[Federal Register Volume 74, Number 136 (Friday, July 17, 2009)]
[Proposed Rules]
[Pages 35076-35111]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-16764]



[[Page 35075]]

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Part V





Securities and Exchange Commission





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17 CFR Parts 229, 239, 240, 249, 270 and 274



Proxy Disclosure and Solicitation Enhancements; Proposed Rule

Federal Register / Vol. 74, No. 136 / Friday, July 17, 2009 / 
Proposed Rules

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 229, 239, 240, 249, 270 and 274

[Release Nos. 33-9052; 34-60280; IC-28817; File No. S7-13-09]
RIN 3235-AK28


Proxy Disclosure and Solicitation Enhancements

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: We are proposing amendments to our rules to enhance the 
compensation and corporate governance disclosures registrants are 
required to make about: Their overall compensation policies and their 
impact on risk taking; stock and option awards of executives and 
directors; director and nominee qualifications and legal proceedings; 
company leadership structure; the board's role in the risk management 
process; and potential conflicts of interest of compensation 
consultants that advise companies. The proposed amendments to our 
disclosure rules would 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 proposing amendments to transfer from Forms 10-Q and 10-K 
to Form 8-K the requirement to disclose shareholder voting results. In 
addition, we are proposing amendments to our proxy rules to clarify the 
manner in which they operate and address issues that have arisen in the 
proxy solicitation process.

DATES: Comments should be received on or before September 15, 2009.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed.shtml);
    <bullet> Send an e-mail to <a href="/cdn-cgi/l/email-protection#80f2f5ece5ade3efedede5eef4f3c0f3e5e3aee7eff6"><span class="__cf_email__" data-cfemail="7200071e175f111d1f1f171c0601320117115c151d04">[email protected]</span></a>. Please include 
File Number S7-13-09 on the subject line; or
    <bullet> Use the Federal Rulemaking ePortal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

    <bullet> Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number S7-13-09. This file number 
should be included on the subject line if e-mail is used. To help us 
process and review your comments more efficiently, please use only one 
method. The Commission will post all comments on the Commission's 
Internet Web site (http://www.sec.gov/rules/proposed.shtml). Comments 
are also available for public inspection 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 a.m. and 3 
p.m. All comments received will be posted without change; we do not 
edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly.

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 the proposed proxy solicitation amendments, Mark W. 
Green, Senior Special Counsel, or Nicholas P. Panos, Senior Special 
Counsel at (202) 551-3440, in the Division of Corporation Finance; or 
with respect to questions regarding investment companies, Marc Oorloff 
Sharma, 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 proposing amendments to Items 401,\1\ 
402,\2\ and 407 \3\ of Regulation S-K; \4\ Rules 14a-2,\5\ 14a-4,\6\ 
and 14a-12;\7\ Schedule 14A \8\ and Forms 8-K,\9\ 10-Q,\10\ and 10-K 
\11\ under the Securities Exchange Act of 1934 (``Exchange Act''); \12\ 
and Forms N-1A,\13\ N-2,\14\ and N-3,\15\ registration forms used by 
management investment companies to register under the Investment 
Company Act of 1940 (``Investment Company Act'') \16\ and to offer 
their securities under the Securities Act of 1933 (``Securities 
Act'').\17\
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    \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-2.
    \6\ 17 CFR 240.14a-4.
    \7\ 17 CFR 240.14a-12.
    \8\ 17 CFR 240.14a-101.
    \9\ 17 CFR 249.308.
    \10\ 17 CFR 249.308a.
    \11\ 17 CFR 249.310.
    \12\ 15 U.S.C. 78a et seq.
    \13\ 17 CFR 239.15A and 274.11A.
    \14\ 17 CFR 239.14 and 274.11a-1.
    \15\ 17 CFR 239.17a and 274.11b.
    \16\ 15 U.S.C. 80a-1 et seq.
    \17\ 15 U.S.C. 77a et seq.
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I. Background and Summary

    We are proposing a number of revisions to our rules that would 
improve the disclosure shareholders of public companies receive 
regarding compensation and corporate governance, and facilitate 
communications relating to voting decisions. During the past few years, 
shareholders 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. Several 
rulemaking initiatives in recent years have focused on these themes. In 
addition to proposals that are largely focused on disclosure 
enhancements, we also are proposing some revisions to the rules 
governing the proxy solicitation process that would clarify the manner 
in which soliciting parties communicate with shareholders.
    First, we are proposing revisions to our rules governing disclosure 
of executive and director compensation, director biographical 
information and qualifications, compensation consultants, and other 
matters. Over the past several years, we have engaged in a number of 
rulemaking initiatives designed to improve the presentation of 
information about executive officer and director compensation and 
relationships with the company, and thereby assist investors' ability 
to make more informed voting and investment decisions.\18\ The turmoil 
in the markets during the past 18 months has reinforced the importance 
of enhancing transparency, especially with regard to activities that 
materially contribute to a company's risk profile. We have decided to 
re-examine our disclosure rules to provide investors with important and 
relevant information upon which to base their proxy voting and 
investment decisions.
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    \18\ See Release No. 33-8340 (Nov. 24, 2003) [68 FR 69204] 
(adopting rule amendments to improve the disclosure regarding the 
nominating committee process of public companies and the ways by 
which security holders may communicate with boards at the companies 
in which they invest); Release No. 33-8732A (Aug. 29, 2006) [71 FR 
53518] (adopting rule amendments that significantly revised the 
disclosure of executive officer and director compensation, related 
party transactions, director independence and the security ownership 
of officers and directors).
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    The amendments proposed today would add new disclosure requirements 
on several topics that are designed to enhance the information included 
in

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proxy and information statements,\19\ including information about the 
relationship of a company's overall compensation policies to risk, 
director and nominee qualifications, company leadership structure, and 
the potential conflicts of interests of compensation consultants. We 
believe that some of our current disclosure requirements on these 
topics could be improved to elicit more informative disclosure for 
investors. In addition, the proposals would improve Summary 
Compensation Table reporting of stock and option awards. We are 
proposing to change the manner in which stock and option awards are 
reported both in the Summary Compensation Table \20\ and Director 
Compensation Table.\21\ We believe the current method for presenting 
this information may have inadvertently resulted in investor confusion. 
The proposed amendments would require disclosure in these tables of the 
aggregate grant date fair value of awards computed in accordance with 
Financial Accounting Standards Board (FASB) Statement of Financial 
Accounting Standards No. 123 (revised 2004) Share-Based Payment (FAS 
123R), instead of the dollar amount recognized for financial statement 
reporting purposes. We also propose to accelerate the timing of the 
reporting of information regarding voting results, so that investors 
have access to this important information on a more timely basis.
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    \19\ The proposed amendments to Regulation S-K would also be 
applicable to registration statements under the Securities Act, and 
in some cases also Form 10-K under the Exchange Act.
    \20\ Item 402(c) and 402(n) of Regulation S-K [17 CFR 229.402(c) 
and 229.402(n)].
    \21\ Item 402(k) and 402(r) of Regulation S-K [17 CFR 229.402(k) 
and 229.402(r)].
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    Finally, we are proposing amendments to Exchange Act Rules 14a-2, 
14a-4 and 14a-12 to clarify certain issues relating to the solicitation 
of proxies and the granting of proxy authority.\22\ In 1992, we adopted 
significant amendments to the proxy rules intended to remove 
unnecessary impediments to the solicitation of proxy authority and to 
allow management and other persons seeking proxy authority more 
efficiently and effectively to communicate with shareholders.\23\ Since 
that time, we have become aware of a few interpretive issues regarding 
the rules governing proxy solicitations, particularly solicitations by 
shareholders and other non-management parties. We believe the proposed 
revisions will provide certainty in how the rules operate and 
facilitate the proxy solicitation process.
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    \22\ The Commission has taken action in recent years in regard 
to proxy materials. For example, in 2007 we provided for the use of 
electronic proxy solicitations, and recently we proposed to revise 
our rules to facilitate inclusion of shareholder nominations in 
company proxy materials. See Release No. 34-56135 (July 26, 2007) 
[72 FR 42222] (shareholder choice regarding proxy materials); 
Release No. 33-9046 (June 10, 2009) [74 FR 29024] (proposed 
amendments to facilitate rights of shareholders to nominate 
directors).
    \23\ Release No. 34-31326 (Oct. 16, 1992) [52 FR 48276] (``1992 
adopting release'').
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    If the amendments proposed in this release are adopted, we 
anticipate that they would be effective for the 2010 proxy season.

II. Discussion of the Proposed Amendments

A. Enhanced Compensation Disclosure

1. Compensation Discussion and Analysis Disclosure
    In 2006, we amended our executive compensation disclosure rules to 
require a new principles-based, narrative discussion that provides an 
overview of a company's compensation program for its principal 
executive officer, principal financial officer and the three most 
highly compensated executive officers, other than the principal 
executive officer and principal financial officer, and that provides an 
analysis of the material elements of the company's compensation for 
these named executive officers.\24\ This Compensation Discussion and 
Analysis (``CD&A'') requirement is designed to elicit disclosure about 
the material elements of the company's compensation for the named 
executive officers, and is intended to put into perspective for 
investors the tabular compensation data required by our rules.\25\
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    \24\ See Release No. 33-8732A (Aug. 29, 2006) [71 FR 53518]; 
Release No. 33-8765 (Dec. 22, 2006) [71 FR 78338].
    \25\ Shortly after implementation of the CD&A requirements, in 
the spring of 2007, the Commission staff undertook a review of the 
proxy statements of 350 public companies in an effort to both 
evaluate compliance with the revised rules and provide guidance on 
how companies could enhance their disclosures in this area. The 
staff prepared a report of its observations of the CD&A disclosures 
of these companies. In the report, the staff described the principal 
comments they had issued to the companies that were subject to the 
review. Overall, the staff noted at the time that companies appeared 
to have generally made a good faith effort to comply with the new 
rules, and investors had benefited from the new disclosures. At the 
same time, the staff's comments highlighted areas where it believed 
companies may need to provide additional or clearer disclosure in 
future filings. Furthermore, the staff emphasized in its report that 
companies should provide security holders and investors with a more 
robust discussion of the basis and the context for granting 
different types and amounts of executive compensation, and that 
companies should continue thinking about how the CD&A can be better 
organized and presented for both the lay reader and the 
professional, in order to make the disclosure as useful and 
meaningful to security holders and investors as possible. U.S. 
Securities and Exchange Commission, Division of Corporation Finance, 
Staff Observations in the Review of Executive Compensation 
Disclosure, (2007) at http://www.sec.gov/divisions/corpfin/guidance/execcompdisclosure.htm.
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    In addition to the compensation policies for the named executive 
officers, a company's broader compensation policies and arrangements 
for other employees may also be important. It has been suggested that, 
at some companies, compensation policies have become disconnected from 
long-term company performance because the interests of management and 
some employees, in the form of incentive compensation arrangements, and 
the long-term well-being of the company are not sufficiently 
aligned.\26\ Critics have argued that, in some cases, the structure and 
the particular application of incentive compensation policies can 
create inadvertent incentives for management and employees to make 
decisions that significantly, and inappropriately, increase the 
company's risk, without adequate recognition of the risks to the 
company.\27\ Companies, and in turn investors, may be negatively 
impacted where the design or operation of their

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compensation programs creates incentives that influence behavior 
inconsistent with the overall interests of the company. Indeed, one of 
the many contributing factors cited as a basis for the current market 
turmoil is that at a number of large financial institutions the short-
term incentives created by their compensation policies were misaligned 
with the long-term well-being of the companies.\28\ By contrast, well-
designed compensation policies may enhance a company's business 
interests by encouraging innovation and appropriate levels of risk 
taking.\29\
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    \26\ See, for example, Financial Stability Forum, FSF Principles 
of Sound Compensation Practices 1 (Apr. 2, 2009) (noting that 
``[h]igh short-term profits led to generous bonus payments to 
employees without adequate regard to the longer-term risks they 
imposed on their firms''), at http://www.financialstabilityboard.org/publications/r_0904b.pdf. The 
report also noted that ``below the level of the executive suite, 
most employees view the performance of the firm as a whole as being 
almost independent of their own actions. Actions by other employees 
or business units are seen as determining the firm's fate. 
Similarly, stock performance might be driven by various exogenous 
factors. Thus, employees heavily discount the value of the stock and 
act to bring the cash component of bonus up.'' Id. at 11.
    \27\ See, for example, Calvin H. Johnson, The Disloyalty of 
Stock and Stock Option Compensation, 11 CONN. INS. L.J. 133 (2004-
2005); Michael C. Jensen, et al., Remuneration: Where we've been, 
how we got here, what are the problems, and how to fix them (2004) 
(unpublished manuscript on file), available at http://www.ssrn.com/abstract=561305. The relationship between compensation incentives 
and risk also has been recognized in the legislation authorizing the 
Troubled Asset Relief Program (``TARP''). Specifically, Section 
111(b) of the Emergency Economic Stabilization Act of 2008, as 
amended by Section 7001 of the American Recovery and Reinvestment 
Act of 2009, requires the Secretary of the Treasury to require each 
TARP recipient to meet appropriate standards for executive 
compensation and corporate governance that shall include ``limits on 
compensation that exclude incentives for senior executive officers 
of the TARP recipient to take unnecessary and excessive risks that 
threaten the value of such recipient during the period in which any 
obligation arising from financial assistance provided under the TARP 
remains outstanding.'' See Pub. L. 111-5, Sec.  7001, 123 Stat. 115, 
517 (2009).
    \28\ See, for example, Financial Stability Forum, FSF Report on 
Enhancing Market and Institutional Resilience 8 (Apr. 2008) (noting 
that ``[c]ompensation schemes in financial institutions encouraged 
disproportionate risk-taking with insufficient regard to longer-term 
risks''), at http://www.financialstabilityboard.org/publications/r_0804.pdf L. Story, On Wall Street, Bonuses, Not Profits, Were Real, 
N.Y. TIMES, Dec. 18, 2008.
    \29\ See, for example, U.S. Chamber of Commerce, Letter to the 
Treasury Secretary, (Feb. 9, 2009) (suggesting that ``corporate 
governance policies must promote long-term shareholder value and 
profitability but should not constrain reasonable risk-taking and 
innovation''), at http://www.uschamber.com/NR/rdonlyres/ej2mxgcl4qbguyozahqba4xzsiht7wyqxcdcjhsyfbvl4jwcurjanaslkfm4up6xgxuf5c57ogpkxt44shucmryo3ja/ExecutiveCompensationSecretaryGeithnerFeb62009.pdf.
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    We are proposing to amend our CD&A requirements to broaden their 
scope to include a new section that will provide information about how 
the company's overall compensation policies for employees create 
incentives that can affect the company's risk and management of that 
risk. We believe investors would benefit from an expanded discussion 
and analysis about how the company rewards and incentivizes its 
employees to the extent it creates risk to the company. The proposed 
amendments would require a company to discuss and analyze its broader 
compensation policies and overall actual compensation practices for 
employees generally, including non-executive officers, if risks arising 
from those compensation policies or practices may have a material 
effect on the company.\30\ In preparing this disclosure, we anticipate 
that companies will need to consider the level of risk that employees 
might be encouraged to take to meet their incentive compensation 
elements.\31\ We believe that disclosure of a company's overall 
compensation policies 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.
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    \30\ See proposed Item 402(b)(2) of Regulation S-K. If a company 
had a policy against providing compensation that encouraged 
imprudent risk-taking, but actually provided compensation that 
encouraged such behavior and the effect may be material on the 
company, disclosure under the new provision would be required.
    \31\ To the extent that such 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.
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    Under the proposed amendments, the situations that would require 
disclosure will vary depending on the particular company and its 
compensation programs. We believe situations that potentially could 
trigger discussion and analysis include, among others, compensation 
policies and practices:
    <bullet> At a business unit of the company that carries a 
significant portion of the company's risk profile;
    <bullet> At a business unit with compensation structured 
significantly differently than other units within the company;
    <bullet> At business units that are significantly more profitable 
than others within the company;
    <bullet> At business units where the compensation expense is a 
significant percentage of the unit's revenues; or
    <bullet> 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.
    This is a non-exclusive list of situations where compensation 
programs may have the potential to raise material risks to the company. 
These are only examples; disclosure under the proposed rule amendment 
would only be required if the materiality threshold is triggered.
    We believe that discussion and analysis of a company's broader 
compensation policies may be appropriate in these situations because 
the policies may create risk to the company that is not otherwise 
apparent from a discussion solely focused on executive compensation 
policies. For example, if a particular business unit that carries a 
significant portion of the company's overall risk is significantly more 
profitable than others within the company, compensation policies 
relevant to employees of that unit could be just as essential to the 
company's overall financial condition and performance as those of its 
senior executives. Similarly, in situations where particular business 
units compensate their employees significantly differently from other 
units or carry an overall risk and reward structure that varies 
significantly from the rest of the company, provided the effects of the 
compensation policies may be material to the company, those differences 
should be disclosed and explained so that investors can more readily 
assess their significance and appropriateness.
    Consistent with the principles-based approach of the CD&A, the 
proposed amendments provide several examples of the types of issues 
that would be appropriate for a company to discuss and analyze. We wish 
to emphasize, however, that the application of a particular example 
must be tailored to the facts and circumstances of the company and that 
the examples are non-exclusive. We believe that using illustrative 
examples will help to identify the types of disclosure that may be 
appropriate. A company must assess the importance to investors of the 
information that is identified by the example in light of the 
particular situation of the company. Examples of the issues that 
companies may need to address regarding the compensation policies or 
practices that may give rise to risks that may have a material effect 
on the company would include the following:
    <bullet> The general design philosophy of the company's 
compensation policies for employees whose behavior would be most 
affected by the incentives established by the policies, as such 
policies relate to or affect risk taking by those employees on behalf 
of the company, and the manner of its implementation;
    <bullet> The company's risk assessment or incentive considerations, 
if any, in structuring its compensation policies or in awarding and 
paying compensation;
    <bullet> How the company's compensation policies 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;
    <bullet> The company's policies regarding adjustments to its 
compensation policies to address changes in its risk profile;
    <bullet> Material adjustments the company has made to its 
compensation policies or practices as a result of changes in its risk 
profile; and
    <bullet> The extent to which the company monitors its compensation 
policies to determine whether its risk management objectives are being 
met with respect to incentivizing its employees.
    <bullet> The level of detail required will necessarily depend on 
the particular facts at a company and within various business units of 
a company.

