gathering costs are likely to be less significant than the costs to prepare the 

disclosure. Using our PRA burden estimates, we estimate the aggregate annual cost to operating 

companies to be approximately $11,970,000.202 With respect to our PRA burden estimates for 

registered management investment companies, we estimate the aggregate annual cost to be 

approximately $6,367,200.203 Although the amendments are not intended to drive behavior, there 

may be possible costs if a company re-evaluates its leadership structure or the board’s role in risk 

oversight and decides to make changes as a result. 

5. Costs Related to New Disclosure Regarding Compensation Consultants 

Companies may face some costs related to new disclosure about fees for compensation 

consulting and for other services provided by compensation consultants. Using our PRA burden 

estimates, we estimate the aggregate annual cost to be approximately $5,985,000.204 In addition, 

202 This estimate is based on the estimated total burden hours of the amendments associated with the schedules and 

forms that would include the new disclosures, an assumed 75%/25% split of the burden hours, and an hourly rate of 

$200 for internal staff time and $400 for external professionals. 

203 This estimate is based on the estimated total burden hours of 20,292, an assumed 75%/25% split of the burden 

hours between internal staff and external professionals with respect to proxy statements, an assumed 25%/75% split 

of the burden hours between internal staff and external professionals with respect to registration statements, and an 

hourly rate of $200 for internal staff time and $400 for external professionals. 

204 This estimate is based on the estimated total burden hours related to the amendments in connection to Schedules 

14A and 14C, an assumed 75%/25% split of the burden hours, and an hourly rate of $200 for internal staff time and 

$400 for external professionals. 

88 
 

the costs to a company in contracting with compensation consultants could be increased under 

these amendments, and compensation consultants also may alter their mix of services. For 

instance, costs may increase if companies decide to contract with multiple compensation 

consultants for services that had previously been provided by only one compensation consultant. 

Several commenters asserted that the amendments could discourage companies from using a 

single compensation consulting firm to provide executive compensation services and services 

other than executive compensation consulting.205 Possible increased costs might include the costs 

associated with the time each new compensation consultant will need to learn about the company 

and the decline in any economies of scale the compensation consultant may have factored into 

fees charged to the company. To the extent that compensation consulting firms exit 

compensation consulting to eliminate potential conflicts and mandatory fee disclosure, fewer 

experienced consultants may be available for hire. To the extent that the remaining consultants 

cannot scale operations sufficiently quickly to meet demand, then this could result in less 

qualified opinions from remaining consultants, with potential costs to shareholders. In the long 

run, however, industry capacity may increase, which would mitigate this effect. 

Disclosures on compensation consultants may have effects on competition in the 

compensation consulting industry, introducing potential relative costs and benefits to multiservice consulting firms and consulting firms specializing in executive compensation. Specific 

potential effects on competition are discussed in the Section V below. As discussed in more 

detail in Section V, competition could conceivably decrease if some multi-service firms exit the 

executive compensation consulting industry. Any decrease in competition could increase prices 

of consulting services, potentially creating higher costs for client companies, while benefiting the 

compensation consulting industry as a whole. However, competition could increase, for 

205 See, e.g., letters from Mercer, Towers Perrin and Watson Wyatt. 

89 
 

 

example, to the extent that the amendments make smaller boutique firms more attractive to 

companies. If the amendments increase competitiveness of the industry, compensation 

consultants may charge lower fees. They may also, however, feel pressure to generate 

recommendations favorable to management in order to increase the likelihood of being retained 

in the future. Any decline in the objectivity of advice from compensation consultants would 

potentially be costly to shareholders. 

6. Costs Related to Reporting of Voting Results on Form 8-K 

Shareholders who are used to receiving this information in a Form 10-Q filing may incur 

costs of adapting their research practices to find this information in Form 8-K filings, which may 

involve searching through a number of filings. This adjustment may involve costs, in particular, 

to those investors who process this information using automated systems. A separate filing to 

report the information and potentially report both preliminary and final voting results may also 

increase direct costs to companies for filing fees, filing creation, and report dissemination 

because it may require two Form 8-K filings. However, the cost for preparing a quarterly report 

on Form 10-Q would be less because this disclosure would not appear in that Form. Companies 

that report preliminary voting results may face some additional information gathering and 

reporting costs because they would need to file a Form 8-K to disclose preliminary voting results 

and to file an amended Form 8-K to disclose final vote results. Using our PRA burden estimates, 

we estimate the aggregate annual cost to be approximately $2,207,750.206 

206 This estimate is based on the estimated 8,831 additional Form 8-K filings, an assumed 75%/25% split of one 

burden hour between internal staff and external professionals, and an hourly rate of $200 for internal staff time and 

$400 for external professionals. 

90 
 

V. CONSIDERATION OF IMPACT ON THE ECONOMY, BURDEN ON 

COMPETITION AND PROMOTION OF EFFICIENCY, COMPETITION AND 

 CAPITAL FORMATION 

Section 23(a)(2) of the Exchange Act requires us,207 when adopting rules under the 

Exchange Act, to consider the impact that any new rule would have on competition. In addition, 

Section 23(a)(2) prohibits us from adopting any rule that would impose a burden on competition 

not necessary or appropriate in furtherance of the purposes of the Exchange Act. 

Section 2(b) of the Securities Act,208 Section 3(f) of the Exchange Act,209 and Section 2(c) 

of the Investment Company Act require us,210 when engaging in rulemaking where we are 

required to consider or determine whether an action is necessary or appropriate in the public 

interest, to consider, in addition to the protection of investors, whether the action will promote 

efficiency, competition, and capital formation. 

The amendments that we are adopting are designed to enhance the information 

companies provide to investors with regard to the following: 

•	 Risk: by requiring disclosure about the board’s role in oversight of risk and, to the 

extent that risks arising from a company’s compensation policies and practices are 

reasonably likely to have a material adverse effect on the company, disclosure about 

such policies and practices as they relate to risk management; 

•	 Governance and Director Qualifications: by requiring expanded disclosure of the 

background and qualifications of directors and director nominees and new disclosure 

207 15 U.S.C. 78w(a)(2). 

208 15 U.S.C. 77b(b). 

20915 U.S.C. 78c(f). 

210 15 U.S.C. 80a-2(c). 

91 
 

about a company’s board leadership structure, and accelerating the reporting of 

information regarding shareholder voting results; and 

•	 Compensation: by revising the reporting of stock and option awards received by 

named executive officers, and requiring disclosure of potential conflicts of interest of 

compensation consultants in certain circumstances. 

The amendments are designed to enable investors to make better informed voting and 

investment decisions. For example, several commenters noted that investors will be able to use 

the new risk disclosures to make more informed investment decisions.211 Improved investment 

decisions could lead to increased efficiency and competitiveness of the U.S. capital markets. 

Investors could allocate capital across companies, toward companies where the risk incentives 

are more aligned with an investor’s risk preference. In this regard, the amendments may affect 

the relative ability of some companies to raise capital depending on how investors react to the 

disclosures they provide in response to the amendments. In addition, the amendments may 

improve the efficiency of information gathering by investors to the extent that disclosure 

provided in response to the amendments is easier to access through filings made with the 

Commission. 