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Request for Comment

    <bullet> Would expanding the scope of the CD&A to require 
disclosure concerning a company's overall compensation program as it 
relates to risk management and or risk-taking incentives provide 
meaningful disclosures to investors? Should the scope of the amendments 
be limited in application to specific groups of employees, such as 
executive officers? Should it be limited to companies of a particular 
size, like large accelerated filers? Should it be limited to particular 
industries like financial services, including companies that have 
segments in such industries? Is the cost of tracking and disclosing the 
nature of the risk different at different types of companies or company 
segments and if so, should that be reflected in our rules?
    <bullet> In light of the complexity of the issue and compensation 
programs generally, we recognize that it may be difficult to identify 
and describe which compensation structures may expose a company to 
material risks. We believe the listed examples are situations where 
compensation policies may induce risk taking behavior, and therefore, 
potentially have a material impact on the company. Are the listed 
examples appropriate issues for companies to consider discussing and 
analyzing? Are there any other specific items we should list as 
possibly material information? Are there any items that are listed that 
should not be? If so, why?
    <bullet> Should other elements of compensation that may encourage 
excessive risk taking be highlighted in the CD&A?
    <bullet> We have included a list of examples of the types of issues 
that would be appropriate for a company to discuss and analyze. Is that 
list appropriate? Rather than treat the list as examples, should we 
require discussion of each item?
    <bullet> Are there other disclosure requirements that would provide 
more meaningful information about the effect of the registrant's 
compensation policies on its risk profile or risk management?
    <bullet> Are there certain risks that are more clearly aligned with 
compensation practices the disclosure of which would be important to 
investors?
    <bullet> If a company determines that disclosure under the proposed 
amendments is not required, should we require the company to 
affirmatively state in its CD&A that it has determined that the risks 
arising from its broader compensation policies are not reasonably 
expected to have a material effect on the company?
    <bullet> Should smaller reporting companies, who are currently not 
required to provide CD&A disclosure, be required to provide disclosure 
about their overall compensation policies as they relate to risk 
management?
2. Revisions to the Summary Compensation Table
    The Item 402 amendments proposed today also would 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 FAS 123R.\32\ The 
proposed revised disclosure would replace currently mandated disclosure 
of the dollar amount recognized for financial statement reporting 
purposes for the fiscal year in accordance with FAS 123R.\33\
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    \32\ Pursuant to FAS 168, 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. For purposes of facilitating comments, our proposals 
retain the well-known FAS 123R nomenclature. However, if we adopt 
the Summary Compensation Table and Director Compensation Table 
proposals, we expect in the final rules to update references 
accordingly.
    \33\ In proposing these changes to the Summary Compensation 
Table and Director Compensation Table, we do not suggest that 
recognizing share-based compensation costs over the periods during 
which employees perform the related services is an inappropriate 
measure for financial statement reporting. Instead, we simply 
acknowledge that the aggregate grant date fair value measure is more 
useful to the users of executive compensation disclosure and would 
facilitate CD&A disclosure.
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    A significant objective of the broad executive compensation 
disclosure amendments we adopted in 2006 was to provide investors a 
single total figure that includes all compensation and is comparable 
across fiscal years and companies.\34\ To accomplish this, we needed to 
include a dollar amount for option awards, which previously had been 
reported in the Summary Compensation Table as the number of securities 
underlying stock options granted.\35\ When we initially adopted the 
2006 amendments, we required Summary Compensation Table and Director 
Compensation Table disclosure of the aggregate grant date fair value of 
stock awards and option awards computed in accordance with FAS 123R, 
the same as we propose today.\36\ Before those amendments became 
effective, however, we reconsidered the issue based on concerns that 
the actual amounts ultimately paid out could differ from the amounts 
initially reported in the tables. In December 2006, we adopted the 
current disclosure requirements for the stock award and option award 
columns as Interim Final Rules and solicited comment.\37\ In the same 
rulemaking, we amended the Grants of Plan-Based Awards Table to require 
disclosure of the FAS 123R grant date fair value of the individual 
equity awards granted to named executive officers in the last completed 
fiscal year.\38\
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    \34\ See Release No. 33-8732A in note 24 above at 53170. We 
recognized that the timing for disclosing different elements of 
compensation in the Summary Compensation Table disclosure varies 
depending on the form of the compensation.
    \35\ See Release No. 33-6962 (Oct. 16, 1992) [57 FR 48126].
    \36\ See Release No. 33-8732A in note 24 above at 53172. This 
approach was consistent with the timing of option and stock awards 
disclosure that had applied in the Summary Compensation Table since 
1992.
    \37\ See Release No. 33-8765 in note 24 above.
    \38\ Item 402(d)(2)(viii) of Regulation S-K.
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    Since the adoption of these current disclosure requirements, we 
have received comments 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.\39\ This is because investors may consider compensation decisions 
made during the fiscal year--which usually are reflected in the full 
grant date fair value measure, but not the financial statement 
recognition measure--to be material to voting and investment 
decisions.\40\ Disclosure of full grant date fair value permits 
investors to better evaluate the amount of equity compensation awarded. 
Investors have noted that disclosure in the Summary Compensation Table 
of how much equity compensation the company decides to award during a 
fiscal year is more informative to voting and

[[Page 35080]]

investment decisions than the dollar amount recognized for financial 
statement reporting purposes.\41\ Investors have commented that because 
full grant date fair value is indicative of which executives the 
company intends to compensate most highly, it is a more useful measure 
to include in the Summary Compensation Table as a component of total 
compensation.\42\ Because total compensation is also the basis for 
determining which executives, in addition to the principal executive 
officer and principal financial officer, are the named executive 
officers whose compensation is reported,\43\ the full grant date fair 
value measure will better align the identification of named executive 
officers with company compensation decisions. Summary Compensation 
Table disclosure of the full grant date fair value measure also can 
facilitate companies'' ability to provide a CD&A that clearly and 
concisely explains and analyzes material compensation policies and 
decisions.\44\
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    \39\ See, for example, letters regarding File No. S7-03-06 from 
Ken Belcher (Dec. 28, 2006); Andrew H. Dral (Dec. 30, 2006); Council 
of Institutional Investors (Jan. 25, 2007); American Federation of 
Labor and Congress of Industrial Organizations (Jan. 29, 2007); 
Teachers Insurance and Annuity Association of America (Jan. 16, 
2007); CALSTRS (Jan. 16, 2007); Leggett & Platt, Inc. (Apr. 23, 
2007); and CFA Institute for Financial Market Integrity (Dec. 20, 
2007). These comment letters are available at http://www.sec.gov/rules/proposed/s70306.shtml. In its May 5, 2009, meeting with the 
staff of the Division of Corporation Finance, the Joint Committee on 
Employee Benefits of the American Bar Association also recommended 
that we revise Summary Compensation Table disclosure of stock awards 
and option awards to report aggregate grant date fair value.
    \40\ See letter regarding File No. S7-03-06 from Council of 
Institutional Investors (Jan. 25, 2007) (stating that ``the Summary 
Compensation Table should disclose the decisions of the compensation 
committee in the applicable year * * * [This] methodology is 
consistent with the objective of providing investors with the tools 
needed to evaluate the annual decisions of the compensation 
committee[.]''). See also letter regarding File No. S7-03-06 from 
Leggett & Platt, Inc. (Apr. 23, 2007) (stating that ``[t]his is 
clearly the information most investors want'').
    \41\ See letter regarding File No. S7-03-06 from Teachers 
Insurance and Annuity Association of America (Jan. 16, 2007) (``Our 
view is that executive compensation disclosure and financial 
reporting are separate and distinct. We believe that reporting the 
aggregate fair value of awards in the Summary Compensation Table is 
important to give an accurate representation of the compensation 
committee's actions and intentions in any given reporting period''). 
See also letter from American Federation of Labor and Congress of 
Industrial Organizations in note above (``By spreading out the 
disclosure of the value of equity awards over a number of years, the 
total impact of executive compensation decisions will be concealed 
from shareholders and the public'').
    \42\ See letter from American Federation of Labor and Congress 
of Industrial Organizations in note 39 above (``The methodology used 
to calculate total compensation in the Summary Compensation Table is 
extremely important to shaping behavior by compensation committees 
and investors. Shareholders will evaluate the disclosed total 
compensation figure when voting in director elections and when asked 
to ratify equity award plans. Directors will shape their executive 
compensation decisions to reflect these shareholder views. For this 
reason, the total compensation figure should represent the current 
decisions made regarding executive compensation in the most recent 
fiscal year.'').
    \43\ Pursuant to Instruction 1 to Items 402(a)(3) and 
Instruction 1 to Item 402(m)(2), this determination is made by 
reference to total compensation for the last completed fiscal year.
    \44\ Summary Compensation Table disclosure of the dollar amount 
recognized for financial statement reporting purposes can frustrate 
this objective because it can result in lengthy, complex CD&A 
explanations of the FAS 123R recognition model. See The Corporate 
Counsel, Mar.-Apr. 2009, at 3-4.
---------------------------------------------------------------------------

    Some companies have recognized the importance of full grant date 
fair value information to investors and have provided an 
``alternative'' Summary Compensation Table--substituting full grant 
date fair value numbers in the Stock Awards and Option Awards columns--
in addition to the Summary Compensation Table disclosure prescribed by 
the current rules.\45\ Because companies generally consider the full 
grant date fair value of these awards in making compensation decisions, 
they may include such an ``alternative'' table in the CD&A to 
illuminate their decisionmaking process. Some users of executive 
compensation disclosure also independently substitute grant date fair 
value information from the Grants of Plan-Based Awards Table for the 
financial statement recognition-based numbers disclosed in the Summary 
Compensation Table.\46\
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    \45\ Some compensation experts have also suggested adding an 
alternative Summary Compensation Table if the mandated Summary 
Compensation Table ``distorts'' the compensation of an executive. 
See Frederick D. Lipman & Steven E. Hall, Executive Compensation 
Best Practices 50-52 (2008).
    \46\ See Moody's Investors Service, A User's Guide to the SEC's 
New Rules for Reporting Executive Pay (Apr. 2007), available at 
http://www.law.yale.edu/documents/pdf/CBL/AUsersGuidetotheSECPayDisclosures102762.pdf, and ( http://papers.ssrn.com/sol3/papers.cfm?abstract_id=987914) ( ``Moody's 
uses the full Statement 123(R) grant date fair value of stock 
awarded and options granted, as disclosed in the grants of plan-
based awards table, instead of the figures disclosed in the SCT 
stock awards and options awards columns.'').
---------------------------------------------------------------------------

    Further, correlating Stock Awards and Option Awards disclosure to 
financial statement recognition can result in the disclosure of a 
negative number in the relevant column.\47\ Such a negative number 
currently flows through to the Total Compensation column, reducing the 
amount of total compensation reported. Because decreases in stock price 
affect the financial reporting of the value of stock options, using the 
financial statement recognition measure to disclose stock and option 
awards can result in disclosure of negative total compensation to 
principal executive officers or principal financial officers, confusing 
investors.\48\
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    \47\ Correlating Stock Awards and Option Awards reporting to 
financial statement recognition often can involve negative 
adjustments to the numbers reported. In particular:
    [ctrcir] Awards classified as ``liability awards'' under FAS 
123R (such as an award that is cash settled) are initially measured 
at grant date fair value, but for purposes of financial statement 
recognition are re-measured at each financial statement reporting 
date through the date the awards are settled.
    [ctrcir] Under FAS 123R, compensation cost for awards containing 
a performance-based vesting condition is disclosed only if it is 
probable that the performance condition will be achieved. If 
achievement of the performance condition subsequently is no longer 
considered probable, the amount of compensation cost previously 
disclosed in the Summary Compensation Table is reversed in the 
period when it is determined that achievement of the condition is no 
longer probable.
    In addition, pursuant to the Instruction to Item 402(c)(2)(v) 
and (vi) and the Instruction to Item 402(n)(2)(v) and (vi), the 
compensation cost reported for stock and option awards in the 
Summary Compensation Table does not include the estimate of 
forfeitures related to service-based vesting conditions used for FAS 
123R financial statement recognition because this estimate is not 
considered meaningful in reporting the compensation of individual 
named executive officers. Instead, compensation cost for awards with 
service-based vesting is disclosed assuming that a named executive 
officer will perform the service required for the award to vest. If 
the named executive officer fails to do so and forfeits the award, 
the amount of compensation cost previously disclosed in the Summary 
Compensation Table is deducted in the period when the award is 
forfeited.
    \48\ See G. Morgenson, Weird and Weirder Numbers on Pay Reports, 
N.Y. TIMES, Mar. 11, 2007.
---------------------------------------------------------------------------

    Because total compensation also determines identification of some 
named executive officers, where a company experiences significant 
volatility in its stock price, such as the significant decreases during 
2008, the current rules may also cause the list of named executive 
officers to change more frequently from year to year due to factors 
unrelated to the company's compensation decisions.\49\ This can 
potentially exclude from executive compensation disclosure executives 
that the company considers the most highly compensated based on its 
compensation decisions, including its decisions with respect to equity 
awards.\50\ One reason for the adoption of the financial statement 
recognition model was the potential to distort identification of named 
executive officers when a single large grant, to be earned for services 
to be performed over multiple years, affects the list of named 
executive officers in the Summary Compensation Table, even though the 
executive may earn a consistent level of compensation over the award's 
term.\51\ Our experience with the current rules, however, leads us to 
believe that it is more meaningful to shareholders if company 
compensation decisions--including the decision to grant such a large 
award--

[[Page 35081]]

rather than factors unrelated to those decisions, cause the named 
executive officers to change.
---------------------------------------------------------------------------