The amendments may affect competition, such as encouraging competition among 

companies to demonstrate superior risk oversight and improved incentive structures for 

management and the employees of the company. Several commenters indicated that the 

amendments requiring fee and other disclosures related to compensation consultants might have 

some effects on competition among firms in this industry. Some of these commenters believed 

the amendments could negatively impact competition among large multi-service compensation 

211 See, e.g., letters from CalSTRS, CII, the General Board of Pension and Health Benefits of the United Methodist 

Church, and Hermes. 

92 
 

consulting firms.212 Companies will face new disclosure requirements with respect to their use of 

compensation consulting firms in certain circumstances, but not with respect to compensation 

consulting firms who provide only executive compensation consulting services. To the extent 

that companies receiving compensation consulting services are reluctant to disclose the fees paid 

for advice on executive compensation, this may put some larger multi-service compensation 

consulting firms at a competitive disadvantage relative to smaller firms who focus on executive 

compensation consulting. In such cases, multi-service firms may be excluded from competing 

for compensation consulting services at companies where they already provide other nonexecutive compensation consulting services. However, this potential anti-competitive impact 

may be diminished to the extent that the potential opportunities lost to some multi-service firms 

would otherwise be available to other multi-service firms who do not provide non-executive 

compensation consulting services to the company. To the extent that this occurs, competition 

between multi-service firms could increase. In addition, the amendments provide a limited 

exception to the disclosure requirements for fees paid to other compensation consultants retained 

by the company if the board has retained its own consultant that reports to the board. This 

exception limits disclosure to circumstances that are more likely to present conflicts of interest, 

which should also address concerns about the competitive disadvantage faced by multi-service 

firms. 

In some instances, the amendments may result in disclosure of pricing information that 

certain compensation consulting firms would prefer to remain private, which could affect some 

consulting firms’ marginal cost of providing executive compensation and non-executive 

compensation services. Competition in the compensation consulting industry also may be 

212 See, e.g., letters from Hewitt, Mercer and Towers Perrin. 

93 
affected if, for example, some compensation consulting firms choose not to provide executive 

compensation consulting services to avoid having to disclose fees on other, more critical aspects 

of their businesses. If multi-service compensation consulting firms currently use cross-selling 

synergies to subsidize their compensation consulting services for the purpose of soliciting other 

business, then their departure may result in an increase in fees, which may better approximate the 

stand-alone value of the services and promote competition from new market participants who 

could not otherwise subsidize compensation consulting services. 

Conversely, the amendments may increase competition in the executive compensation 

consulting industry. If certain larger compensation consulting firms currently enjoy an 

advantage related to their ability to cross sell services, for example, where management is more 

likely to recommend to the board a compensation consultant with whom management has prior 

experience, the marginal cost of providing services may be lower, currently, than it is for smaller 

compensation consulting firms. In this circumstance, any additional marginal costs related to 

disclosure by multi-service firms may have the effect of making marginal costs faced by multiservice firms and boutique firms more equal, allowing boutique firms to compete more 

effectively. This may encourage entry into compensation consulting services by more firms, or 

at least make the threat of their entry more credible. If the number of multi-service 

compensation consulting firms is limited, relative to potential entrants, the level of effective 

competition in the industry may increase. The industry may also become more competitive for 

other reasons. For example, more public availability of aggregate fee disclosure, in general, may 

provide an informational advantage to companies as they negotiate with potential compensation 

consulting firms, effectively lowering the price of consulting services. Additionally, pricing 

disclosed, either publicly or in private negotiation, may more accurately reflect each particular 

94 
 

 

 

service provided. If multi-service compensation consulting firms currently use cross-selling 

synergies to subsidize their compensation consulting services for the purpose of soliciting other 

business, then an increase in fees resulting from their departure may better approximate the 

stand-alone value of the services and promote competition from new market participants who 

could not otherwise subsidize compensation consulting services. 

The size of the market for compensation consulting services is large; depending on the 

assumptions, we estimate that the total fee revenues of the compensation consulting market could 

be in the range of $480 million to $3.7 billion. The lower approximate bound is calculated using 

the $200,000 average per firm fee for executive compensation advice paid by the 250 large 

companies studied in the Waxman Report, and an estimated 2,190 companies from the Russell 

3000 index that report using an executive compensation consultant.213 The lower estimate could 

be higher to the extent that non-Russell 3000 companies also hire compensation consultants, or 

lower to the extent that smaller companies pay less than $200,000 for compensation consulting 

advice. The upper approximate bound is calculated from the periodic reports of the four largest 

multi-service compensation consulting firms: Towers Perrin, Mercer, Hewitt, and Watson Wyatt. 

These four firms reported 2008 fiscal year-end total revenues of $9.9 billion, of which $2.16 

billion was disclosed as generated from compensation consulting activities, but which could 

include non-executive compensation consulting services.214 Considering that these four firms 

213 See letter from Mary Ellen Carter. 

214 Hewitt reported 33% of total revenues ($990 million) from Talent and Organizational Consulting; Mercer 

reported $550 million in consulting revenue from management and rewarding of employees, the design of 

remuneration programs, and improvement of human resource effectiveness; Watson Wyatt reported 10% of total 

revenues ($167 million) from its Human Capital Group, which included providing advice on compensation plans 

and other long-term incentive programs; Towers Perrin reported 26.6% of total revenues ($450 million) from Talent 

and Rewards Consulting. 

95 
 

represent approximately 58% of the compensation consulting market,215 this indicates the total 

compensation consulting market could be $3.7 billion. 

VI. FINAL REGULATORY FLEXIBILITY ANALYSIS 

This Final Regulatory Flexibility Analysis (“FRFA”) has been prepared in accordance 

with the Regulatory Flexibility Act.216 This FRFA relates to amendments to Regulation S-K, 

Schedule 14A and Forms 8-K, 10-Q, and 10-K under the Exchange Act, and Forms N-1A, N-2, 

and N-3, under the Investment Company Act. The amendments will require the following: 

•	 To the extent that risks arising from a company’s compensation policies and practices 

for employees are reasonably likely to have a material adverse effect on the company, 

discussion of the company’s compensation policies or practices as they relate to risk 

management and risk-taking incentives that can affect the company’s risk and 

management of that risk; 

•	 Reporting of the aggregate grant date fair value of stock awards and option awards 

granted in the fiscal year in the Summary Compensation Table and Director 

Compensation Table to be computed in accordance with FASB ASC Topic 718, with 

a special instruction for awards subject to performance conditions; 

•	 New disclosure of the qualifications of directors and nominees for director, and the 

reasons why that person should serve as a director of the company at the time at 

which the relevant filing is made with the Commission; the same information would 

be required with respect to directors nominated by others; 

215 See letter from Mary Ellen Carter. 

216 5 U.S.C. 601. 

96 
•	 Additional disclosure of any directorships held by each director and nominee at any 

time during the past five years at any public company or registered investment 

company; 

•	 Additional disclosure of other legal actions involving a company’s executive officers, 

directors, and nominees for director, and lengthening the time during which such 

disclosure is required from five to ten years; 

•	 New disclosure about a company’s board leadership structure and the board’s role in 

the oversight of risk; 

•	 New disclosure regarding the consideration of diversity in the process by which 

candidates for director are considered for nomination by a company’s nominating 

committee; 

•	 New disclosure about the fees paid to compensation consultants and their affiliates 

under certain circumstances; and 

•	 Reporting of the vote results from a meeting of shareholders on Form 8-K generally 

within four business days of the meeting. 

An Initial Regulatory Flexibility Analysis (“IRFA”) was prepared in accordance with the 

Regulatory Flexibility Act and included in the Proposing Release. 

A. Need for the Amendments 

As described both in this release and the Proposing Release, during the past few years, 

investors have increasingly focused on corporate accountability, and have expressed the desire 

for additional information that would enhance their ability to make informed voting and 

investment decisions. The amendments are intended to improve the disclosure shareholders of 

public companies receive regarding compensation and corporate governance, and facilitate 

97 
 

 

communications relating to voting decisions. We believe the amendments will enhance the 

transparency of a company’s compensation policies and practices, and the impact of such 

policies and practices on risk taking; director and nominee qualifications; board leadership 

structure; the potential conflicts of compensation consultants; and will provide investors with 

clearer and more meaningful executive compensation disclosure. 

B. Significant Issues Raised by Public Comments 

In the Proposing Release, we requested comment on any aspect of the IRFA, including 

the number of small entities that would be affected by the proposed amendments, the nature of 

the impact, how to quantify the number of small entities that would be affected, and how to 

quantify the impact of the proposed amendments. We did not receive comments specifically 

addressing the IFRA. However, several commenters addressed aspects of the proposed rule 

amendments that could potentially affect small entities. In particular, some commenters believed 

that compliance with the proposed amendments would impose a significant burden on smaller 

companies.217 Other commenters believed that smaller companies should be exempted from all 

or parts of the amendments.218 Although we believe that a complete exemption from the 

amendments would not be appropriate because this would interfere with achieving the goal of 

enhancing the information provided to all investors, we have made revisions to the amendments 

that we believe will significantly reduce the impact of the amendments on reporting companies, 

including smaller companies. In addition, we did not propose, and we are not at this time 

adopting, a requirement that smaller companies discuss their compensation policies and practices 

217 See letters from Keith Bishop and Theragenics. 

218 See, e.g., letters from the Committee on Securities Law of the Business Law Section of the Maryland State Bar 

Association and Theragenics. 

98 
 

for employees if such policies and practices are reasonably likely to have a material adverse 

effect. 

C. Small Entities Subject to the Final Amendments 

The amendments will affect some companies that are small entities. The Regulatory 

Flexibility Act defines “small entity” to mean “small business,” “small organization,” or “small 

governmental jurisdiction.”219 The Commission’s rules define “small business” and “small 

organization” for purposes of the Regulatory Flexibility Act for each of the types of entities 

regulated by the Commission. Securities Act Rule 157220 and Exchange Act Rule 0-10(a)221 

defines a company, other than an investment company, to be a “small business” or “small 

organization” if it had total assets of $5 million or less on the last day of its most recent fiscal 

year. We estimate that there are approximately 1,229 companies, other than registered 

investment companies, that may be considered small entities. The amendments to Regulation SK, Schedule 14A and Forms 8-K, 10-Q, and 10-K will affect any small entity that is subject to 

Exchange Act periodic and proxy reporting requirements. In addition, the amendments also will 

affect small entities that file a registration statement under the Securities Act. 

An investment company is considered to be a “small business” if it, together with other 

investment companies in the same group of related investment companies, has net assets of $50 

million or less as of the end of its most recent fiscal year.222 We believe that the amendments 

will affect small entities that are investment companies. We estimate that there are 

approximately 162 investment companies that may be considered small entities. 

219 5 U.S.C. 601(6). 

220 17 CFR 230.157. 

221 17 CFR 240.0-10(a). 

222 17 CFR 270.0-10(a). 

99 
D. Reporting, Recordkeeping, and other Compliance Requirements 

The amendments are designed to enhance the transparency of boards of directors, provide 

investors with a better understanding of the functions and activities of boards, and to provide 

investors with clearer and more meaningful compensation disclosure. These amendments will 

require small entities that are operating companies to provide: 

•	 Reporting stock awards and option awards in the Summary Compensation Table and 

Director Compensation Table based on aggregate grant date fair value; 

•	 Disclosure of the qualifications of directors and nominees for director, and a brief 

discussion of the specific experience, qualifications, attributes or skills that led to the 

conclusion that the person should serve as a director for the company at the time the 

disclosure is made, in light of the company’s business and structure; 

•	 Additional disclosure concerning certain legal proceedings involving a company’s 

directors, nominees for director and executive officers; 

•	 Disclosure regarding the consideration of diversity in the process by which candidates 

for director are considered for nomination by a company’s nominating committee; 

•	 Additional disclosure, in certain instances, about compensation consultants retained 

by the board of directors; and 

•	 Disclosure of the results of shareholder votes on Form 8-K generally within four 

business days after the end of the meeting. 

In addition, these amendments would require small entities that are registered 

management investment companies to provide: 

100 
•	 Disclosure of the qualifications of directors and nominees for director, and the 

reasons why that person should serve as a director of the company at the time at 

which the relevant filing is made with the Commission; 

•	 Disclosure of any directorships held by each director and nominee at any time during 

the past five years at public companies or registered management investment 

companies; and 

•	 Disclosure about a fund’s board leadership structure and the board’s role in the 

oversight of risk. 

E. Agency Action to Minimize Effect on Small Entities 

The Regulatory Flexibility Act directs us to consider alternatives that would accomplish 

our stated objectives, while minimizing any significant adverse impact on small entities. In 

connection with the disclosure amendments, we considered the following alternatives: 

•	 Establishing different compliance or reporting requirements or timetables that take 

into account the resources available to small entities; 

•	 Clarifying, consolidating or simplifying compliance and reporting requirements under 

the rules for small entities; 

•	 Using performance rather than design standards; and 

•	 Exempting small entities from all or part of the requirements. 

In connection with the amendments, we considered alternatives, including establishing 

different compliance or reporting requirements that take into account the resources available to 

small entities, clarifying or simplifying compliance and reporting requirements under the 

amendments for small entities, using design rather than performance standards, and exempting 

small entities from all or part of the amendments. 

101 
Under our current rules, small entities are subject to some different compliance or 

reporting requirements under Regulation S-K, and the amendments do not alter these 

requirements. Under Regulation S-K, small entities are required to provide abbreviated 

compensation disclosure with respect to the principal executive officer and two most highly 

compensated executive officers for the last two completed fiscal years. Specifically, small 

entities may provide the executive compensation disclosure specified in Items 402(l) through (r) 

of Regulation S-K, rather than the corresponding disclosure specified in Items 402(a) through (k) 

of Regulation S-K. Items 402(l) through (r) also do not require small entities to provide CD&A 

or the Grants of Plan-Based Awards Table. The amendments to the Summary Compensation 

Table and Director Compensation Table are unlikely to have a significant impact on small 

entities because their principal effect is to disclose stock and option awards based on grant date 

fair value, which small entities need to compute for financial reporting purposes. We did not 

propose, and we are not adopting, a requirement that smaller companies discuss their 

compensation policies and practices for employees if such policies and practices are reasonably 

likely to have a material adverse effect. In addition, the amendments to the Grants of Plan-Based 

Awards Table do not apply to small entities. 

We considered, but did not establish additional different compliance requirements for 

small entities. We believe that investors in companies that are small entities may want and 

would benefit from the disclosures elicited by the amendments regarding director and nominee 

qualifications, as well as board leadership and risk oversight. For example, many commenters 

noted that our amendments to enhance director and nominee disclosure would provide investors 

with additional information that would allow them to make better informed investment and 

102 
 

voting decisions.223 Different compliance requirements or an exemption for small entities would 

interfere with achieving the goal of enhancing the information provided to all investors. We 

believe that uniform and comparable disclosures across all companies will help investors and the 

markets. 