    \49\ See letter regarding File No. S7-03-06 from the HR Policy 
Association (Jan. 29, 2007) (``The Amended Rules also will increase 
the annual variability of the composition of the NEOs based on 
accounting rules rather than compensation programs. * * * 
Consistency with financial accounting does not justify re-
introducing such variability into the table, especially with respect 
to a core element of compensation such as equity compensation that 
cannot be excluded in determining total compensation.'').
    \50\ See letter regarding File No. S7-03-06 from Ernst & Young 
(Jan. 29, 2007) (generally supporting the current rules yet stating 
that ``[w]e recommend that the SEC adopt an approach that also 
excludes the effects of any negative amounts, regardless of their 
source in the determination of the NEOs. We believe that such an 
approach would result in more consistency from year to year in the 
identity of the NEOs included in the SCT. Further, the NEOs 
determined in this fashion would more likely be those executives 
that the compensation committee regards as the most highly 
compensated.'').
    \51\ See Release No. 33-8765 in note 24 above at 78340 (citing 
letter from Fenwick & West LLP).
---------------------------------------------------------------------------

    A further significant reason for adopting the current rules was 
concern that disclosing the full grant date fair value would overstate 
compensation earned related to service rendered for the year, and that 
actual amounts earned later could be substantially different.\52\ 
However, companies have recognized that the current rules also have the 
potential to over-report compensation for a given year.\53\ To the 
extent that both methods possess this potential, we believe that 
reporting based on the full grant date fair value method is more 
informative because it better reflects compensation decisions. If a 
company does not believe that full grant date fair value reflects a 
named executive officer's compensation, it can provide appropriate 
explanatory narrative disclosure.
---------------------------------------------------------------------------

    \52\ See Release No. 33-8765 in note 24 above. See also Release 
No. 33-8765, in note 24 above at 78340 (citing letters of U.S. 
Chamber of Commerce (Apr. 7, 2006); Ernst & Young LLP (Apr. 10, 
2006)).
    \53\ See Frederick D. Lipman & Steven E. Hall in note 45 above 
(stating that ``[w]hen shareholders look at the `Total' column for a 
2007 or a subsequent year proxy statement, the executive's 
compensation would include the allocable share of the 2005 option 
grant under FAS 123R. This figure could substantially inflate the 
`Total' column for 2007 or subsequent years, leading unsophisticated 
shareholders or financial writers to the conclusion that this amount 
was received in 2007, when in fact the option grants were received 
in 2005. If 2007 were a particularly bad year financially for the 
company or for shareholders' stock values, there could be a hue and 
cry that this was another example of excessive CEO compensation'').
---------------------------------------------------------------------------

    While we continue to recognize that no one approach to disclosure 
of stock and option awards addresses all the issues regarding 
disclosure of equity compensation, our experience and the comment 
letters received since adoption of the current requirements lead us to 
believe that the goals of clear, concise and meaningful executive 
compensation disclosure would be better served by amending the Summary 
Compensation Table and Director Compensation Table to report stock 
awards and option awards based on aggregate grant date fair value. 
Among other things, because presentation of aggregate grant date fair 
value would include the incremental fair value of options repriced 
during the fiscal year, the effect of option repricings on total 
compensation would be clearer. Further, because smaller reporting 
companies do not provide a Grants of Plan-Based Awards Table, the 
current rules do not require them to provide any disclosure of the 
grant date fair value of awards made in the fiscal year (although they 
are currently required to provide the Summary Compensation Table). The 
proposals thus would make this information available to smaller 
reporting company investors.
    The amendments we propose also would:
    <bullet> Rescind the requirement to report the full grant date fair 
value of each individual equity award in the Grants of Plan-Based 
Awards Table \54\ and corresponding footnote disclosure \55\ to the 
Director Compensation Table because these disclosures may be considered 
duplicative of the aggregate grant date fair value disclosure to be 
provided in the Summary Compensation Table under the proposals; and
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    \54\ See Item 402(d)(2)(viii) of Regulation S-K and Instruction 
7 to Item 402(d).
    \55\ Current Instruction to Item 402(k)(2)(iii) and (iv) of 
Regulation S-K.
---------------------------------------------------------------------------

    <bullet> Amend Instruction 2 to the salary and bonus columns of the 
Summary Compensation Table to provide that registrants will not be 
required to report in those columns the amount of salary or bonus 
forgone at a named executive officer's election, and that non-cash 
awards received instead are reportable in the column applicable to the 
form of award elected. With this amendment, the Summary Compensation 
Table disclosure would reflect the form of compensation ultimately 
received by the named executive officer.\56\
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    \56\ This proposed amendment would apply to General Instruction 
2 to Item 402(c)(2)(iii) and (iv) and General Instruction 2 to Item 
402(n)(2)(iii) and (iv). The current versions of these Instructions, 
which require such forgone salary or bonus to be reported in the 
Salary or Bonus column, as applicable, were adopted in Release No. 
33-8765 to reflect that the original terms of the award, which would 
have compensated the named executive officer in cash, are not within 
the scope of FAS 123R.
---------------------------------------------------------------------------

Request for Comment

    <bullet> Is the proposed Summary Compensation Table reporting of 
equity awards a better approach for providing investors clear, 
meaningful, and comparable executive compensation disclosure consistent 
with the objectives of providing concise analysis in CD&A and a clear 
understanding of total compensation for the year? Would the proposals 
facilitate better informed investment and voting decisions?
    <bullet> The proposal contemplates that the Summary Compensation 
Table would report the aggregate grant date fair value of stock awards 
and option awards granted during the relevant fiscal year, just as the 
Grants of Plan-Based Awards Table reports each grant of an award made 
to a named executive officer in the last completed fiscal year. Should 
the Summary Compensation Table instead report the aggregate grant date 
fair value of equity awards granted for services in the relevant fiscal 
year, even if the awards were granted after fiscal year end? Explain 
why or why not. For example, could such an approach be applied in a 
manner inconsistent with the purposes of our compensation disclosure 
rules, for example by distorting the determination of named executive 
officers? If we change our approach with respect to the Summary 
Compensation Table, should the Grants of Plan-Based Awards Table be 
amended correspondingly to conform to the scope of awards reported in 
that table?
    <bullet> If the Summary Compensation Table is amended as proposed, 
should the Grants of Plan-Based Awards Table disclosure of the full 
grant date fair value of each individual award be retained, rather than 
rescinded as proposed? Should the Grants of Plan Based Awards Table 
continue to disclose the incremental fair value with respect to 
individual awards that were repriced or otherwise materially modified 
during the last completed fiscal year? If so, why? If disclosure of 
grant date fair value of individual awards is retained, should it also 
be made applicable to smaller reporting companies?
    <bullet> As described above, one reason for adopting the financial 
statement recognition model was the potential for distortion in 
identifying named executive officers when a single large grant, to be 
earned by services to be performed over multiple years, affects the 
list of named executive officers in the Summary Compensation Table, 
even though the executive earns a consistent level of compensation over 
the award's term. Are multi-year grants a common practice, so that they 
would introduce significant year-to-year variability in the list of 
named executive officers if the proposed amendments are adopted 
relative to the variability under the current rules? If so, how should 
our rules address this variability?
    <bullet> Under the proposal, all stock and option awards would be 
reported in the Summary Compensation Table at full grant date fair 
value, including awards with performance conditions. Would the proposal 
discourage companies from tying stock awards to performance conditions, 
since the full grant date fair value would be reported without regard 
to the likelihood of achieving the performance objective? If the 
proposal is adopted, is any disclosure other than that already 
currently required (e.g., in the Compensation Discussion and Analysis, 
the Grants of Plan-Based Awards Table, and the Outstanding

[[Page 35082]]

Equity Awards at Fiscal Year-End Table) needed to clarify that the 
amount of compensation ultimately realized under a performance-based 
equity award may be different?
    <bullet> As proposed, Instruction 2 to the salary and bonus columns 
would be revised to provide that any amount of salary or bonus forgone 
at the election of a named executive officer pursuant to a program 
under which a different, non-cash form of compensation may be received 
need not be included in the salary or bonus column, but instead would 
need to be reported in the appropriate other column of the Summary 
Compensation Table. Should this approach cover elections to receive 
salary or bonus in the form of equity compensation only if the 
opportunity to elect equity settlement is within the terms of the 
original compensatory arrangement, so that the original arrangement is 
within the scope of FAS 123R? Why or why not?
    <bullet> The Commission also has received a rulemaking petition 
requesting that we revise Summary Compensation Table disclosure of 
stock and option awards a different way.\57\ Instead of reporting the 
aggregate grant date fair value of awards granted during the year, as 
we propose, the petition's suggested approach would report the annual 
change in value of awards, which could be a negative number if market 
values decline. For restricted stock, restricted stock units and 
performance shares, the reported amount would be the change in stock 
price from year-end to year-end. For stock options, it would be the 
change in the in-the-money value over the same period. Would the 
approach suggested by the rulemaking petition be easy to understand or 
difficult to understand? Would the information provided under the 
suggested approach be useful to investors? In particular, would 
investors be able to evaluate the decision making of directors with 
respect to executive compensation if the value of equity compensation 
on the date of the compensation decision is not disclosed, but instead 
investors are provided information regarding changes in value of the 
compensation, which changes occur after the compensation decision is 
made? Would it enhance or diminish the ability of companies to explain 
in CD&A the relationship between pay and company performance? Would it 
be more or less informative to voting and investment decisions than the 
aggregate grant date fair value approach we propose? Would it be a 
better measure for computing total compensation, including for purposes 
of identifying named executive officers? Are there any other ways of 
reporting stock and option awards that would better reflect their 
compensatory value? If so, please explain. For example, are there any 
potential amendments to the Grants of Plan-Based Awards Table or the 
Outstanding Equity Awards at Fiscal Year-End Table that we should 
consider to better illustrate the relationship between pay and company 
performance?
---------------------------------------------------------------------------

    \57\ 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.
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    <bullet> The Summary Compensation Table requires disclosure for 
each of the registrant's last three completed fiscal years,\58\ and 
with respect to smaller reporting companies, for each of the 
registrant's last two completed fiscal years.\59\ Regarding transition, 
our goal is to facilitate year-to-year comparisons in a cost-effective 
way. To this end, we are considering whether to require companies 
providing Item 402 disclosure for a fiscal year ending on or after 
December 15, 2009 to present recomputed disclosure for each preceding 
fiscal year required to be included in the Summary Compensation Table, 
so that the Stock Awards and Option Awards columns would present the 
applicable full grant date fair values,\60\ and Total Compensation 
would be recomputed correspondingly. 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, we 
expect to require the named executive officer's compensation for each 
of those three fiscal years to be reported pursuant to the proposed 
amendments.\61\ However, we would not require companies to include 
different named executive officers for any preceding fiscal year based 
on recomputing total compensation for those years pursuant to the 
proposed amendments or to amend prior years'' Item 402 disclosure in 
previously filed Forms 10-K or other filings. Would recomputation of 
prior years included in the 2009 Summary Compensation Table to 
substitute aggregate grant date fair value numbers for the financial 
statement recognition numbers previously reported for those years cause 
companies practical difficulties? Is there a better approach that would 
preserve the objective of year-to-year comparability on a cost-
effective basis as a transitional matter?
---------------------------------------------------------------------------

    \58\ See Item 402(c)(1) of Regulation S-K.
    \59\ See Item 402(n)(1) of Regulation S-K.
    \60\ This amount would be computed based on the individual award 
grant date fair values reported in that year's Grants of Plan Based 
Award Table.
    \61\ 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.
---------------------------------------------------------------------------

B. Enhanced Director and Nominee Disclosure

    We are proposing amendments to 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 frame for disclosure of legal proceedings involving directors, 
nominees and executive officers. Specifically, we are proposing to 
require disclosure detailing for each director and nominee for director 
the particular experience, qualifications, attributes or skills that 
qualify that person to serve as a director of the company as of the 
time that a filing containing this disclosure is made with the 
Commission, and as a member of any committee that the person serves on 
or is chosen to serve on (if known), in light of the company's business 
and structure.\62\
---------------------------------------------------------------------------

    \62\ We last adopted substantive revisions to the disclosure 
concerning the background of directors, executive officers and 
control persons in 1984, when we amended Item 401 of Regulation S-K 
to require disclosure of legal proceedings involving Federal 
commodities laws and applied the disclosure requirements to 
promoters and control persons of newly public companies. See Release 
No. 33-6545 (Aug. 9, 1984) [49 FR 32762].
---------------------------------------------------------------------------

    Item 401 currently requires only brief biographical information 
about directors and nominees for the past five years, and Item 407 
requires general disclosure about director qualification requirements 
at a company. The proposed amendments to Item 401 would expand the 
information required about individual directors and supplement the 
current director qualification disclosures in Item 407 of Regulation S-
K. These revisions are aimed at helping investors determine whether a 
particular director and the entire board composition is an appropriate 
choice for a given company as of the time that a filing containing this 
disclosure is made with the Commission.\63\
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    \63\ See, for example, Richard Leblanc & James Gillies, Inside 
the boardroom: How boards really work and the coming revolution in 
corporate governance, (2005) (noting that an effective board ``must 
have a set of directors who collectively have all the competencies 
required by the board to fulfill its duties.'').
---------------------------------------------------------------------------

    Companies today face ever-increasing challenges from the business 
and social environments in which they operate. As recent market events 
have demonstrated, the capacity to assess risk and respond to complex 
financial and

[[Page 35083]]

operational challenges can be important attributes for directors of 
public companies. Moreover, developments such as the enactment of the 
Sarbanes-Oxley Act of 2002 \64\ and corporate-governance related 
listing standards of the major stock exchanges \65\ also have brought 
about significant changes in the structure and composition of corporate 
boards, such as requiring directors to have particular knowledge in 
areas such as finance and accounting. We believe that the director 
qualification disclosure requirements in Item 407 have resulted in more 
general information being provided about the qualifications of the 
board as a whole, but not more specific discussions of the background 
and skills of individual directors.
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    \64\ Pub. L. 107-204, 116 Stat. 745 (2002).
    \65\ In 2003, we approved revisions to the listing standards of 
the New York Stock Exchange (``NYSE'') and the National Association 
of Securities Dealers (``NASD'') that, among other things, imposed 
new independent director requirements and enhanced independence 
standards. See Self-Regulatory Organizations; NYSE and NASD; Order 
Approving Proposed Rule Changes Relating to Corporate Governance, 
Release No. 34-48445 (Nov. 12, 2003) [68 FR 64154].
---------------------------------------------------------------------------

    The proposed amendments are designed to provide investors with more 
meaningful disclosure to help them in their voting decisions by better 
enabling them to determine whether and why a director or nominee is a 
good fit for a particular company, and to allow companies flexibility 
in disclosing material information on the background and specific 
qualifications of each director and nominee, including information that 
goes beyond the five-year biographical requirement of Item 401. We are 
proposing that, for each director or nominee, disclosure be included 
that discusses the specific experience, qualifications or skills that 
qualify that person to serve as a director and committee member. The 
types of information that may be disclosed include, for example, 
information about a director's or nominee's risk assessment skills and 
any specific past experience that would be useful to the company, as 
well as information about a director's or nominee's particular area of 
expertise and why the director's or nominee's service as a director 
would benefit the company at the time at which the relevant filing with 
the Commission is made. 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 
other proponents. Regardless of who has nominated the director, we 
believe a discussion of why the particular person is qualified to serve 
on the company's board would be useful to investors.
    In addition to the expanded narrative disclosure regarding director 
and nominee qualifications, we are proposing two additional changes to 
our director and nominee biographical disclosure requirements. First, 
we are proposing to require disclosure of any directorships held by 
each director and nominee at any time during the past five years at 
public companies, and second, we are proposing to lengthen the time 
during which disclosure of legal proceedings is required from five to 
10 years. With respect to other directorships held by directors or 
nominees, Item 401 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,\66\ or subject to the requirements of Section 15(d) of that 
Act,\67\ or any company registered as an investment company under the 
Investment Company Act. We believe that expanding this disclosure to 
include membership on corporate boards of those companies for the past 
five years (even if the director or nominee no longer serves on that 
board) would allow investors to better evaluate the relevance of a 
director's or nominee's past board memberships, or professional or 
financial relationships that might pose potential conflicts of interest 
(such as membership on boards of major suppliers, customers, or 
competitors).
---------------------------------------------------------------------------

    \66\ 15 U.S.C. 78l.
    \67\ 15 U.S.C. 78o(d).
---------------------------------------------------------------------------

    Item 401 requires disclosure of specified legal proceedings over 
the past five years involving directors, executive officers, and 
persons nominated to become directors that are material to an 
evaluation of the ability or integrity of any director, director 
nominee or executive officer.\68\ In 1994, we proposed rules that would 
have increased the reporting period for legal proceedings from five to 
ten years.\69\ Because the legal proceedings listed in Item 401 reflect 
upon an individual's competence and character to serve as a public 
company official, we believe it is appropriate to extend the required 
reporting period from five to ten years in order to give investors more 
extensive information regarding an individual's competence and 
character.\70\
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    \68\ Under Item 401(f), the registrant must disclose any of the 
following events that occurred during the past five years and that 
are material to an evaluation of the director, director nominee or 
executive officer:
    (1) A petition under Federal bankruptcy laws or any State 
insolvency law. A petition under the Federal bankruptcy laws or any 
State insolvency law was filed by or against, or a receiver, fiscal 
agent or similar officer was appointed by a court for the business 
or property of such person, or any partnership in which he was a 
general partner at or within two years before the time of such 
filing, or any corporation or business association of which he was 
an executive officer at or within two years before the time of such 
filing;
    (2) Such person was convicted in a criminal proceeding or is a 
named subject of a pending criminal proceeding (excluding traffic 
violations and other minor offenses);
    (3) Such person was the subject of any order, judgment, or 
decree, not subsequently reversed, suspended or vacated, of any 
court of competent jurisdiction, permanently or temporarily 
enjoining him from, or otherwise limiting, the following activities: 
(i) Acting as a futures commission merchant, introducing broker, 
commodity trading advisor, commodity pool operator, floor broker, 
leverage transaction merchant, any other person regulated by the 
Commodity Futures Trading Commission, or an associated person of any 
of the foregoing, or as an investment adviser, underwriter, broker 
or dealer in securities, or as an affiliated person, director or 
employee of any investment company, bank, savings and loan 
association or insurance company, or engaging in or continuing any 
conduct or practice in connection with such activity; (ii) Engaging 
in any type of business practice; or (iii) Engaging in any activity 
in connection with the purchase or sale of any security or commodity 
or in connection with any violation of Federal or State securities 
laws or Federal commodities laws;
    (4) Such person was the subject of any order, judgment or 
decree, not subsequently reversed, suspended or vacated, of any 
Federal or State authority barring, suspending or otherwise limiting 
for more than 60 days the right of such person to engage in any 
activity described in paragraph (f)(3)(i) of this section, or to be 
associated with persons engaged in any such activity;
    (5) Such person was found by a court of competent jurisdiction 
in a civil action or by the Commission to have violated any Federal 
or State securities law, and the judgment in such civil action or 
finding by the Commission has not been subsequently reversed, 
suspended, or vacated; or
    (6) Such person was found by a court of competent jurisdiction 
in a civil action or by the Commodity Futures Trading Commission to 
have violated any Federal commodities law, and the judgment in such 
civil action or finding by the Commodity Futures Trading Commission 
has not been subsequently reversed, suspended or vacated.
    The instruction to Item 401(f) indicates that if any event 
specified in Item 401(f) has occurred and information in a filing is 
omitted on the grounds that it is not material, the registrant may 
furnish to the Commission, at the time of filing, as supplemental 
information and not as part of the registration statement, report, 
or proxy or information statement, materials to which the omission 
relates, a description of the event and a statement of the reasons 
for the omission of the information.
    \69\ Release No. 33-7106 (Nov. 1, 1994) [59 FR 55385].
    \70\ Consistent with the current disclosure requirement 
regarding legal proceedings, the proceedings required to be 
disclosed under the proposal would not need to be disclosed if they 
are not material to an evaluation of the director or director 
nominee. See 17 CFR 229.401(f).
---------------------------------------------------------------------------

    The disclosures that would be required under the proposed 
amendments to Item 401 would appear in proxy and information statements 
on Schedules 14A and 14C, annual reports on Form 10-K and the 
registration

[[Page 35084]]

statement on Form 10 under the Exchange Act, as well as in registration 
statements under the Securities Act.
    Currently, Item 407(c)(2)(v) of Regulation S-K requires disclosure 
of any specific minimum qualifications that a nominating committee 
believes must be met by a nominee for a position on the board.\71\ We 
are interested in understanding whether investors and other market 
participants believe that diversity in the boardroom is a significant 
issue. As indicated below, we are requesting comment on whether 
additional disclosure in this area should be required.
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    \71\ Management investment companies that are registered under 
the Investment Company Act are subject to the disclosure 
requirements of Item 407(c)(2)(v) of Regulation S-K pursuant to Item 
22(b)(15)(ii)(A) of Schedule 14A. See 17 CFR 240.14a-101, Item 
22(b)(15)(ii)(A). 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 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].
---------------------------------------------------------------------------

    We also are proposing 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 
management investment companies that are registered under the 
Investment Company Act (``funds''). We believe investors in funds 
would, for the same reasons as investors in operating companies, find 
this information useful. The proposal would amend the disclosures in 
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.\72\ We are also proposing 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.\73\
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    \72\ See proposed Item 22(b)(3)(i) of Schedule 14A 
(qualifications); proposed Item 22(b)(4)(ii) of Schedule 14A 
(directorships); proposed Item 22(b)(11) of Schedule 14A (legal 
proceedings).
    \73\ See proposed Items 17(b)(3)(ii) & 17(b)(10) of Form N-1A; 
proposed Items 18.6(b) & 18.17 of Form N-2; proposed Items 20(e)(ii) 
& 20(o) of Form N-3. 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.
---------------------------------------------------------------------------

Request for Comment

    <bullet> Would the proposed amendments provide investors with 
important information regarding directors and nominees for director? 
Are there any additional changes that we should make to further improve 
the disclosures about director and nominee qualifications?
    <bullet> If Item 401 is amended as proposed, should the disclosure 
currently required by Item 407(c)(2)(v) of Regulation S-K regarding 
disclosure of any minimum qualifications that a nominating committee 
believes must be met by someone nominated by the committee for a 
position on the board, be retained? Does the disclosure elicited by 
Item 407(c)(2)(v) provide useful information that would supplement the 
information provided pursuant to the proposed amendment to Item 401?
    <bullet> Should we amend Item 407(c)(2)(v) to require disclosure of 
any additional factors that a nominating committee considers when 
selecting someone for a position on the board, such as diversity? 
Should we amend our rules to require additional or different disclosure 
related to board diversity?
    <bullet> Would director qualification disclosure for all of a 
company's board committees be useful to investors, or should the 
disclosures be focused on membership of certain key committees, such as 
the audit, compensation and nominating/governance committees?
    <bullet> Should we require the proposed director qualification 
disclosure less frequently than annually? Even though the overall 
composition of a board may change, is it sufficient to require this 
disclosure only when a director is first nominated or periodically, 
such as every three years? Should the disclosure be required only when 
the director is standing for election, or should it be required each 
year, as proposed, in order to facilitate shareholders' assessments of 
the quality of the board as a whole?
    <bullet> Would it be helpful to investors if we required companies 
to list and describe all committees of the board similar to the current 
disclosure requirements for audit, compensation and nominating/
governance committees? Would it also be helpful if we required 
disclosure of whether the board (or a committee) periodically conducts 
an evaluation of the performance of the board as a whole, the 
committees of the board and/or each individual director?
    <bullet> Should we require disclosure of other directorships for 
more than the past five years? If so, for how long?
    <bullet> Could requiring more director and nominee qualification 
disclosure in any way hinder a company's ability to find potential 
candidates for the board? If so, explain how.
    <bullet> Should the current five-year disclosure period for legal 
proceedings be maintained? Should it be longer than proposed, for 
example for fifteen or twenty years? Should there be no time limit? 
Would it be more appropriate to require disclosure of legal proceedings 
for longer periods with respect to certain types of legal proceedings--
for example, criminal fraud convictions, civil or administrative 
actions based on fraud involving securities, commodities, financial 
institutions, insurance companies or other businesses? If so, for what 
period or periods and why?
    <bullet> Are there 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? For example, should we expand the current 
requirements to require disclosure of:
    [cir] Any civil or administrative proceedings resulting from 
involvement in mail fraud, or wire fraud;
    [cir] Any judicial or administrative findings, orders or sanctions 
based on violations of Federal or State securities, commodities, 
banking or insurance laws and regulations or any settlement to such 
actions;
    [cir] Any disciplinary sanctions imposed by a stock, commodities or 
derivatives exchange or other self-regulatory organization; or
    [cir] Situations where the director, nominee, or executive officer 
was a general partner of any partnership or served as a director or 
executive officer of any corporation subject to any Federal or State 
agency receivership?
    <bullet> Should we continue, as proposed, to permit companies to 
exclude disclosure of director, director nominee or executive officer 
legal proceedings, when the registrant concludes that the information 
would not be material to an evaluation of the ability or integrity of 
the director, director nominee or executive officer, or should this 
disclosure be required in all cases?
    <bullet> Should we make any special accommodations in the proposed 
amendments to Item 401 for smaller reporting companies? If so, what 
accommodations should be made and why?
    <bullet> Should the proposed amendments regarding director and 
nominee qualifications, past directorships held by directors and 
nominees, and the time frame for disclosure of legal proceedings apply 
to registered management investment companies? If so, where should each 
of the disclosures be

[[Page 35085]]

required (e.g., proxy statements, statements of additional information, 
and/or shareholder reports)? Does the disclosure requirement need to be 
modified in any way to make it more appropriate for registered 
management investment companies?

C. New Disclosure About Company Leadership Structure and the Board's 
Role in the Risk Management Process

    We are proposing a new disclosure requirement to Item 407 of 
Regulation S-K and a corresponding amendment to Item 7 of Schedule 14A 
that would require disclosure of the company's leadership structure and 
why the company believes it is the best structure for it at the time of 
the filing. This proposed disclosure would appear in proxy and 
information statements. Under the proposed amendments, companies also 
would be required to disclose whether and why they have chosen to 
combine or separate the principal executive officer and board chair 
positions. 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. Those 
companies would also be required to disclose 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, we note 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. Regardless of the 
type of leadership structure selected by a company, the disclosure 
would provide investors with insights about why the company has chosen 
that particular leadership structure.
    In making voting and investment decisions, investors should be 
provided with meaningful information about the corporate governance 
practices of companies.\74\ One important aspect of a company's 
corporate governance practices is its board's leadership structure. Our 
proposed amendments to Item 407 are not intended to influence a 
company's decision regarding its board leadership structure. Disclosure 
of board leadership structure and why the company believes this is the 
best structure will increase the transparency for investors into how 
boards function.
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    \74\ See, for example, 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.'')
---------------------------------------------------------------------------

    We also are proposing to require additional disclosure in proxy and 
information statements about the board's role in the company's risk 
management process. Companies face a variety of risks, including credit 
risk, liquidity risk, and operational risk. Similar to disclosure about 
the leadership structure of a board, disclosure about the board's 
involvement in 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. Given the role that 
risk and the adequacy of risk oversight have played in the recent 
market crisis, we believe it is important for investors to understand 
the board's, or board committee's role in this area. For example, how 
does the board implement and manage its risk management function, 
through the board as a whole or through a committee, such as the audit 
committee? \75\ Such disclosure 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 believe that this disclosure will 
provide key insights into how a company's board perceives and manages a 
company's risks.
---------------------------------------------------------------------------

    \75\ Section 303A of the NYSE's Listed Company Manual provides 
that the audit committee of companies listed on the exchange must 
``discuss guidelines and policies to govern the process by which 
risk assessment and management is undertaken.''
---------------------------------------------------------------------------

    We also are proposing that registered management investment 
companies provide the new Item 407 disclosure about leadership 
structure and the board's role in the risk management process in proxy 
and information statements.\76\ Similar to the transparency provided to 
investors in corporate issuers, we believe that providing this 
disclosure to investors in investment companies should enable them to 
consider their management structure preference, if any, when deciding 
where to invest.\77\ We have, however, tailored the proposal to the 
management structure of funds. Accordingly, we propose 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.\78\ 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. We are also proposing to require similar 
disclosure in statements of additional information filed as part of 
registration statements on Forms N-1A, N-2, and N-3.\79\
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    \76\ See proposed Item 22(b)(11) of Schedule 14A.
    \77\ In the context of this rulemaking, we believe it is 
appropriate to propose to require disclosure about fund management 
that is similar to the disclosure requirement for corporate issuers. 
In another context and for other purposes, the Commission previously 
considered a number of issues, including disclosure, regarding fund 
governance that we are not addressing here. See Investment Company 
Governance, File No. S7-03-04.
    \78\ 15 U.S.C. 80a-2(a)(19).
    \79\ See proposed Item 17(b)(1) of Form N-1A; proposed Item 
18.5(a) of Form N-2; proposed Item 20(d)(i) of Form N-3. We are 
proposing to require this disclosure in the statement of additional 
information because not all funds hold annual meetings for the 
election of directors.
    A large number of funds are organized as entities in 
jurisdictions which do not require funds to hold an annual 
shareholder meeting to elect directors. See, for example, Md. Code 
Ann., Corps. & Ass'ns Code Sec.  2-501(b) (2009) (law exempts funds 
from annual meeting requirement in any year that the fund is not 
required to act upon the election of directors under the Investment 
Company Act); Del. Code Ann. tit. 12, Sec.  3806 (2009) (statutory 
trust law structure has the effect of generally not requiring 
shareholder meetings). See also Sheldon A. Jones et al., The 
Massachusetts Business Trust and Registered Investment Companies, 13 
DEL. J. CORP. L. 421 (1988) (noting that the organizational and 
operational requirements of Massachusetts business trusts are not 
specified by statute, and a fund's essential structure is contained 
in the trust agreement, which generally includes a provision 
eliminating the need for annual shareholder meetings to elect 
directors). Closed-end funds registered on national securities 
exchanges, however, are required to hold an annual meeting to elect 
directors under the rules of the exchanges. See, for example, AMEX 
Company Guide Sec.  704; New York Stock Exchange Listed Company 
Manual Sec.  302.00.
---------------------------------------------------------------------------

Request for Comment

    <bullet> Are the proposed amendments to Item 407 appropriate? Are 
there additional disclosure requirements that should also be included 
in these proposed requirements?
    <bullet> Are there certain considerations that would affect the 
company's leadership structure that should be highlighted in the 
proposed amendment? If so, explain.
    <bullet> Are there any additional disclosures about a company's 
leadership that would be helpful to investors?
    <bullet> Should we require disclosure of the specific duties 
performed by the board's chair or independent lead director?

[[Page 35086]]

    <bullet> Should we require disclosure of other board structure 
matters, such as how a company determines the number of independent 
directors to have on its board, and/or how a company determines the 
size of the board?
    <bullet> Are there competitive or proprietary concerns about the 
level of detail about the company's risk management structure and 
function that the proposed rule should account for? If so, please 
identify these concerns and explain how they should be accounted for.
    <bullet> Should we make any special accommodations in these 
proposed amendments for smaller reporting companies? If so, what 
accommodations should be made and why?
    <bullet> The proposals address risk management oversight by the 
board of directors as a part of the corporate governance disclosures 
required in proxy and information statements. We are considering 
whether we should revise our existing disclosure requirements, such as 
in Items 303 \80\ and 305 \81\ of Regulation S-K, to require additional 
disclosure regarding a registrant's risk management practices in other 
registrant filings, such as annual and quarterly reports? Should we 
consider proposing additional requirements? If so, what additional or 
different disclosure requirements should we consider proposing?
---------------------------------------------------------------------------

    \80\ 17 CFR 229.303.
    \81\ 17 CFR 229.305.
---------------------------------------------------------------------------

    <bullet> Should we, as proposed, require a registered management 
investment company to provide disclosure about its leadership structure 
and the board's role in the risk management process? Are there 
alternative disclosures relating to a fund's leadership structure and 
board involvement in the risk management process that would be more 
helpful to investors? If we require each of the disclosures, where 
should such disclosures appear (e.g., proxy statements, statements of 
additional information, and/or shareholder reports)?
    <bullet> As proposed, funds would be required to include the 
proposed disclosure in registration statements filed on Forms N-1A, N-
2, and N-3. Should we differentiate between open-end and closed-end 
funds? For example, should we omit this requirement from Form N-2 
because closed-end funds generally hold annual shareholder meetings 
pursuant to exchange requirements and their shareholders will receive 
this disclosure in annual proxy or information statements?