We also considered, but did not establish, different disclosure thresholds for small entities 

under our amendments regarding compensation consultant disclosure. Although the disclosure 

exclusion provided in the amendment where the fees for non-executive compensation consulting 

services do not exceed $120,000 for a company’s fiscal year will reduce the compliance burdens 

for all companies, we believe this change will likely be more meaningful to companies that are 

small entities because these companies likely expend a lesser amount of their revenues on 

compensation consulting services. 

The amendments clarify, consolidate and simplify the reporting requirements for all 

public companies including small entities. The amendments require clear and straightforward 

disclosure of director and nominee qualifications, board leadership structure and the potential 

conflicts of interest of compensation consultants. We have used a mix of design and 

performance standards in connection with the amendments. Based on our past experience, we 

believe the amendments will be more useful to investors if there are specific disclosure 

requirements, however, some of the new requirements provide companies flexibility in 

determining what information to disclose. The disclosures are intended to result in more 

comprehensive and clearer disclosure. 

223 See, e.g., letters from Board of Directors Network, Forum of Executive Women, Integrated Governance 

Solutions, and Norges Bank. 

103 
 

VII. STATUTORY AUTHORITY AND TEXT OF THE AMENDMENTS 

The amendments contained in this release are being adopted under the authority set 

forth in Sections 3(b), 6, 7, 10, and 19(a) of the Securities Act; Sections 12, 13, 14, 15(d) and 

23(a) of the Exchange Act; and Sections 8, 20(a), 24(a), 30 and 38 of the Investment Company 

Act. 

List of Subjects 

17 CFR Parts 229, 239, 240, 249 and 274 

Reporting and recordkeeping requirements, Securities. 

TEXT OF THE AMENDMENTS 

For the reasons set out in the preamble, the Commission amends title 17, chapter II, of 

the Code of Federal Regulations as follows: 

PART 229 - STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES 

ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND 

CONSERVATION ACT OF 1975 - REGULATION S-K 

1. The authority citation for part 229 continues to read in part as follows: 

Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2, 77z-3, 77aa(25), 77aa(26), 

77ddd, 77eee, 77ggg, 77hhh, 777iii, 77jjj, 77nnn, 77sss, 78c, 78i, 78j, 78l, 78m, 78n, 78o, 78u-5, 

78w, 78ll, 78mm, 80a-8, 80a-9, 80a-20, 80a-29, 80a-30, 80a-31(c), 80a-37, 80a-38(a), 80a-39, 

80b-11, and 7201 et seq.; and 18 U.S.C. 1350, unless otherwise noted. 

* * * * * 

2. Amend §229.401 by: 

a. revising paragraph (e)(1); 

104 
 

b. in paragraph (e)(2) revising the phrase “Indicate any other directorships” to read 

“Indicate any other directorships held, including any other directorships held during the past five 

years,”; 

c. in paragraph (f), introductory text, revising the phrase “during the past five years” 

to read “during the past ten years”; 

d. removing the word “or” following the semi-colon at the end of paragraph (f)(4); 

e. removing the period at the end of paragraphs (f)(5) and (f)(6) and adding in their 

place a semi-colon; 

f. adding paragraphs (f)(7) and (f)(8) before the Instructions to paragraph (f); 

g. in the Instruction 1 to paragraph (f) revise the phrase “For purposes of computing 

the five year period” to read “For purposes of computing the ten-year period”; and 

h. adding Instruction 5 to the Instructions to paragraph (f). 

The revisions and additions read as follows: 

§229.401 (Item 401) Directors, executive officers, promoters and control persons. 

* * * * * 

(e) Business experience. (1) Background. Briefly describe the business experience 

during the past five years of each director, executive officer, person nominated or chosen to 

become a director or executive officer, and each person named in answer to paragraph (c) of 

Item 401, including: each person’s principal occupations and employment during the past five 

years; the name and principal business of any corporation or other organization in which such 

occupations and employment were carried on; and whether such corporation or organization is a 

parent, subsidiary or other affiliate of the registrant. In addition, for each director or person 

nominated or chosen to become a director, briefly discuss the specific experience, qualifications, 

105 
 

 

 

attributes or skills that led to the conclusion that the person should serve as a director for the 

registrant at the time that the disclosure is made, in light of the registrant’s business and 

structure. If material, this disclosure should cover more than the past five years, including 

information about the person’s particular areas of expertise or other relevant qualifications. 

When an executive officer or person named in response to paragraph (c) of Item 401 has been 

employed by the registrant or a subsidiary of the registrant for less than five years, a brief 

explanation shall be included as to the nature of the responsibility undertaken by the individual 

in prior positions to provide adequate disclosure of his or her prior business experience. What is 

required is information relating to the level of his or her professional competence, which may 

include, depending upon the circumstances, such specific information as the size of the operation 

supervised. 

* * * * * 

(f) * * * 

(7) Such person was the subject of, or a party to, any Federal or State judicial or 

administrative order, judgment, decree, or finding, not subsequently reversed, suspended or 

vacated, relating to an alleged violation of: 

(i) Any Federal or State securities or commodities law or regulation; or 

(ii) Any law or regulation respecting financial institutions or insurance companies 

including, but not limited to, a temporary or permanent injunction, order of disgorgement or 

restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or 

prohibition order; or 

(iii) Any law or regulation prohibiting mail or wire fraud or fraud in connection with 

any business entity; or 

106 
 

 

(8) Such person was the subject of, or a party to, any sanction or order, not 

subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in 

Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in 

Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent 

exchange, association, entity or organization that has disciplinary authority over its members or 

persons associated with a member. 

 Instructions to Paragraph (f) of Item 401: 

* * * * * 

5. This paragraph (f)(7) shall not apply to any settlement of a civil proceeding 

among private litigants. 

* * * * * 

3. Amend §229.402 by: 

a. revising paragraphs (c)(2)(v) and (c)(2)(vi), and paragraph (c)(2)(ix)(G); 

b. removing the Instruction to Item (c)(2)(v) and (vi), and adding in its place 

Instructions 1, 2, and 3 to Item (c)(2)(v) and (vi) before paragraph (c)(2)(vii); 

c. removing the period at the end of paragraphs (d)(2)(iii) and (d)(2)(iv) and adding 

a semi-colon in their place; 

d. adding Instruction 8 to Item 402(d); 

e. revising paragraphs (k)(2)(iii) and (k)(2)(iv); 

f. revising paragraph (k)(2)(vii)(I) and Instruction to Item 402(k); 

g. in paragraph (l) revising the phrase “paragraphs (a) through (k)” to read 

“paragraphs (a) through (k) and (s)”; 

h. revising paragraphs (n)(2)(v) and (n)(2)(vi); 

107 
 

 

 

i. removing the Instruction to Item 402(n)(2)(v) and (vi), and adding in its place 

Instructions 1, 2, and 3 to Item 402(n)(2)(v) and (vi) before paragraph (n)(2)(vii); 

j. revising paragraph (n)(2)(ix)(G); 

k. revising paragraphs (r)(2)(iii), (r)(2)(iv) and (r)(2)(vii)(I), and Instruction to Item 

402(r); and 

l. adding paragraph (s) before the Instructions to Item 402. 