D. New Disclosure Regarding Compensation Consultants

    In 2003, we amended Regulation S-K to require new disclosures 
regarding compensation committees similar to the disclosures required 
regarding audit and nominating committees of the board of 
directors.\82\ In addition, in 2006, we amended Item 407 to require 
registrants to describe, among other things, any role played by 
compensation consultants in determining or recommending the amount or 
form of executive and director compensation, identifying such 
consultants, stating whether they are engaged directly by the 
compensation committee 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.\83\
---------------------------------------------------------------------------

    \82\ See Release No. 33-8340 (Nov. 24, 2003) [68 FR 69204].
    \83\ CFR 229.407(e)(3)(iii).
---------------------------------------------------------------------------

    Many companies engage compensation consultants to make 
recommendations on appropriate executive compensation levels, to design 
and implement incentive plans, and to provide information on industry 
and peer group pay practices.\84\ These services can benefit companies, 
such as by providing management and the board current information about 
compensation trends or any regulatory requirements related to executive 
compensation.
---------------------------------------------------------------------------

    \84\ See, for example, J. Creswell, Pressing for Independent 
Advice from Consultants, N.Y. TIMES, Apr. 8 2007.
---------------------------------------------------------------------------

    The services offered by compensation consultants, however, are 
often not limited to recommending executive compensation plans or 
policies. Many compensation consultants, or their affiliates, provide a 
broad range of additional services, such as benefits administration, 
human resources consulting and actuarial services.\85\ The fees 
generated by these additional services may be more significant than the 
fees earned by the consultants for their executive compensation 
services.\86\ The provision of such additional services by compensation 
consultants or their affiliates may create the appearance, or risk, of 
a conflict of interest that may call into question the objectivity of 
the consultants' executive pay recommendations. Increasingly, some 
investors are becoming concerned that the executive compensation 
services provided by compensation consultants may be influenced by the 
provision of these additional services.\87\
---------------------------------------------------------------------------

    \85\ See, for example, Rulemaking Petition No. 4-558 (May 12, 
2008), at http://www.sec.gov/rules/petitions.shtml.
    \86\ 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 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).
    \87\ See Rulemaking Petition No. 4-558 in note 85 above. See 
also letters regarding File No. S7-03-06 from CaIPERS, CaISTRS, New 
York State Common Retirement System, Florida State Board of 
Administration, New York City Pension Funds, PGGM, ABP, Hermes, 
Universities Superannuation Scheme, UniSuper, London Pensions Fund 
Authority, F&C Asset Management, Co-operative Insurance Society, 
Illinois State Board of Investment, Ontario Teachers Pension Plan, 
Public Sector and Commonwealth Super, and Railpen Investments (Apr. 
10, 2006); CFA Institute for Financial Market Integrity (Apr. 13, 
2006); and Denise Nappier, Connecticut State Treasurer (Apr. 10, 
2006) at http://www.sec.gov/rules/proposed/s70306.shtml.
---------------------------------------------------------------------------

    Presently, companies are not required to disclose the fees paid to 
compensation consultants and their affiliates for executive 
compensation consulting or other services, or to describe services that 
are not related to executive or director compensation. We are proposing 
amendments to Item 407 of Regulation S-K to require disclosure about 
the fees paid to compensation consultants and their affiliates when 
they play any role in determining or recommending the amount or form of 
executive and director compensation, if they also provide other 
services to the company. In addition, the proposed amendments would 
require a description of any additional services provided to the 
company by the compensation consultants and any affiliates of the 
consultants. These disclosures are intended to enable investors to 
assess any incentives a compensation consultant may have in 
recommending executive compensation and better assess the compensation 
decisions made by the board.
    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 or director compensation, 
and also provided additional services, then the company would be 
required to disclose the following: \88\
---------------------------------------------------------------------------

    \88\ See proposed Item 407(e)(3)(iii) of Regulation S-K.
---------------------------------------------------------------------------

    <bullet> The nature and extent of all additional services provided 
to the company or its affiliates during the last fiscal year by the 
compensation

[[Page 35087]]

consultant and any affiliates of the consultant;
    <bullet> 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;
    <bullet> Whether the decision to engage the compensation consultant 
or its affiliates for non-executive compensation services was made, 
recommended, subject to screening or reviewed by management; and
    <bullet> Whether the board of directors or the compensation 
committee has approved all of these services in addition to executive 
compensation services.
    These new requirements would apply to all services provided by a 
compensation consultant and its affiliates if the compensation 
consultant plays any role in determining or recommending the amount or 
form of executive or director compensation. The proposed amendments 
would not apply to those 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 plans that do not discriminate in favor of executive officers or 
directors of the company, such as 401(k) plans or health insurance 
plans. For example, if a company retains a compensation consultant to 
assist it in developing a 401(k) plan in which all salaried employees, 
including executives, will be eligible to participate on the same 
terms, and the compensation consultant provides other services to the 
company that are not related to determining or recommending the level 
of executive or director compensation, the new disclosure requirements 
would not apply to the services provided by that compensation 
consultant.\89\ When a compensation consultant's only services that 
touch on the form or amount of executive or director compensation are 
limited to broad-based, non-discriminatory plans, even though 
executives or directors may be eligible to participate in them, we do 
not believe that these services give rise to the type of potential 
conflict of interest intended to be addressed by our proposed 
revisions.\90\
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    \89\ On the other hand, if a consultant provides other services 
involving executive or director compensation, and also provides 
services regarding broad-based, non-discriminatory plans, the new 
disclosure requirements would be applicable to all services provided 
by the consultant or its affiliates.
    \90\ We also propose to amend Item 407 along the same lines to 
clarify that the existing disclosure requirements are not triggered 
for a compensation consultant whose only services with regard to 
executive or director compensation are limited to these types of 
broad-based, non-discriminatory plans.
---------------------------------------------------------------------------

Request for Comment

    <bullet> Will this disclosure help investors better assess the role 
of compensation consultants and potential conflicts of interest, and 
thereby better assess the compensation decisions made by the board?
    <bullet> Would the disclosure of additional consulting services and 
any related fees adversely affect the ability of a company to receive 
executive compensation consulting or non-executive compensation related 
services? If so, how might we achieve our goal while minimizing that 
impact?
    <bullet> Are there competitive or proprietary concerns that the 
proposed disclosure requirements should account for? If so, how should 
the amendments account for them if the compensation consultant provides 
additional services?
    <bullet> Are there additional disclosures regarding the potential 
conflicts of interest of compensation consultants that should be 
required? For example, would requiring disclosure of any ownership 
interest that an individual consultant may have in the compensation 
consultant or any affiliates of the compensation consultant that are 
providing the additional services to the company help provide 
information about potential conflicts? If so, why?
    <bullet> The proposed disclosure requirement calls for disclosure 
of services during the prior year. Should we also require disclosure of 
any currently contemplated services in order to capture a situation 
where the compensation consultant provides services related to 
executive pay in one year and in the next year receives fees for other 
services? If so, should we require that fees for the currently 
contemplated services be estimated? Is there a better way to require 
that information, for instance through the date of the filing? Should 
we require disclosure for the prior three years?
    <bullet> Is the proposed exclusion for consulting services that are 
limited to broad-based, non-discriminatory plans appropriate? Should we 
consider any other exclusions for services that do not give rise to 
potential conflicts of interest? If so, describe them.
    <bullet> Should we 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? If so, how should the threshold be computed?
    <bullet> Would disclosure of the individual fees paid for non-
executive compensation related services provided by the compensation 
consultants be more useful to investors than disclosure of the 
aggregate fees paid for non-compensation related service provided as 
proposed?
    <bullet> Would disclosure about the fees paid to compensation 
consultants and their affiliates help highlight potential conflicts of 
interest on the part of these compensation consultants and their 
affiliates? Is fee disclosure necessary to achieve this goal, or would 
it be sufficient to require disclosure of the nature and extent of 
additional services provided by the compensation consultant and its 
affiliates? Should disclosure only be required for fees paid in 
connection with executive compensation related services?
    <bullet> Should we make any special accommodations in the proposed 
amendments to Item 407(h) for smaller reporting companies? If so, what 
accommodations should be made and why?
    <bullet> Are there other categories of consultants or advisors 
whose activities on behalf of companies should be disclosed to 
shareholders? If so, what kind of disclosure would be appropriate?

E. Reporting of Voting Results on Form 8-K

    We are proposing to transfer the requirement to disclose vote 
results from Forms 10-Q and 10-K to Form 8-K. Currently, Item 4 in Part 
II of Form 10-Q and Item 4 in Form 10-K require the disclosure of vote 
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. Under the proposals, we 
would add a new Item 5.07 to Form 8-K to require a company to disclose 
on the Form 8-K 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. If the proposal is adopted, we 
would delete the requirement from Forms 10-Q and 10-K.
    We believe that more timely disclosure of the voting result of an 
annual or special meeting would benefit investors and the markets. 
While quarterly and annual reports generally reflect historical 
information, we are concerned that the delay between the end of an 
annual or special meeting and when the voting result of the meeting is 
disclosed in a Form 10-Q or 10-K may make the information less useful 
to

[[Page 35088]]

investors and the markets. Depending on the date of the shareholder 
meeting, it could take a few months before the vote is disclosed in a 
Form 10-Q or 10-K. Because matters submitted for a shareholder vote at 
an annual or special meeting often involve issues that directly impact 
shareholder interests--for example, the composition of the board, 
executive compensation policies, or changes in shareholder rights--we 
believe more timely disclosure of those voting results is appropriate. 
In short, we believe that if a matter is important enough to submit to 
a vote at a meeting of shareholders, it likely is important enough to 
warrant current reporting of the results on Form 8-K.
    We 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 than is 
currently required. However, we recognize that in situations such as 
contested elections, companies may not have definitive vote results 
within four business days after the meeting. We have included an 
instruction to the proposed item that states that if the matter voted 
upon at the meeting relates to a contested election of directors and 
the voting results are not definitively determined at the end of the 
meeting, companies should disclose on Form 8-K the preliminary voting 
results within four business days after the preliminary voting results 
are determined, and file an amended report on Form 8-K within four 
business days after the final voting results are certified. We think it 
is important for investors to have at least preliminary voting results 
because the certification process may take a longer amount of time.

Request for Comment

    <bullet> To what extent would requiring the reporting of voting 
results on Form 8-K provide more timely information to investors and 
the markets?
    <bullet> Are there any possible adverse consequences to requiring 
the disclosure of preliminary voting results in a contested election 
when the outcome is not final? For example, could the preliminary 
disclosure affect the final outcome?
    <bullet> Should the filing period under Form 8-K for the reporting 
of voting results be longer than four business days? Should we require 
the reporting of preliminary voting results? Are there unique 
difficulties or significant costs in finalizing voting results at 
smaller reporting companies that would warrant a longer filing period 
for those companies? What factors should we consider in deciding 
whether to make the filing period longer? Are there situations other 
than contested elections that might warrant a longer filing period?
    <bullet> Are there alternative methods to disseminate this 
information to investors sooner or within a similar time frame that 
would be more effective or appropriate?
    <bullet> We are moving and accelerating the disclosure requirement 
but not proposing any other revisions to the disclosures that are 
currently required by Item 4 of Form 10-Q and Form 10-K. Are there any 
changes to the requirements as to what should be disclosed that we 
should consider? For instance, since disclosure must be provided for 
all matters voted, on including a separate tabulation for the election 
of each director, should we eliminate the portion of Instruction 4 that 
provides when paragraph (b) need not be answered?
    <bullet> Would the proposal impose any significant costs or 
difficulties on companies? If so, what type and amount of costs? Are 
these short-term or one-time costs to adjust a company's reporting 
procedures, or long-term, ongoing costs?
    <bullet> Would the proposal create any special burdens for smaller 
reporting companies? If so, would scaled disclosure be appropriate for 
these companies and how should it be accomplished? Alternatively, 
should these requirements be phased in for smaller reporting companies?
    <bullet> Would the accuracy of disclosure of voting results be 
affected as a result of a Form 8-K filing requirement?
    <bullet> Section 13a-11(c) under the Exchange Act provides that 
``[n]o failure to file a report on Form 8-K that is required solely 
pursuant to Item 1.01, 1.02, 2.03, 2.04, 2.05, 2.06, 4.02(a), 5.02(e) 
or 6.03 of Form 8-K shall be deemed to be a violation of'' Section 
10(b) of the Exchange Act or Rule 10b-5 thereunder. Should we amend 
Section 13a-11(c) to include proposed Item 5.07 in this list of Items 
with respect to which the failure to file a report on Form 8-K will not 
be deemed to be a violation of Section 10(b) or Rule 10b-5? Similarly, 
should we amend General Instruction I.A.3(b) of Form S-3 to add 
proposed Item 5.07 to the corresponding list of Items on Form 8-K with 
respect to which a company's failure timely to file the Form 8-K will 
not result in the loss of S-3 eligibility? Why or why not?

F. Proxy Solicitation Process

    We are proposing revisions to our rules governing the proxy 
solicitation process to provide clarity and address issues that have 
arisen. We believe these proposals, if adopted, would provide greater 
certainty to soliciting parties, help shareholders receive timely and 
complete information and facilitate shareholder voting.
    Specifically, the amendments would provide that:
    <bullet> An unmarked copy of management's proxy card that is 
requested to be returned directly to management is not a ``form of 
revocation'' under Exchange Act Rule 14a-2(b)(1) \91\ so that a person 
who furnishes such a duplicate proxy card is not disqualified from 
relying on the exemption provided by that rule;
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    \91\ 17 CFR 240.14a-2(b)(1).
---------------------------------------------------------------------------

    <bullet> A person need not be a security holder of the class of 
securities being solicited and a benefit need not be related to or 
derived from any security holdings in the class being solicited for 
Exchange Act Rule 14a-2(b)(1)(ix) \92\ to disqualify the person from 
relying on the Exchange Act Rule 14a-2(b)(1) exemption;
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    \92\ 17 CFR 240.14a-2(b)(1)(ix).
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    <bullet> A person soliciting in support of nominees who, if 
elected, would constitute a minority of the board may seek authority to 
vote for another soliciting person's nominees in addition to or instead 
of the issuer's nominees to round out its short slate consistent with 
Exchange Act Rule 14a-4(d)(4)'s limitations on proxy authority; \93\
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    \93\ 17 CFR 240.14a-4(d)(4).
---------------------------------------------------------------------------

    <bullet> The ``reasonable specified conditions'' under which the 
shares represented by a proxy will not be voted under Exchange Act Rule 
14a-4(e) must be objectively determinable; \94\ and
---------------------------------------------------------------------------

    \94\ 17 CFR 240.14a-4(e).
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    <bullet> The participant information required by Exchange Act Rule 
14a-12(a)(1)(i) \95\ must be filed under cover of Schedule 14A in a 
proxy statement or other soliciting materials no later than the time 
the first soliciting communication is made.
---------------------------------------------------------------------------

    \95\ 17 CFR 240.14a-12(a)(1)(i).
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1. Exchange Act Rule 14a-2(b)(1) Introductory Text
    Exchange Act Rule 14a-2(b)(1) exempts from the generally applicable 
disclosure, filing and most other requirements of the proxy rules 
solicitations by shareholders or other non-management parties who are 
not seeking proxy authority and do not have a substantial interest in 
the subject matter of the solicitation. When the

[[Page 35089]]

Commission adopted this rule in 1992, we stated that the purpose of the 
rule was to remove obstacles to the free and unrestrained expression of 
views by disinterested shareholders who do not seek authority for 
themselves.\96\ Accordingly, the exemption is unavailable to, among 
others, a person who ``furnish[es] or otherwise request[s], or act[s] 
on behalf of a person who furnishes or requests, a form of 
revocation.'' \97\
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    \96\ 1992 adopting release in note 23 above.
    \97\ Exchange Act Rule 14a-2(b)(1).
---------------------------------------------------------------------------