The revisions and additions read as follows: 

§229.402 (Item 402) Executive compensation. 

* * * * * 

(c) * * * 

(2) * * * 

(v) For awards of stock, the aggregate grant date fair value computed in accordance with 

FASB ASC Topic 718 (column (e)); 

(vi) For awards of options, with or without tandem SARs (including awards that 

subsequently have been transferred), the aggregate grant date fair value computed in accordance 

with FASB ASC Topic 718 (column (f)); 

Instruction 1 to Item 402(c)(2)(v) and (vi). For awards reported in columns (e) and (f), 

include a footnote disclosing all assumptions made in the valuation by reference to a discussion 

of those assumptions in the registrant’s financial statements, footnotes to the financial 

statements, or discussion in the Management’s Discussion and Analysis. The sections so 

referenced are deemed part of the disclosure provided pursuant to this Item. 

Instruction 2 to Item 402(c)(2)(v) and (vi). If at any time during the last completed fiscal 

year, the registrant has adjusted or amended the exercise price of options or SARs previously 

108 
 

 

 

 

 

awarded to a named executive officer, whether through amendment, cancellation or replacement 

grants, or any other means (“repriced”), or otherwise has materially modified such awards, the 

registrant shall include, as awards required to be reported in column (f), the incremental fair 

value, computed as of the repricing or modification date in accordance with FASB ASC Topic 

718, with respect to that repriced or modified award. 

Instruction 3 to Item 402(c)(2)(v) and (vi). For any awards that are subject to 

performance conditions, report the value at the grant date based upon the probable outcome of 

such conditions. This amount should be consistent with the estimate of aggregate compensation 

cost to be recognized over the service period determined as of the grant date under FASB ASC 

Topic 718, excluding the effect of estimated forfeitures. In a footnote to the table, disclose the 

value of the award at the grant date assuming that the highest level of performance conditions 

will be achieved if an amount less than the maximum was included in the table. 

* * * * * 

(ix) * * * 

(G) The dollar value of any dividends or other earnings paid on stock or option awards, 

when those amounts were not factored into the grant date fair value required to be reported for 

the stock or option award in column (e) or (f); and 

* * * * * 

(d) * * * 

Instructions to Item 402(d). 

* * * * * 

8. For any equity awards that are subject to performance conditions, report in column (l) 

the value at the grant date based upon the probable outcome of such conditions. This amount 

109 
 

 

 

 

 

 

should be consistent with the estimate of aggregate compensation cost to be recognized over the 

service period determined as of the grant date under FASB ASC Topic 718, excluding the effect 

of estimated forfeitures.
 

* * * * * 

(k) * * * 

(2) * * * 

(iii) For awards of stock, the aggregate grant date fair value computed in accordance 

with FASB ASC Topic 718 (column (c)); 

(iv) For awards of options, with or without tandem SARs (including awards that 

subsequently have been transferred), the aggregate grant date fair value computed in accordance 

with FASB ASC Topic 718 (column (d)); 

* * * * * 

(vii) * * * 

(I) The dollar value of any dividends or other earnings paid on stock or option awards, 

when those amounts were not factored into the grant date fair value required to be reported for 

the stock or option award in column (c) or (d); and 

* * * * * 

Instruction to Item 402(k). In addition to the Instruction to paragraphs (k)(2)(iii) and (iv) 

and the Instructions to paragraph (k)(2)(vii) of this Item, the following apply equally to 

paragraph (k) of this Item: Instructions 2 and 4 to paragraph (c) of this Item; Instructions to 

paragraphs (c)(2)(iii) and (iv) of this Item; Instructions to paragraphs (c)(2)(v) and (vi) of this 

Item; Instructions to paragraph (c)(2)(vii) of this Item; Instructions to paragraph (c)(2)(viii) of 

this Item; and Instructions 1 and 5 to paragraph (c)(2)(ix) of this Item. These Instructions apply 

110 
 

 

to the columns in the Director Compensation Table that are analogous to the columns in the 

Summary Compensation Table to which they refer and to disclosures under paragraph (k) of this 

Item that correspond to analogous disclosures provided for in paragraph (c) of this Item to which 

they refer. 

* * * * * 

(n) * * * 

(2) * * * 

(v) For awards of stock, the aggregate grant date fair value computed in accordance with 

FASB ASC Topic 718 (column (e)); 

(vi) For awards of options, with or without tandem SARs (including awards that 

subsequently have been transferred), the aggregate grant date fair value computed in accordance 

with FASB ASC Topic 718 (column (f)); 

Instruction 1 to Item 402(n)(2)(v) and (n)(2)(vi). For awards reported in columns (e) and 

(f), include a footnote disclosing all assumptions made in the valuation by reference to a 

discussion of those assumptions in the smaller reporting company’s financial statements, 

footnotes to the financial statements, or discussion in the Management’s Discussion and 

Analysis. The sections so referenced are deemed part of the disclosure provided pursuant to this 

Item. 

Instruction 2 to Item 402(n)(2)(v) and (n)(2)(vi). If at any time during the last completed 

fiscal year, the smaller reporting company has adjusted or amended the exercise price of options 

or SARs previously awarded to a named executive officer, whether through amendment, 

cancellation or replacement grants, or any other means (“repriced”), or otherwise has materially 

modified such awards, the smaller reporting company shall include, as awards required to be 

111 
 

 

 

reported in column (f), the incremental fair value, computed as of the repricing or modification 

date in accordance with FASB ASC Topic 718, with respect to that repriced or modified award. 

Instruction 3 to Item 402(n)(2)(v) and (vi). For any awards that are subject to 

performance conditions, report the value at the grant date based upon the probable outcome of 

such conditions. This amount should be consistent with the estimate of aggregate compensation 

cost to be recognized over the service period determined as of the grant date under FASB ASC 

Topic 718, excluding the effect of estimated forfeitures. In a footnote to the table, disclose the 

value of the award at the grant date assuming that the highest level of performance conditions 

will be achieved if an amount less than the maximum was included in the table. 

* * * * * 

(ix) * * * 

(G) The dollar value of any dividends or other earnings paid on stock or option awards, 

when those amounts were not factored into the grant date fair value required to be reported for 

the stock or option award in column (e) or (f); and 

* * * * * 

(r) * * * 

(2) * * * 

(iii) For awards of stock, the aggregate grant date fair value computed in accordance 

with FASB ASC Topic 718 (column (c)); 

(iv) For awards of options, with or without tandem SARs (including awards that 

subsequently have been transferred), the aggregate grant date fair value computed in accordance 

with FASB ASC Topic 718 (column (d)); 

* * * * * 

112 
 

 

 

(vii) * * * 

(I) The dollar value of any dividends or other earnings paid on stock or option awards, 

when those amounts were not factored into the grant date fair value required to be reported for 

the stock or option award in column (c) or (d); and 

* * * * * 

Instruction to Item 402(r). In addition to the Instruction to paragraph (r)(2)(vii) of this 

Item, the following apply equally to paragraph (r) of this Item: Instructions 2 and 4 to paragraph 

(n) of this Item; the Instructions to paragraphs (n)(2)(iii) and (iv) of this Item; the Instructions to 

paragraphs (n)(2)(v) and (vi) of this Item; the Instructions to paragraph (n)(2)(vii) of this Item; 

the Instruction to paragraph (n)(2)(viii) of this Item; the Instructions to paragraph (n)(2)(ix) of 

this Item; and paragraph (o)(7) of this Item. These Instructions apply to the columns in the 

Director Compensation Table that are analogous to the columns in the Summary Compensation 

Table to which they refer and to disclosures under paragraph (r) of this Item that correspond to 

analogous disclosures provided for in paragraph (n) of this Item to which they refer. 