    Over time, questions have arisen related to the scope of the term 
``form of revocation,'' in particular, whether a person otherwise 
qualified to rely on the exemption would be providing a ``form of 
revocation'' and, therefore, be ineligible to rely on the exemption if 
the person provided a solicited shareholder with an unmarked copy of 
management's proxy card and asked that the card be returned directly to 
management. Consistent with the purpose underlying the exemption, we 
believe that a person providing a solicited shareholder with an 
unmarked copy of management's proxy card requested to be returned 
directly to management would not be seeking authority for itself.\98\ 
As a result, this action would not be providing a ``form of 
revocation'' within the meaning of the rule even if a solicited 
shareholder's use of that proxy card resulted in a revocation of the 
shareholder's prior vote. We acknowledge that the U.S. Court of Appeals 
for the Second Circuit has concluded that in the case of a proxy vote 
to authorize a proposed merger under Delaware law, a duplicate of 
management's proxy card, when included in a mailing opposing a proposed 
merger, was a form of revocation under the rule.\99\
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    \98\ Indeed, the soliciting person has not foreclosed any voting 
option available to the shareholder.
    \99\ See Mony Group, Inc. v. Highfields Capital Mgmt. L.P., 368 
F.3d 138 (May 13, 2004). The Second Circuit reversed the district 
court's decision that, consistent with the staff's views, the 
unmarked copy of management's proxy card was not a ``form of 
revocation'' within the meaning of Exchange Act Rule 14a-2(b)(1). 
See Mony Group, Inc. v. Highfields Capital Mgmt. L.P., 2004 U.S. 
Dist. LEXIS 1840 (S.D.N.Y., Feb. 11, 2004).
---------------------------------------------------------------------------

    We propose to clarify the rule to align with our view by amending 
it to provide expressly that a ``form of revocation'' does not include 
an unmarked copy of management's proxy card that the soliciting 
shareholder requests be returned directly to management.\100\ This 
amendment would aid efforts by persons not seeking proxy authority to 
facilitate voting by shareholders sharing their views on matters 
submitted for shareholder approval--such as in a ``just vote no'' 
campaign--without having to incur the costs and efforts of conducting a 
fully-regulated proxy solicitation and provide shareholders a 
convenient opportunity to indicate their votes after hearing those 
views without having to request another proxy card from 
management.\101\
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    \100\ This clarification is consistent with advice the staff 
informally has provided in response to related inquiries since the 
rule was adopted.
    \101\ Providing shareholders with a marked copy of a proxy card 
would be inconsistent with the availability of the Rule 14a-2(b)(1) 
exemption because it would be an attempt to indirectly solicit proxy 
authority. Providing shareholders with a marked copy of a proxy card 
in a non-exempt solicitation would be impermissible because it would 
violate the requirement of Rule 14a-4(b) [17 CFR 240.14a-4(b)] to 
provide shareholders the opportunity to specify a choice.
---------------------------------------------------------------------------

Request for Comment

    <bullet> Is the proposed amendment appropriate, or should a form of 
proxy provided in this setting be treated as a form of revocation, 
thereby disqualifying the soliciting person from relying upon the 
exemption?
    <bullet> Should a soliciting person that provides an unmarked copy 
of management's proxy card be required to file a Notice of Exempt 
Solicitation \102\ even if the person does not meet the thresholds for 
filing such notice under Exchange Act Rule 14a-6(g)? \103\ Should such 
a soliciting person be required to file and provide to solicited 
persons any other information about itself, such as any relationships 
with the registrant or its affiliates, the amount of shares it holds, 
whether such person intends to hold its shares through the date of the 
meeting at which the vote will take place, or other information?
---------------------------------------------------------------------------

    \102\ 17 CFR 240.14a-103.
    \103\ 17 CFR 240.14a-6(g).
---------------------------------------------------------------------------

    <bullet> Should the determination as to whether an unmarked 
management proxy card is a ``form of revocation'' depend on whether a 
non-management soliciting person requests that shareholders return the 
proxy card directly to management, as proposed, or should this 
treatment be available even if the card is returned to the soliciting 
person?
    <bullet> Would the proposed amendment have an effect on shareholder 
communications in general or the practices of shareholders and 
companies with regard to unmarked proxy cards in particular?
    <bullet> Would the proposed amendment raise concerns under 
applicable State law?
2. Exchange Act Rule 14a-2(b)(1)(ix)
    Exchange Act Rule 14a-2(b)(1)(ix) provides that the Rule 14a-
2(b)(1) exemption is not available to ``[a]ny person who, because of a 
substantial interest in the subject matter of the solicitation, is 
likely to receive a benefit from a successful solicitation that would 
not be shared pro rata by all other holders of the same class of 
securities, other than a benefit arising from the person's employment 
with the registrant.'' A question has arisen as to whether this 
limitation applies only when both the person is a security holder of 
the class being solicited and the benefit relates to or is derived from 
such holdings, or is generally applicable to any person with a 
substantial interest as described in the rule. We believe the nature of 
the ``substantial interest'' contemplated by the rule is broader, and 
propose to amend the rule to clarify this point.\104\
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    \104\ In adopting this provision, the Commission noted in the 
1992 adopting release that the substantial interest ``standard is 
similar to that used in Item 5 of Schedule 14A, which requires 
specified persons conducting solicitations to describe briefly any 
substantial interest in the matter to be acted upon, other than an 
interest as a shareholder.'' Specifically, Item 5 required at the 
time of the 1992 adopting release and requires now a description of 
``any substantial interest, direct or indirect, by security holdings 
or otherwise, * * * in any matter to be acted upon, other than 
elections to office.''
---------------------------------------------------------------------------

    If a soliciting person has a substantial interest in the matter, we 
believe shareholders should have the benefit of the disclosure required 
by our rules when deciding how to vote. We do not believe it is 
appropriate to limit this disclosure obligation to cases when the 
soliciting party is a shareholder.\105\ Otherwise, a solicited holder 
may not have sufficient information to make an informed voting decision 
if the holder is not aware of the soliciting person's substantial 
interest in the matter. Consistent with our intent to limit the 
exemption to disinterested persons and to provide clarity and certainty 
to those wishing to rely on the exemption, we propose to amend the rule 
to clarify that a person need not be a security holder of the class of 
securities being solicited and a benefit need not be related to or 
derived from any security holdings in the class being solicited for a 
person to be disqualified from relying on the exemption.
---------------------------------------------------------------------------

    \105\ For example, a soliciting party could have a significant 
financial interest in the subject matter of a solicitation without 
owning any shares of the company whose shareholders are solicited if 
the solicitation relates to a merger with a company that the 
soliciting party wishes to acquire.
---------------------------------------------------------------------------

Request for Comment

    <bullet> Does the proposed amendment clearly specify when the Rule 
14a-2(b)(1) exemption would be unavailable? Is additional detail 
necessary to understand when the

[[Page 35090]]

exemption would be unavailable? If so, please provide examples of 
details that would be helpful.
    <bullet> Would the proposed amendment inappropriately narrow or 
broaden the scope of the Rule 14a-2(b)(1) exemption and, if so, how?
3. Exchange Act Rule 14a-4(d)(4)
    Exchange Act Rule 14a-4(d)(1) requires that, in order to solicit 
authority to vote for the election of a person to office, the person 
must be a bona fide nominee who consents to being named in the 
soliciting person's proxy statement and to serving if elected. Exchange 
Act Rule 14a-4(d)(4) is an exception to the bona fide nominee 
requirement. This exception permits a person soliciting support for 
nominees who, if elected, would constitute a minority of the board of 
directors (commonly referred to as a ``short slate''), to round out its 
short slate of nominees up to the total number of director positions 
then subject to election by seeking authority to vote for nominees 
named in the registrant's proxy statement.\106\ We adopted the 
exception in 1992 to permit a form of proxy that allows persons 
soliciting in support of a short slate to exercise their State law 
right to nominate and run independently their own nominees and vote for 
both company and shareholder nominees.\107\ The current form of the 
rule expressly permits rounding out a short slate by seeking authority 
to vote for nominees named in the registrant's proxy statement, but 
does not address nominees named in other soliciting persons' proxy 
statements.
---------------------------------------------------------------------------

    \106\ See Exchange Act Rule 14a-4(d)(4).
    \107\ 1992 adopting release in note 23 above at 48288.
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    Recently, however, questions have arisen regarding non-management 
groups that each sought to solicit support of a short slate and wished 
to round out its short slate with nominees named in the other group's 
and the registrant's proxy statement.\108\ We propose to revise the 
rule so the short slate rounding exception to the bona fide nominee 
requirement is available whether a non-management soliciting person 
attempts to round out its short slate by seeking authority to vote for 
nominees named in the registrant's or any other persons' proxy 
statements.
---------------------------------------------------------------------------

    \108\ See Eastbourne Capital, L.L.C., SEC No-Action Letter (Mar. 
30, 2009) and Icahn Associates Corp., SEC No-Action Letter (Mar. 30, 
2009) at http://www.sec.gov/divisions/corpfin/cf-noaction.shtml. The 
Division issued a letter to each of two non-management groups 
stating that, based on the facts and representations presented, and 
conditioned on the two groups' acting and continuing to act 
independently of each other, the Division would not recommend 
enforcement action under Exchange Act Rule 14a-4(d)(4) and Section 
14(a) of the Exchange Act [15 U.S.C. 78m(a)] if the group solicited 
votes for its own short slate and sought the authority to round out 
its short slate by voting for nominees of the other group as well as 
management's nominees. While the Division would continue to consider 
issuing such letters in the absence of the adoption of the proposed 
amendment, only the parties to whom the letters were addressed can 
rely upon them.
---------------------------------------------------------------------------

    Our intention in adopting the short slate exception was to 
eliminate unnecessary impediments to short slate elections and 
ameliorate ``the difficulty experienced by shareholders in gaining a 
voice in determining the composition of the board of directors,'' 
especially those seeking minority representation.\109\ We recognized 
the need to address an unintended consequence of the ``bona fide 
nominee'' rule that effectively forced security holders to choose 
between voting for the management slate in order to exercise their full 
voting rights or voting for a less than full complement of 
directors.\110\ Under the current rule, however, only the registrant's 
nominees may be used to fill out the non-management slate and, as a 
result, are effectively advantaged, as security holders may vote for 
them on two or more proxy cards where non-management nominees can only 
be voted for on one. To modify the rule as we propose is, therefore, 
consistent with our intention in adopting the rule.
---------------------------------------------------------------------------

    \109\ 1992 adopting release in note 23 above at 48288.
    \110\ 1992 adopting release in note 23 above at 48287-48288.
---------------------------------------------------------------------------

    The proposed exception would be available only when non-management 
parties are not acting together. Persons acting together may incur 
reporting obligations under Sections 13(d) \111\ and 13(g) \112\ of the 
Exchange Act. In this regard, a non-management person who actively 
recommends or whose proxy solicitor actively recommends nominees in 
addition to those for whom the non-management person expressly solicits 
support would be considered to be soliciting in support of both sets of 
nominees for purposes of determining whether the non-management person 
were soliciting in support of nominees who, if elected, would 
constitute more than a minority of the board.\113\ Similarly, a non-
management person would be considered to be soliciting in support of 
not only the nominees for whom it expressly solicits support but also 
the nominees for whom any other non-management person solicits support 
if the non-management persons are not acting independently of one 
another. Accordingly, a non-management soliciting person that seeks to 
round out its short slate with any nominee named in another non-
management person's proxy statement would be required by the proposed 
rule to represent in its proxy statement that it has not agreed and 
will not agree to act, directly or indirectly, as a group or otherwise 
engage in any activities that would be deemed to cause the formation of 
a group as determined under Section 13(d)(3) \114\ and in Regulation 
13D-G \115\ with the other non-management person.
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    \111\ 15 U.S.C. 78m(d).
    \112\ 15 U.S.C. 78m(g).
    \113\ A non-management person and its proxy solicitor would not 
be actively recommending nominees in addition to those for whom the 
person expressly solicits support if the person and proxy solicitor 
only state the person's intention to vote for another person's 
nominees or expected nominees other than those specifically named on 
the person's proxy card.
    \114\ 15 U.S.C. 78m(d)(3).
    \115\ 17 CFR 240.13d-1 et seq.
---------------------------------------------------------------------------

    When a non-management person actively recommends or solicits 
proxies in support of another person's nominees in addition to those 
for whom the person expressly solicits support and identifies by name 
in its proxy statement, that person may be a participant within the 
meaning of Instruction 3(a)(vi) to Item 4 of Schedule 14A in the other 
person's solicitation. Being a participant in the other person's 
solicitation potentially may result in the person soliciting in support 
of a total number of persons that would not constitute a minority of 
the board of directors if elected. Therefore, a non-management 
soliciting person that seeks to round out its short slate with any 
nominee named in another non-management person's proxy statement would 
also be required by the proposed rule to represent in its proxy 
statement that it is not a participant in the other non-management 
person's solicitation.

Request for Comment

    <bullet> Are there different policy or practical concerns we should 
take into consideration when a short slate is rounded out with other 
persons' nominees rather than with the registrant's nominees alone? 
Would the proposed amendment increase the risk that a person would 
attempt to appear to be eligible for the short slate rounding exception 
even though the person, as a practical matter, was alone, or in 
combination with one or more other non-management persons, soliciting 
in support of more than a short slate? Are there appropriate safeguards 
in the rule to address this concern?
    <bullet> As proposed, amended Exchange Act Rule 14a-4(d)(4) would 
only permit a soliciting person to round out a short slate with both a 
registrant's and other persons' nominees so long as the

[[Page 35091]]

soliciting person does not form a group with the other persons as 
determined under Section 13(d)(3) and in Regulation 13D-G and is not a 
participant in the other persons' solicitations. Are these restrictions 
appropriate? Should Rule 14a-4(d)(4) impose other conditions or 
limitations on the availability of the proposed amendment to the short 
slate exception? For example, should a soliciting person be permitted 
to seek authority to vote for the nominees of other non-management 
persons only if the other non-management persons are seeking minority 
representation on the board? Should the Commission limit use of the 
rule to situations where a soliciting person will need to use its proxy 
authority to vote for one or more of the registrant's nominees? For 
example, should it be limited to require a soliciting person to use its 
proxy authority to vote for at least a specified number of the 
registrant's nominees or at least the number of management nominees 
that would constitute a majority?
    <bullet> It is possible that permitting a soliciting person to 
round out its short slate with other persons' nominees instead of or in 
addition to a registrant's nominees under amended Rule 14a-4(d)(4), as 
proposed, could lead to a change in a majority of a board. What are the 
concerns, if any, about the possible effects of a change in a majority 
of a board, including the triggering of takeover defensive measures, 
such as poison pills, and other change in control provisions, such as 
those found in loan agreements, leases and employment agreements? What 
are the issues, if any, associated with a change in a majority of a 
board where a company is subject to the standards of a national 
securities exchange or a national securities association, including 
exchange rules regarding director independence and board and committee 
composition standards?
    <bullet> Would the proposed amendment encourage shareholders to run 
more short slates? In particular, is it likely that such shareholders 
will run more short slates, possibly targeting particular companies, 
knowing that other shareholders may also run short slates, with the 
intent that, where another shareholder targets the same company, each 
shareholder can then round out its own short slate with one or more 
nominees from the other shareholder's slate, and thus increase the 
likelihood of displacing management nominees and potentially increasing 
each shareholder's negotiating power with management? Does the proposed 
rule adequately prevent shareholders from relying upon the provision 
when they are acting in concert with other shareholders? While the 
current rule distinguishes between a person soliciting support for its 
nominees named in its proxy statement and seeking proxy authority to 
vote for a registrant's nominees, does a meaningful difference exist 
between these actions if a soliciting person is permitted, as proposed, 
to round out its slate with a non-management person's nominees?
    <bullet> The amended rule, as proposed, would require a person to 
include in its proxy statement representations regarding the 
restrictions on forming a group and acting as a participant. Are these 
representations necessary, or should the amended rule merely include 
the restrictions as conditions to reliance on the rule?
    <bullet> Rule 14a-4(d)(4) currently, and as proposed to be amended, 
would permit a non-management person to round out its short slate with 
one or more shareholder nominees named in the registrant's proxy 
statement regardless of whether the non-management person nominated 
such shareholder nominees and regardless of how the shareholder 
nominees came to be named in the registrant's proxy statement.\116\ 
Should we amend Rule 14a-4(d)(4) to make it unavailable to some or all 
shareholder nominees named in the registrant's proxy statement and, if 
so, why and how? For example, should the rule be unavailable where such 
a shareholder nominee was nominated by the non-management person, a 
person with whom the non-management person has formed or intends to 
form a group under Section 13(d)(3) and Regulation 13D-G or a person in 
whose solicitation the non-management person is a participant?
---------------------------------------------------------------------------