* * * * * 

(s) Narrative disclosure of the registrant’s compensation policies and practices as 

they relate to the registrant’s risk management. To the extent that risks arising from the 

registrant’s compensation policies and practices for its employees are reasonably likely to have a 

material adverse effect on the registrant, discuss the registrant’s policies and practices of 

compensating its employees, including non-executive officers, as they relate to risk management 

practices and risk-taking incentives. While the situations requiring disclosure will vary 

depending on the particular registrant and compensation policies and practices, situations that 

may trigger disclosure include, among others, compensation policies and practices: at a business 

113 
unit of the company that carries a significant portion of the registrant’s risk profile; at a business 

unit with compensation structured significantly differently than other units within the registrant; 

at a business unit that is significantly more profitable than others within the registrant; at a 

business unit where compensation expense is a significant percentage of the unit’s revenues; and 

that vary significantly from the overall risk and reward structure of the registrant, such as when 

bonuses are awarded upon accomplishment of a task, while the income and risk to the registrant 

from the task extend over a significantly longer period of time. The purpose of this paragraph (s) 

is to provide investors material information concerning how the registrant compensates and 

incentivizes its employees that may create risks that are reasonably likely to have a material 

adverse effect on the registrant. While the information to be disclosed pursuant to this paragraph 

(s) will vary depending upon the nature of the registrant’s business and the compensation 

approach, the following are examples of the issues that the registrant may need to address for the 

business units or employees discussed: 

(1) The general design philosophy of the registrant’s compensation policies and practices 

for employees whose behavior would be most affected by the incentives established by the 

policies and practices, as such policies and practices relate to or affect risk taking by employees 

on behalf of the registrant, and the manner of their implementation; 

(2) The registrant’s risk assessment or incentive considerations, if any, in structuring its 

compensation policies and practices or in awarding and paying compensation; 

(3) How the registrant’s compensation policies and practices relate to the realization of 

risks resulting from the actions of employees in both the short term and the long term, such as 

through policies requiring claw backs or imposing holding periods; 

114 
 

 

 

 

(4) The registrant’s policies regarding adjustments to its compensation policies and 

practices to address changes in its risk profile; 

(5) Material adjustments the registrant has made to its compensation policies and 

practices as a result of changes in its risk profile; and 

(6) The extent to which the registrant monitors its compensation policies and practices to 

determine whether its risk management objectives are being met with respect to incentivizing its 

employees. 

* * * * * 

4. Amend §229.407 by: 

a. revising paragraph (c)(2)(vi); 

b. revising paragraph (e)(3)(iii); and 

c. adding paragraph (h) before the Instructions to Item 407. 

The revisions and additions read as follows: 

§229.407 (Item 407) Corporate governance. 

* * * * * 

(c) * * * 

(2) * * * 

(vi) Describe the nominating committee’s process for identifying and evaluating 

nominees for director, including nominees recommended by security holders, and any 

differences in the manner in which the nominating committee evaluates nominees for director 

based on whether the nominee is recommended by a security holder, and whether, and if so how, 

the nominating committee (or the board) considers diversity in identifying nominees for director. 

If the nominating committee (or the board) has a policy with regard to the consideration of 

115 
 

 

 

diversity in identifying director nominees, describe how this policy is implemented, as well as 

how the nominating committee (or the board) assesses the effectiveness of its policy; 

* * * * * 

(e) * * * 

(3) * * * 

(iii) Any role of compensation consultants in determining or recommending the 

amount or form of executive and director compensation (other than any role limited to consulting 

on any broad-based plan that does not discriminate in scope, terms, or operation, in favor of 

executive officers or directors of the registrant, and that is available generally to all salaried 

employees; or providing information that either is not customized for a particular registrant or 

that is customized based on parameters that are not developed by the compensation consultant, 

and about which the compensation consultant does not provide advice) during the registrant’s 

last completed fiscal year, identifying such consultants, stating whether such consultants were 

engaged directly by the compensation committee (or persons performing the equivalent 

functions) or any other person, describing the nature and scope of their assignment, and the 

material elements of the instructions or directions given to the consultants with respect to the 

performance of their duties under the engagement: 

(A) If such compensation consultant was engaged by the compensation committee (or 

persons performing the equivalent functions) to provide advice or recommendations on the 

amount or form of executive and director compensation (other than any role limited to consulting 

on any broad-based plan that does not discriminate in scope, terms, or operation, in favor of 

executive officers or directors of the registrant, and that is available generally to all salaried 

employees; or providing information that either is not customized for a particular registrant or 

116 
 

that is customized based on parameters that are not developed by the compensation consultant, 

and about which the compensation consultant does not provide advice) and the compensation 

consultant or its affiliates also provided additional services to the registrant or its affiliates in an 

amount in excess of $120,000 during the registrant’s last completed fiscal year, then disclose the 

aggregate fees for determining or recommending the amount or form of executive and director 

compensation and the aggregate fees for such additional services. Disclose whether the decision 

to engage the compensation consultant or its affiliates for these other services was made, or 

recommended, by management, and whether the compensation committee or the board approved 

such other services of the compensation consultant or its affiliates. 

(B) If the compensation committee (or persons performing the equivalent functions) 

has not engaged a compensation consultant, but management has engaged a compensation 

consultant to provide advice or recommendations on the amount or form of executive and 

director compensation (other than any role limited to consulting on any broad-based plan that 

does not discriminate in scope, terms, or operation, in favor of executive officers or directors of 

the registrant, and that is available generally to all salaried employees; or providing information 

that either is not customized for a particular registrant or that is customized based on parameters 

that are not developed by the compensation consultant, and about which the compensation 

consultant does not provide advice) and such compensation consultant or its affiliates has 

provided additional services to the registrant in an amount in excess of $120,000 during the 

registrant’s last completed fiscal year, then disclose the aggregate fees for determining or 

recommending the amount or form of executive and director compensation and the aggregate 

fees for any additional services provided by the compensation consultant or its affiliates. 

* * * * * 

117 
 

 

(h) Board leadership structure and role in risk oversight. Briefly describe the 

leadership structure of the registrant’s board, such as whether the same person serves as both 

principal executive officer and chairman of the board, or whether two individuals serve in those 

positions, and, in the case of a registrant that is an investment company, whether the chairman of 

the board is an “interested person” of the registrant as defined in section 2(a)(19) of the 

Investment Company Act (15 U.S.C. 80a-2(a)(19)). If one person serves as both principal 

executive officer and chairman of the board, or if the chairman of the board of a registrant that is 

an investment company is an “interested person” of the registrant, disclose whether the registrant 

has a lead independent director and what specific role the lead independent director plays in the 

leadership of the board. This disclosure should indicate why the registrant has determined that 

its leadership structure is appropriate given the specific characteristics or circumstances of the 

registrant. In addition, disclose the extent of the board’s role in the risk oversight of the 

registrant, such as how the board administers its oversight function, and the effect that this has on 

the board’s leadership structure. 