    \116\ We currently have pending rule proposals related to 
shareholder nominees that, if adopted, could result in a registrant 
being required to include shareholder nominees in its proxy 
statement under specified circumstances. See Release No. 33-9046 in 
note 22 above.
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    <bullet> Should we amend Rule 14a-4(d)(4) so the exception it 
provides to the Rule 14a-4(d)(1) bona fide nominee requirement extends 
to non-management persons who do not have their own nominees for whom 
to solicit support but seek authority to vote for nominees named in the 
registrant's or other persons' proxy statements?
4. Exchange Act Rule 14a-4(e)
    Exchange Act Rule 14a-4(e) requires that a proxy statement or form 
of proxy provide that the shares represented by the proxy be voted 
``subject to reasonable specified conditions.'' When the Commission 
adopted the rule, it stated that it previously had taken the position 
that the solicitation of proxies constitutes an implied representation 
by the persons making the solicitation that the shares represented by 
the proxy will be voted and that the rule was amended in order to make 
this representation more explicit.\117\
---------------------------------------------------------------------------

    \117\ Release No. 34-4185 (Nov. 5, 1948) [13 FR 6680].
---------------------------------------------------------------------------

    As the Commission stated in 1992, ``[p]rior to a shareholder 
granting the legal power to someone else--whether management or an 
outsider--to vote his or her stock, the shareholder needs to know what 
matters will be voted on, and how the recipient of the proxy intends to 
vote the shareholder's shares.'' \118\ Similarly, a shareholder needs 
to know whether the recipient of a proxy will only vote the 
shareholder's shares subject to some condition. We believe that in 
order for there to be ``reasonable specified conditions,'' the 
conditions must be objectively determinable to enable the shareholder 
to make an informed decision in regard to granting proxy authority and 
confirm that any later withholding of shares from voting is consistent 
with the authority granted.\119\ In addition, if the conditions were 
not objectively determinable, the recipient of the proxy could seek to 
exercise a degree of discretion that would be inconsistent with Rule 
14a-4(c)'s limits on when a proxy can confer discretionary 
authority.\120\ Accordingly, we propose to amend Rule 14a-4(e) to 
clarify that the reasonable specified conditions must be objectively 
determinable.
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    \118\ 1992 adopting release in note 23 above at 48277.
    \119\ In a related context, we have stressed that conditions 
must be objective for shareholders to be able to understand what 
they are being asked to do. In 2000, we published our views on the 
disclosure and dissemination of ``mini-tender'' offers that result 
in the bidder holding five percent or less of the outstanding 
securities of a company. There, we stated that ``[i]t is important 
for security holders to be able to evaluate the genuineness of the 
[tender] offer'' and ``[w]e believe therefore that a tender offer 
can be subject to conditions only where the conditions are based on 
objective criteria, and the conditions are not within the bidder's 
control.'' See Release No. 34-43069 (July 24, 2000) [65 FR 46581].
    \120\ 17 CFR 240.14a-4(c). The conditions would not be 
objectively determinable, for example, if voting the shares was 
subject to the proxy holder concluding in its sole discretion that 
it would not be advisable to vote the shares. The conditions would 
be objectively determinable, for example, if voting the shares was 
subject to a third party's filing with the Commission, within seven 
days before the scheduled date for the meeting for which proxies 
were solicited, a Schedule TO [17 CFR 240.14d-100] for a tender 
offer for over half of the issuer's shares.
---------------------------------------------------------------------------

Request for Comment

    <bullet> Will specifying that reasonable specified conditions must 
be objectively

[[Page 35092]]

determinable have any harmful effect on proxy solicitation practices?
    <bullet> Does the phrase ``objectively determinable'' achieve the 
objective of clarifying the conditions shareholders should know about 
before giving their proxies or deciding to revoke their proxies?
5. Exchange Act Rule 14a-12(a)(1)(i)
    Exchange Act Rule 14a-12 permits a solicitation to be made before 
furnishing security holders with a proxy statement meeting the 
requirements of Exchange Act Rule 14a-3(a) \121\ if, among other 
requirements, each written communication that is part of the 
solicitation contains specified participant information. Rule 14a-
12(a)(1)(i) requires such information to include the identity of the 
participants in the solicitation and a description of their direct or 
indirect interests or a legend advising security holders where they can 
obtain that information.
---------------------------------------------------------------------------

    \121\ 17 CFR 240.14a-3(a).
---------------------------------------------------------------------------

    Questions have arisen regarding when and how the participant 
information to which the legend refers must be filed. The Commission 
amended Exchange Act Rule 14a-12 in 1999 to, among other things, 
provide that participant information could be provided directly in 
written materials as historically required or, as a new alternative, 
indirectly through the legend described above.\122\ In affording the 
option to provide participant information indirectly through a legend, 
we intended to offer a convenience but did not intend to permit the 
participant information to be provided later than it would be if 
provided directly in the written materials. If the legend is to give 
meaningful information to shareholders, the information referenced in 
the legend must be available when the soliciting person uses the 
soliciting material with the legend. Accordingly, we propose to amend 
the rule to clarify that the required participant information must be 
filed under cover of Schedule 14A as part of a proxy statement or other 
soliciting materials no later than the time the first soliciting 
communication is made. It is not sufficient to provide the information 
in a document filed later.
---------------------------------------------------------------------------

    \122\ See Release No. 33-7760 (Oct. 22, 1999) [64 FR 61408].
---------------------------------------------------------------------------

Request for Comment

    <bullet> Does the proposed amendment adequately clarify the need to 
have the participant information to which a legend refers on file no 
later than when the written material containing the legend is first 
sent or given to security holders?
    <bullet> Does the proposed amendment adequately clarify how the 
participant information must be filed?
    <bullet> Does the requirement to have the participant information 
on file no later than when the written material containing the legend 
is first sent or given to security holders create practical 
difficulties for parties soliciting proxies? If so, to what extent does 
the requirement impede the ability to solicit and how much of a delay 
in providing the participant information would be needed to avoid 
impeding that ability? If the requirement was revised to permit any 
such delay, what would be the effect of the delay on the ability of 
solicited shareholders to make a voting decision?

G. Transition

    We anticipate that if the proposed amendments are adopted, 
compliance with the amendments would begin in the 2010 proxy season 
following their publication in the Federal Register.

Request for Comment

    <bullet> Would this compliance schedule be workable?
    <bullet> Are any special transition provisions necessary for any 
aspects of the proposed amendments? If so, please explain what would be 
needed and why.
    <bullet> Would any of the proposed amendments to Regulation S-K 
present any particular difficulty or expense in preparing?

H. Other Requests for Comment

    The Commission is exploring other ways in which we could improve 
proxy disclosures. We invite interested persons to submit comments on 
the advisability of pursuing any or all of the following possible 
reforms, as well as to provide other approaches that we might consider 
to achieve our goals. We expect to benefit from the comments we receive 
before deciding whether to propose changes.
    <bullet> Are there any disclosures required in the proxy statement 
that we should consider proposing to eliminate in light of the proposed 
amendments?
    <bullet> Are there other initiatives we should consider in order to 
improve the disclosure in proxy statements, particularly with regard to 
disclosure regarding executive compensation? For instance should we 
propose requiring disclosure of the compensation paid to each executive 
officer, not just the named executive officers? Should we consider 
proposing to eliminate the instruction that provides that performance 
targets can be excluded based on the potential adverse competitive 
effect on the company of their disclosure? Alternatively, should we 
consider proposing to revise the CD&A to require disclosure of 
performance targets on an after-the-fact basis, after the performance 
related to the award is measured, such as three or more fiscal years 
later, whether or not the disclosure may result in competitive harm?
    <bullet> Under current Item 407(e)(5) of Regulation S-K, the 
Compensation Committee Report must state whether the committee: (1) Has 
reviewed and discussed the CD&A with management; and (2) recommended to 
the board of directors that the CD&A be included in the company's 
annual report and the proxy or information statement. Although the CD&A 
is considered ``filed'', the Compensation Committee Report is 
``furnished.'' \123\ Because it is furnished, the Compensation 
Committee Report does not have the same liability as the CD&A and other 
information that is ``filed.'' For example, it is not incorporated by 
reference or otherwise considered a part of the company's Form 10-K, 
registration statements and other filings, and is not covered by the 
principal executive officer and principal financial officer 
certifications required under Exchange Act Rules 13a-14 \124\ and 15d-
14.\125\ Should we consider proposing to amend this rule to make the 
CD&A be a part of the Compensation Committee Report? Why or why not? If 
we make the CD&A part of the Compensation Committee Report, should the 
Compensation Committee Report be ``filed''? If we were to make the CD&A 
part of the Compensation Committee Report, are there any requirements 
to the CD&A that we should change?
---------------------------------------------------------------------------

    \123\ For a discussion of the differences between the 
Compensation Committee Report and the CD&A, see Section II.3. 
``Filed'' status of Compensation Discussion and Analysis and the 
``Furnished'' Compensation Committee Report in Release 33-8732A.
    \124\ 17 CFR 240.13a-14.
    \125\ 17 CFR 240.15d-14.
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    <bullet> Should we consider requiring disclosure regarding whether 
a member of the compensation committee has expertise in compensation 
matters and whether the committee has the resources to hire its own 
independent legal counsel?
    <bullet> Some investors may want more information regarding whether 
compensation arrangements are reasonably designed to create incentives 
among executives to increase long-term enterprise value. Should we 
consider supplementing any of the tabular and

[[Page 35093]]

narrative disclosure requirements to require additional disclosure 
about whether or not a company has ``hold to retirement'' and/or claw 
back provisions and if not, why not?
    <bullet> Are investors interested in disclosure of whether the 
amounts of executive compensation reflect any considerations of 
internal pay equity? For example, would investors find such disclosure 
relevant in considering the motivation and effectiveness of broad based 
compensation plans? Should we consider proposing additional 
requirements to address this? For instance, should we consider 
proposing required disclosure regarding internal pay ratios of a 
company, such as disclosure of the ratio of the total compensation of 
the named executive officers, or total compensation of each individual 
named executive officer, to the total compensation of the average non-
executive employee of the company?
    <bullet> In order to give investors a better understanding of the 
breadth and depth of a company's focus on compensation, should we 
require disclosure regarding the total number of compensation plans a 
company has and the total number of variables in all of its 
compensation plans? Are there other ways to convey the complexity and 
significance of all of a company's plans?
    <bullet> Should we consider proposing to supplement the required 
disclosure of tax gross-up arrangements that the company has for the 
named executive officers to include a requirement to disclose and 
quantify the savings to each executive?

General Request for Comment

    We request and encourage any interested person to submit comments 
on any aspect of our proposals, other matters that might have an impact 
on the amendments, and any suggestions for additional changes. With 
respect to any comments, we note that they are of greatest assistance 
to our rulemaking initiative if accompanied by supporting data and 
analysis of the issues addressed in those comments and by alternatives 
to our proposals where appropriate.

III. Paperwork Reduction Act

A. Background

    Certain provisions of the proposed amendments contain ``collection 
of information'' requirements within the meaning of the Paperwork 
Reduction Act of 1995 (PRA).\126\ We are submitting the proposed 
amendments to the Office of Management and Budget (OMB) for review in 
accordance with the PRA.\127\ The titles for the collection of 
information are:
---------------------------------------------------------------------------

    \126\ 44 U.S.C. 3501 et seq.
    \127\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------

(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
(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 proposed amendments would be mandatory. Responses to the 
information collections would not be kept confidential and there would 
be no mandatory retention period for the information disclosed.
    As discussed in more detail above, the proposed amendments to Items 
401, 402(b) and 407 of Regulation S-K would increase existing 
disclosure burdens for proxy and information statements, annual reports 
on Form 10-K, and registration statements on Forms 10, S-1, S-4, and S-
11 by requiring:
    <bullet> New disclosure and analysis of how a company's overall 
compensation policies for employees create incentives that can affect 
the company's risk and management of that risk if it may have a 
material effect on the company;
    <bullet> New disclosure of the qualifications of directors and 
nominees for director, and the reason why a company or other proponent 
believes each director or nominee is qualified to serve as a director 
of the company at the time at which the relevant filing with the 
Commission is made, 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 
and structure;
    <bullet> Additional disclosure of any directorships held by each 
director and nominee at any time during the past five years at public 
companies;
    <bullet> Lengthening the time during which disclosure of legal 
proceedings involving a company's directors, nominees for director and 
executive officers is required from five to 10 years;
    <bullet> New disclosure about a company's board leadership 
structure and the board's role in the risk management process;
    <bullet> New disclosure about the fees paid to compensation 
consultants and their affiliates when they play any role in determining 
or recommending the amount or form of executive and director 
compensation, if they also provide other services to the company. In 
addition, new disclosure of any additional services provided to the 
company by the compensation consultants and any affiliates of the 
consultants; and
    <bullet> Transferring the requirement for companies to disclose the 
results of shareholder votes on Forms 10-Q or 10-K to Form 8-K.
    The proposed amendments to Forms N-1A, N-2, and N-3 would increase 
existing disclosure burdens for such forms by requiring:
    <bullet> New disclosure of the qualifications of directors and 
nominees for director, and the reason why a company or other proponent 
believes each director or nominee is qualified to serve as a director 
of the company at the time at which the relevant filing with the 
Commission is made, 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 
and structure;
    <bullet> Additional disclosure of any directorships held by each 
director and

[[Page 35094]]

nominee at any time during the past five years at public companies; and
    <bullet> New disclosure about a company's board leadership 
structure and the board's role in the risk management process.
    At the same time, the proposals would not increase existing 
disclosure burdens for proxy and information statements, annual reports 
on Form 10-K, and registration statements on Forms 10, S-1, S-4 and S-
11 by:
    <bullet> Revising 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 such 
awards, computed in accordance with FAS 123R, rather than the dollar 
amount recognized for financial statement purposes for the fiscal year 
in accordance with FAS 123R; and
    <bullet> Eliminating the requirement to report the full grant date 
fair value of each individual equity award in the Grants of Plan-Based 
Awards Table and corresponding footnote disclosure to the Director 
Compensation Table.
    The proposed amendments to the Summary Compensation Table, Grants 
of Plan-Based Awards Table and Director Compensation Table are intended 
to provide investors with clearer and more meaningful executive 
compensation disclosure, to facilitate informative and concise 
Compensation Discussion and Analysis disclosure of company policies and 
decisions regarding named executive officers' compensation, and to 
provide investors with a clearer view of the annual compensation earned 
by executives and directors consistent with the timing of current 
actions regarding plan awards, including the effect on total 
compensation of decisions to reprice option awards.
    Together, the proposed 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 proposals 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.
    The proposed amendments to the rules governing the proxy 
solicitation process would not increase any existing disclosure burden. 
We believe these proposals, if adopted, would provide certainty to 
soliciting parties and facilitate communications with shareholders. The 
proposed amendments to Exchange Act Rules 14a-2(b)(1), 14a-2(b)(1)(ix), 
14a-4(e) and 14a-12(a)(1)(i) merely would clarify existing 
requirements. As a result, these amendments would not affect any 
existing disclosure burden. The proposed amendment to Rule 14a-4(d) 
would make the short slate rounding exception to the bona fide nominee 
requirement available whether a non-management soliciting person 
attempts to round out its short slate by seeking authority to vote for 
nominees named in the registrant's proxy statement, as currently 
permitted, or seeks to round out its short slate with nominees named in 
one or more other persons' proxy statements. Consequently, the proposed 
amendment to Rule 14a-4(d) simply would provide more flexibility to 
non-management persons that seek to round out their short slates and, 
as a result, would not increase any existing disclosure burden.\128\
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    \128\ The proposed amendment to Exchange Act Rule 14a-4(d)(4) 
would require that a non-management soliciting person that attempts 
to round out its short slate by seeking authority to vote for 
nominees named in another non-management person's proxy statement 
provide specified representations to the effect that it is not 
acting together with any such other non-management person. The 
required representations would not, however, affect any existing 
disclosure burden in more than a negligible way.
---------------------------------------------------------------------------