* * * * * 

PART 239 — FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933 

5. The authority citation for Part 239 continues to read in part as follows: 

Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z–2, 77z–3, 77sss, 78c, 78l, 78m, 78n, 

78o(d), 78u–5, 78w(a), 78ll, 78mm, 80a–2(a), 80a–3, 80a–8, 80a–9, 80a–10, 80a–13, 80a–24, 

80a–26, 80a–29, 80a–30, and 80a–37, unless otherwise noted. 

* * * * * 

PART 240 – GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE 

ACT OF 1934 

6. The authority citation for Part 240 is revised to read as follows: 

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 Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 77eee, 77ggg, 77nnn, 77sss, 

77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u5, 78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et 

seq.; and 18 U.S.C. 1350 and 12 U.S.C. 5221(e)(3) unless otherwise noted. 

* * * * * 

7. Amend §240.14a-101 by: 

a. revising paragraph (b) of Item 7; 

b. in Item 22: 

i. redesignating paragraph (b)(3) as paragraph (b)(3)(ii); 

ii. adding new paragraph (b)(3)(i); and 

iii. redesignating Instruction to paragraph (b)(3) as Instruction to paragraph 

(b)(3)(ii); 

iv. redesignating paragraph (b)(4), introductory text, and paragraph (b)(4)(i) 

through paragraph (b)(4)(iv) as new paragraph (b)(4)(i), introductory text, and paragraph 

(b)(4)(i)(A) through paragraph (b)(4)(i)(D); 

v. adding new paragraph (b)(4)(ii); and 

vi. revising paragraph (b)(11) before the Instruction. 

The revisions and additions read as follows: 

§240.14a-101 Schedule 14A. Information required in proxy statement. 

* * * * * 

Item 7. Directors and executive officers. 

* * * * * 

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(b) The information required by Items 401, 404(a) and (b), 405 and 407(d)(4), (d)(5) 

and (h) of Regulation S–K (§229.401, §229.404(a) and (b), §229.405 and §229.407(d)(4), (d)(5) 

and (h) of this chapter). 

* * * * * 

Item 22. Information required in investment company proxy statement. 

* * * * * 

(b) Election of Directors. * * * 

(3)(i) For each director or nominee for election as director, briefly discuss the specific 

experience, qualifications, attributes, or skills that led to the conclusion that the person should 

serve as a director for the Fund at the time that the disclosure is made in light of the Fund’s 

business and structure. If material, this disclosure should cover more than the past five years, 

including information about the person’s particular areas of expertise or other relevant 

qualifications. 

* * * * * 

(4) * * * 

(ii) Unless disclosed in the table required by paragraph (b)(1) of this Item or in response 

to paragraph (b)(4)(i) of this Item, indicate any directorships held during the past five years by 

each director or nominee for election as director in any company with a class of securities 

registered pursuant to section 12 of the Exchange Act (15 U.S.C. 78l) or subject to the 

requirements of section 15(d) of the Exchange Act (15 U.S.C. 78o(d)) or any company registered 

as an investment company under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), 

as amended, and name the companies in which the directorships were held. 

* * * * * 

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(11) Provide in tabular form, to the extent practicable, the information required by 

Items 401(f) and (g), 404(a), 405, and 407(h) of Regulation S-K (§§229.401(f) and (g), 

229.404(a), 229.405, and 229.407(h) of this chapter). 

Instruction to paragraph 22(b)(11). Information provided under paragraph (b)(8) of this 

Item 22 is deemed to satisfy the requirements of Item 404(a) of Regulation S-K for information 

about directors, nominees for election as directors, and Immediate Family Members of directors 

and nominees, and need not be provided under this paragraph (b)(11). 

PART 249 -- FORMS, SECURITIES EXCHANGE ACT OF 1934 

8. The authority citation for part 249 continues to read in part as follows: 

Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; and 18 U.S.C. 1350, unless otherwise 

noted. 

* * * * * 

9. Amend Form 8-K (referenced in §249.308) by adding Item 5.07 under the caption 

“Information to Be Included in the Report” after the General Instructions read as follows: 

Note: The text of Form 8-K does not, and this amendment will not, appear in the Code 

of Federal Regulations. 

Form 8-K 

* * * * * 

General Instructions 

* * * * * 

Information to Be Included in the Report 

* * * * * 

Item 5.07 Submission of Matters to a Vote of Security Holders. 

121 
If any matter was submitted to a vote of security holders, through the solicitation of 

proxies or otherwise, provide the following information: 

(a) The date of the meeting and whether it was an annual or special meeting. 

(b) If the meeting involved the election of directors, the name of each director elected at 

the meeting, as well as a brief description of each other matter voted upon at the meeting; and 

state the number of votes cast for, against or withheld, as well as the number of abstentions and 

broker non-votes as to each such matter, including a separate tabulation with respect to each 

nominee for office. 

(c) A description of the terms of any settlement between the registrant and any other 

participant (as defined in Instruction 3 to Item 4 of Schedule 14A (17 CFR 240.14a-101)) 

terminating any solicitation subject to Rule 14a-12(c), including the cost or anticipated cost to 

the registrant. 

Instruction 1 to Item 5.07. The four business day period for reporting the event under this 

Item 5.07 shall begin to run on the day on which the meeting ended. The registrant shall disclose 

on Form 8-K under this Item 5.07 the preliminary voting results. The registrant shall file an 

amended report on Form 8-K under this Item 5.07 to disclose the final voting results within four 

business days after the final voting results are known. However, no preliminary voting results 

need be disclosed under this Item 5.07 if the registrant has disclosed final voting results on Form 

8-K under this Item. 

Instruction 2 to Item 5.07. If any matter has been submitted to a vote of security holders 

otherwise than at a meeting of such security holders, corresponding information with respect to 

such submission shall be provided. The solicitation of any authorization or consent (other than a 

122 
 

proxy to vote at a stockholders’ meeting) with respect to any matter shall be deemed a 

submission of such matter to a vote of security holders within the meaning of this item. 

Instruction 3 to Item 5.07. If the registrant did not solicit proxies and the board of 

directors as previously reported to the Commission was re-elected in its entirety, a statement to 

that effect in answer to paragraph (b) will suffice as an answer thereto. 

Instruction 4 to Item 5.07. If the registrant has furnished to its security holders proxy 

soliciting material containing the information called for by paragraph (c), the paragraph may be 

answered by reference to the information contained in such material. 

Instruction 5 to Item 5.07. If the registrant has published a report containing all the 

information called for by this item, the item may be answered by a reference to the information 

contained in such report. 

* * * * * 

10. Amend Form 10-Q (referenced in §249.308a) by removing Item 4 in Part II— 

Other Information, and redesignating Items 5 and 6 as Items 4 and 5. 

11. Amend Form 10-K (referenced in §249.310) by removing Item 4 in Part I, and 

redesignating Items 5 through 15 as Items 4 through 14. 

Note: The text of Forms 10-Q and 10-K do not, and these amendments will not, 

appear in the Code of Federal Regulations. 

PART 239 — FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933 

PART 274 — FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 

12. The authority citation for Part 274 continues to read in part as follows: 

Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m, 78n, 78o(d), 80a-8, 80a24, 80a-26, and 80a-29, unless otherwise noted. 

123 

1940 
 

 

 

* * * * * 

13. Form N-1A (referenced in §§239.15A and 274.11A), Item 17 is amended by: 

a. revising the heading to paragraph (b); 

b. revising paragraph (b)(1); 

c. redesignating paragraph (b)(3), introductory text, and paragraph (b)(3)(i) through 

paragraph (b)(3)(iv) as paragraph (b)(3)(i), introductory text, and paragraph (b)(3)(i)(A) through 

paragraph (b)(3)(i)(D); 

d. adding new paragraph (b)(3)(ii); and 

e. adding paragraph (b)(10). 

The revisions and additions read as follows: 

Note: The text of Form N-1A does not, and these amendments will not, appear in 

the Code of Federal Regulations. 

Form N-1A 

* * * * * 

Item 17. Management of the Fund 

* * * * * 

(b) Leadership Structure and Board of Directors. 

(1) Briefly describe the leadership structure of the Fund’s board, including the 

responsibilities of the board of directors with respect to the Fund’s management and whether the 

chairman of the board is an interested person of the Fund. If the chairman of the board is an 

interested person of the Fund, disclose whether the Fund has a lead independent director and 

what specific role the lead independent director plays in the leadership of the Fund. This 

disclosure should indicate why the Fund has determined that its leadership structure is 

appropriate given the specific characteristics or circumstances of the Fund. In addition, disclose 

124 
 

 

 

 

the extent of the board’s role in the risk oversight of the Fund, such as how the board administers 

its oversight function and the effect that this has on the board’s leadership structure. 

* * * * * 

(3) * * * 

(ii) Unless disclosed in the table required by paragraph (a)(1) of this Item 17 or in 

response to paragraph (b)(3)(i) of this Item 17, indicate any directorships held during the past 

five years by each director in any company with a class of securities registered pursuant to 

section 12 of the Securities Exchange Act (15 U.S.C. 78l) or subject to the requirements of 

section 15(d) of the Securities Exchange Act (15 U.S.C. 78o(d)) or any company registered as an 

investment company under the Investment Company Act, and name the companies in which the 

directorships were held. 

* * * * * 

(10) For each director, briefly discuss the specific experience, qualifications, attributes, 

or skills that led to the conclusion that the person should serve as a director for the Fund at the 

time that the disclosure is made, in light of the Fund’s business and structure. If material, this 

disclosure should cover more than the past five years, including information about the person’s 

particular areas of expertise or other relevant qualifications. 

* * * * * 

14. Form N-2 (referenced in §§239.14 and 274.11a-1), Item 18 is amended by: 

a. redesignating paragraph 5, introductory text, and paragraph 5(a) through 

paragraph 5(d) as paragraph 5(b), introductory text, and paragraph 5(b)(1) through paragraph 

5(b)(4); 

b. adding new paragraph 5(a); 

125 
 

 

 

 

 c. redesignating paragraph 6, introductory text, and paragraph 6(a) through 

paragraph 6(d) as paragraph 6(a), introductory text, and paragraph 6(a)(1) through paragraph 

6(a)(4); 

d. adding new paragraph 6(b); and 

e. adding paragraph 17 after the instructions. 

The additions read as follows: 

Note: The text of Form N-2 does not, and these amendments will not, appear in the 

Code of Federal Regulations. 

Form N-2 

* * * * * 

Item 18. Management 

* * * * * 

5.(a) Briefly describe the leadership structure of the Registrant’s board, including 

whether the chairman of the board is an interested person of the Registrant, as defined in section 

2(a)(19) of the 1940 Act (15 U.S.C. 80a-2(a)(19)). If the chairman of the board is an interested 

person of the Registrant, disclose whether the Registrant has a lead independent director and 

what specific role the lead independent director plays in the leadership of the Registrant. This 

disclosure should indicate why the Registrant has determined that its leadership structure is 

appropriate given the specific characteristics or circumstances of the Registrant. In addition, 

disclose the extent of the board’s role in the risk oversight of the Registrant, such as how the 

board administers its oversight function, and the effect that this has on the board’s leadership 

structure. 

* * * * * 

6. * * * 

126 
 

 

(b) Unless disclosed in the table required by paragraph 1 of this Item 18 or in 

response to paragraph 6(a) of this Item 18, indicate any directorships held during the past five 

years by each director in any company with a class of securities registered pursuant to section 12 

of the Exchange Act (15 U.S.C. 78l) or subject to the requirements of section 15(d) of the 

Exchange Act (15 U.S.C. 78o(d)) or any company registered as an investment company under 

the 1940 Act, and name the companies in which the directorships were held. 

* * * * * 

17. For each director, briefly discuss the specific experience, qualifications, attributes, 

or skills that led to the conclusion that the person should serve as a director for the Registrant at 

the time that the disclosure is made, in light of the Registrant’s business and structure. If 

material, this disclosure should cover more than the past five years, including information about 

the person’s particular areas of expertise or other relevant qualifications. 

* * * * * 

15. Form N-3 (referenced in §§239.17a and 274.11b), Item 20 is amended by: 

a. redesignating paragraph (d), introductory text, and paragraph (d)(i) through 

paragraph (d)(iv) as paragraph (d)(ii), introductory text, and paragraph (d)(ii)(A) through 

paragraph (d)(ii)(D); 

b. adding new paragraph (d)(i); 

c. redesignating paragraph (e), introductory text, and paragraph (e)(i) through 

paragraph (e)(iv) as paragraph (e)(i), introductory text, and paragraph (e)(i)(A) through 

paragraph (e)(i)(D); 

d. adding new paragraph (e)(ii); and 

e. adding paragraph (o) after the instructions. 

127 
 

 

 

 

The additions read as follows: 

Note: The text of Form N-3 does not, and these amendments will not, appear in the 

Code of Federal Regulations. 

Form N-3 

* * * * * 

Item 20. Management 

* * * * * 

(d)(i) Briefly describe the leadership structure of the Registrant’s board, including 

whether the chairman of the board is an interested person of the Registrant, as defined in Section 

2(a)(19) of the 1940 Act (15 U.S.C. 80a-2(a)(19)) and the rules thereunder. If the chairman of 

the board is an interested person of the Registrant, disclose whether the Registrant has a lead 

independent director and what specific role the lead independent director plays in the leadership 

of the Registrant. This disclosure should indicate why the Registrant has determined that its 

leadership structure is appropriate given the specific characteristics or circumstances of the 

Registrant. In addition, disclose the extent of the board’s role in the risk oversight of the 

Registrant, such as how the board administers its risk oversight function, and the effect that this 

has on the board’s leadership structure. 

(e) * * * 

(ii) Unless disclosed in the table required by paragraph (a) of this Item 20 or in 

response to paragraph (e)(i) of this Item 20, indicate any directorships held during the past five 

years by each director in any company with a class of securities registered pursuant to section 12 

of the Exchange Act (15 U.S.C. 78l) or subject to the requirements of Section 15(d) of the 

Exchange Act (15 U.S.C. 78o(d)) or any company registered as an investment company under 

the 1940 Act, and name the companies in which the directorships were held. 

128 
 

 

 

 

* * * * * 

(o) For each director, briefly discuss the specific experience, qualifications, attributes, 

or skills that led to the conclusion that the person should serve as a director for the Registrant at 

the time that the disclosure is made, in light of the Registrant’s business and structure. If 

material, this disclosure should cover more than the past five years, including information about 

the person’s particular areas of expertise or other relevant qualifications. 

* * * * * 

By the Commission. 

 Florence E. Harmon

 Deputy Secretary 

December 16, 2009 

129