B. Burden and Cost Estimates Related to the Proposed Amendments

    We anticipate that the proposed disclosure amendments would 
increase the burdens and costs for companies that would be subject to 
the proposed amendments. We estimated the average number of hours a 
company would spend completing the forms and the average hourly rate 
for outside professionals. 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 proposals and some companies may experience 
less than the average costs.
    We estimate no annual incremental increase in the paperwork burden 
for companies to comply with the proposed amendments to the Summary 
Compensation Table, Director Compensation Table, and Grants of Plan-
Based Awards Table. We base this estimate on the fact that the amended 
approach would require disclosure of information that is collected to 
comply with financial reporting requirements, and will not impose 
additional burdens compared to the burdens associated with applying the 
currently required disclosure. We also base this estimate on the 
likelihood that, by eliminating factors unrelated to company 
compensation decisions, the proposed amendments will make companies' 
identification of named executive officers more consistent from year to 
year, thereby potentially reducing the burden of tracking the 
compensation of all executive officers in order to determine which 
executive officers are the most highly compensated.
    For purposes of the PRA, we estimate the annual incremental 
paperwork burden for all companies (other than registered management 
investment companies) to prepare the disclosure that would be required 
under our proposals to be approximately 247,773 hours of company 
personnel time and a cost of approximately $47,413,161 for the services 
of outside professionals. These estimates include the time and the cost 
of preparing and reviewing the disclosure, filing documents and 
retaining records.
    We derived the above estimates by estimating the total amount of 
time it would take a company to prepare and review the proposed 
disclosure requirements. 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 proposed amendments would 
be required in some but not all of the above listed documents, and 
would not apply to all companies.
    With respect to reporting companies (other than registered 
management investment companies), all of the proposed revisions to 
Regulation S-K would be required in proxy and information statements; 
however, only the proposed revisions to Items 401 and 402 of Regulation 
S-K would be required in Forms 10, 10-K, S-1, S-4 and S-11. 
Furthermore, the proposed amendments to CD&A would not be applicable to 
smaller reporting companies because under current CD&A reporting 
requirements these companies are not required to provide CD&A in their 
Commission filings. Based on the number of proxy filings we received in

[[Page 35095]]

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. With respect to registered management investment 
companies, the proposed revisions would be reflected in certain 
Regulation S-K items, Schedule 14A, and Forms N-1A, N-2 and N-3.
    Our annual burden estimates are also based on other assumptions. 
First, we assumed that the burden hours of the proposed amendments 
would be comparable to the burden hours related to similar disclosure 
requirements under current reporting requirements, such as the 
disclosure of audit fees and non-audit services,\129\ CD&A and 
executive compensation reporting,\130\ and the disclosure of the 
activities of nominating committees.\131\ Second, we assumed that 
substantially all of the burdens associated with the proposed 
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 that CD&A would be prepared and presented.\132\ For each 
reporting company (other than registered management investment 
companies), we estimated that the proposed amendments would impose on 
average the following incremental burden hours:
---------------------------------------------------------------------------

    \129\ Release No. 33-8183 (Jan. 28, 2003) [68 FR 6006] (which we 
estimated to be two hours).
    \130\ Release No. 33-8732A in note 24 above (which we estimated 
to be 95 hours). For purposes of the proposed amendments to CD&A, we 
adjusted this number downward in recognition that the 95 hours 
included, among other things, the estimated burdens of the 
preparation and review of additional tabular and related narrative 
disclosures required by Item 402 of Regulation S-K.
    \131\ Release No. 33-8340 (Nov. 24, 2003) [68 FR 69204] (which 
we estimated to be three hours).
    \132\ The burden estimates for Form 10-K assume that the 
proposed 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 estimate 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.
---------------------------------------------------------------------------

    <bullet> Sixteen hours for the proposed amendments to CD&A;
    <bullet> Four hours for the proposed enhanced director and nominee 
disclosure;
    <bullet> Six hours for the proposed disclosures about company 
leadership structure and the board's role in risk management;
    <bullet> Four hours for the proposed disclosures regarding 
compensation consultants; and
    <bullet> One hour for the proposed reporting of voting results on 
Form 8-K.
    With respect to registered management investment companies, we 
estimated that the proposed amendments would impose on average the 
following incremental burden hours:
    <bullet> Four hours for the proposed enhanced director and nominee 
disclosure in proxy statements and three hours for such proposed 
disclosure in registration statements; \133\ and
---------------------------------------------------------------------------

    \133\ We estimated that the disclosure burden for registration 
statements on Forms N-1A, N-2, and N-3 is less than for proxy 
statements because the proposed disclosure relating to involvement 
in legal proceedings for the past 10 years applies only to proxy 
statements and not to registration statements.
---------------------------------------------------------------------------

    <bullet> Six hours for the proposed 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 estimated the 
annual incremental paperwork burden for proxy and information 
statements under the proposed amendments would be approximately 14 
hours per form for companies that are smaller reporting companies, and 
30 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 proposed amendments would be 
approximately ten 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 proposed amendments would be 
approximately 1 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.
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 proposed amendments would be approximately 20 hours per 
form.\134\ For registered management investment companies, we estimate 
that the annual incremental paperwork burden under the proposed 
amendments to Forms N-1A, N-2, and N-3 would be approximately 9 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.
---------------------------------------------------------------------------

    \134\ We calculated the 20 hours by adding 16 hours for the 
proposed amendments to CD&A to 4 hours for the proposed enhanced 
director and nominee disclosure.
---------------------------------------------------------------------------

    The tables below illustrate the total annual compliance burden of 
the collection of information in hours and in cost under the proposed 
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.\135\ 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 proposed disclosure requirements. For the Exchange Act 
reports on Form 10-K, 10-Q, and Form 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 S-1, S-
4, S-11, N-1A, N-2, and N-3, and the Exchange Act registration 
statement on Form 10, we estimate 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. There is no change to the 
estimated burden of the collections of information under Regulation S-K 
because the burdens that this regulation imposes are reflected in our 
revised estimates for the forms. 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.
---------------------------------------------------------------------------

    \135\ Figures in both tables have been rounded to the nearest 
whole number.

[[Page 35096]]



      Table 1.--Incremental Paperwork Burden Under the Proposed Amendments for Annual Reports; Quarterly Reports; Proxy and Information Statements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                        Number of      Incremental         Total
                                                        responses     burden hours/     incremental      75% Company          25%          Professional
                                                          \136\            form         burden hours                      Professional        costs
                                                                (A)              (B)              (C)=(A)*(B)      (D)=(C)*0.75     (E)=(C)*0.25     (F)=(E)*$400
--------------------------------------------------------------------------------------------------------------------------------------------------------
10-K...............................................          13,545               1           13,545           10,159            3,386       $1,354,500
10-Q \137\.........................................          32,462              (1)          (7,300)          (5,475)          (1,825)        (730,000)
8-K \138\..........................................         115,795               1          115,795           86,846           28,949       11,579,500
Form 10 \139\......................................             238              20            4,760            1,190            3,570        1,428,000
Sch. 14A \140\.....................................           7,300  ...............  ...............  ...............  ...............  ...............
    Accel. Filers..................................           3,378              30          101,340           76,005           25,335       10,134,000
    SRC Filers.....................................           3,922              14           54,908           41,181           13,727        5,490,800
Sch. 14C...........................................             680  ...............  ...............  ...............  ...............  ...............
    Accel. Filers..................................             315              30            9,440            7,080            2,360        1,415,984
    SRC Filers.....................................             365              14            5,115            3,836            1,279          511,472
Rule 20a-1.........................................           1,225              10           12,250            9,188            3,062        1,225,000
Reg. S-K...........................................             N/A             N/A              N/A              N/A              N/A              N/A
    Total..........................................  ..............  ...............         317,153          235,485   ...............      32,667,261
--------------------------------------------------------------------------------------------------------------------------------------------------------

     
---------------------------------------------------------------------------

    \136\ 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 7,371 filings.
    \137\ 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 proposed deletion of the disclosure of voting results 
from the form.
    \138\ 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. 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 which we based on the actual number of 
proxy statements involving contested elections that were filed with 
the Commission during the 2008 fiscal year.
    \139\ The burden allocation for Form 10 uses a 25% internal to 
75% outside professional allocation.
    \140\ The estimates for Schedule 14A and Schedule 14C are 
separated to reflect our estimate of the burden hours and costs 
related to the proposed amendments to CD&A which would be applicable 
to companies that are either accelerated or large accelerated 
filers, but not applicable to companies that are 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.

                             Table 2--Incremental Paperwork Burden Under the Proposed Amendments for Registration Statements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Number of      Incremental        Total
                                                             responses     burden hours/    incremental     25% Company         75%        Professional
                                                               \141\           form        burden hours                    Professional        costs
                                                                     (A)             (B)     (C)=(A)*(B)    (D)=(C)*0.25    (E)=(C)*0.75    (F)=(E)*$400
--------------------------------------------------------------------------------------------------------------------------------------------------------
Form S-1................................................             768              20          15,360           3,840          11,520      $4,608,000
Form S-4................................................             619              20          12,380           3,095           9,285       3,714,000
Form S-11...............................................             100              20           2,000             500           1,500         600,000
Form N-1A...............................................           1,935               9          17,415           4,354          13,061       5,224,500
Form N-2................................................             205               9           1,845             461           1,384         553,500
Form N-3................................................              17               9             153              38             115          45,900
Reg. S-K................................................             N/A             N/A             N/A             N/A             N/A             N/A
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................  ..............  ..............          49,153          12,288  ..............      14,745,900
--------------------------------------------------------------------------------------------------------------------------------------------------------

C. Request for Comment

    Pursuant to 44 U.S.C. 3506(c)(2)(B), we request comment in order 
to:
    <bullet> Evaluate whether the proposed collections of information 
are necessary for the proper performance of the functions of the 
Commission, including whether the information will have practical 
utility;
---------------------------------------------------------------------------

    \141\ 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.
---------------------------------------------------------------------------

    <bullet> Evaluate the accuracy of our estimates of the burden of 
the proposed collections of information;
    <bullet> Determine whether there are ways to enhance the quality, 
utility, and clarity of the information to be collected;
    <bullet> Evaluate whether there are ways to minimize the burden of 
the collections of information on those who respond, including through 
the use of automated collection techniques or other forms of 
information technology; and
    <bullet> Evaluate whether the proposed amendments will have any 
effects on any other collections of information not previously 
identified in this section.
    Any member of the public may direct to us any comments concerning 
the accuracy of these burden estimates and any suggestions for reducing 
the burdens. Persons who desire to submit comments on the collection of 
information requirements should direct their comments to the OMB, 
Attention: Desk Officer for the Securities and Exchange Commission, 
Office of Information and Regulatory Affairs,

[[Page 35097]]

Washington, DC 20503, and send a copy of the comments to Elizabeth M. 
Murphy, Secretary, Securities and Exchange Commission, 100 F Street, 
NE., Washington, DC 20549-1090, with reference to File No. S7-13-09. 
Requests for materials submitted to the OMB by us with regard to these 
collections of information should be in writing, refer to File No. S7-
13-09 and be submitted to the Securities and Exchange Commission, 
Office of Investor Education and Advocacy, 100 F Street, NE., 
Washington, DC 20549-0213. Because the OMB is required to make a 
decision concerning the collections of information between 30 and 60 
days after publication, your comments are best assured of having their 
full effect if the OMB receives them within 30 days of publication.

IV. Cost-Benefit Analysis

A. Introduction

    We are proposing 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, 
company leadership structure and the board's role in the risk 
management process, and the interests of compensation consultants. In 
addition, we are proposing amendments to transfer the requirement to 
disclose voting results from Forms 10-Q and 10-K to Form 8-K.
    We also are proposing amendments to the disclosure requirements for 
executive and director compensation to require stock awards and option 
awards reporting based on a measure 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.
    Finally, we also are proposing amendments to Exchange Act Rules 
14a-2, 14a-4, and 14a-12 to provide clarity and address issues that 
have arisen in regard to the proxy solicitation process. These 
amendments, discussed in detail above,\142\ and their potential 
consequences that could result in benefits and costs are as follows.
---------------------------------------------------------------------------

    \142\ See Part II.F above.
---------------------------------------------------------------------------

1. Exchange Act Rule 14a-2(b)(1)
    We propose to clarify the introductory text of Exchange Act Rule 
14a-2(b)(1) by revising it to provide specifically that a ``form of 
revocation'' does not include an unmarked copy of management's proxy 
card that the soliciting shareholder requests be returned directly to 
management. As a result, a person otherwise qualified to rely on the 
exemption the rule provides still could rely on it if the person 
provided a solicited shareholder with an unmarked copy of management's 
proxy card and requested that the card be returned directly to 
management.\143\ Consequently, the proposed amendment would provide 
certainty regarding the availability of the exemption in relation to 
this procedure. There may be persons who have different views or are 
uncertain about the application of the exemption to the procedure and 
would not, in the absence of the clarification, undertake it. As a 
result, the clarification may cause more persons to avail themselves of 
the procedure.\144\
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    \143\ Rule 14a-2(b)(1) exempts from the generally applicable 
disclosure filing and most other requirements of the proxy rules 
solicitations by non-management persons who are not seeking proxy 
authority and do not have a substantial interest in the subject 
matter of the solicitation. The exemption is unavailable to, among 
others, a person who ``furnish[es] or otherwise request[s], or 
act[s] on behalf of a person who furnishes or requests, a form of 
revocation.''
    \144\ If more non-management persons use the procedure and 
provide solicited shareholders with more opportunities to vote as 
they suggest, then it is possible that these non-management persons 
will succeed more often in defeating management proposals. As a 
practical matter, however, it seems unlikely that many solicited 
shareholders would vote differently merely because they have more 
opportunities to vote as a non-management soliciting person 
suggests.
---------------------------------------------------------------------------

2. Exchange Act Rule 14a-2(b)(1)(ix)
    We propose to clarify Exchange Act Rule 14a-2(b)(1)(ix) by revising 
it to provide specifically that a person need not be a security holder 
of the class of securities being solicited and a benefit need not be 
related to or derived from any security holdings in the class being 
solicited for a person to have a substantial interest in a matter that 
would disqualify the person from relying on the exemption Exchange Act 
Rule 14a-2(b)(1) otherwise would provide in regard to that matter. As a 
result, the proposed amendment would provide certainty regarding the 
fact that a person need not be a security holder of the class of 
securities being solicited and a benefit need not be related to or 
derived from any security holdings in the class being solicited for the 
person to have a substantial interest. There may be persons who have 
different views or are uncertain about this fact and would not, in the 
absence of the clarification, recognize that the exemption is not 
available and act accordingly. Consequently, the clarification may 
cause more persons to refrain from soliciting in the absence of an 
exemption or to solicit in compliance with all of the generally 
applicable proxy solicitation requirements.
3. Exchange Act Rule 14a-4(d)(4)
    We propose to revise Exchange Act Rule 14a-4(d)(4) to provide that 
the short slate rounding exception to the bona fide nominee requirement 
would be available whether a non-management soliciting person attempts 
to round out its short slate by seeking authority to vote for nominees 
named in the registrant's proxy statement, as currently permitted, or 
seeks to round out its short slate with nominees named in any other 
persons' proxy statement.\145\ As a result, the proposed amendment 
would end the situation under the current rule in which only the 
registrant's nominees may be used to fill out the non-management slate 
and, as a result, are effectively advantaged as security holders may 
vote for them on two or more proxy cards where non-management nominees 
can only be voted for on one. Consequently, the proposed amendment 
would provide additional flexibility to non-management persons with 
regard to the nominees with whom they seek to round out their short 
slates without their seeking a no-action letter from the staff.\146\ 
The codified additional flexibility may cause more non-management 
soliciting persons to seek to round out their short slates with other 
non-management persons' nominees.\147\
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    \145\ Rule 14a-4(d)(1) requires that, in order to solicit 
authority to vote for the election of a person to office, the person 
must be a bona fide nominee, consenting to being named in the 
soliciting person's proxy statement and serving if elected. Rule 
14a-4(d)(4) is an exception to the bona fide nominee requirement. 
This exception permits a person soliciting support of nominees who, 
if elected, would constitute a minority of the board of directors 
(commonly referred to as a ``short slate''), to round out its short 
slate of nominees up to the total number of director positions then 
subject to election by seeking authority to vote for nominees named 
in the registrant's proxy statement.
    \146\ As discussed above, the Division of Corporation Finance 
has issued two no-action letters in regard to short slate rounding 
with persons named in a non-management person's proxy statement 
under circumstances generally the same as those contemplated by the 
proposed amendment. While the Division would continue to consider 
issuing such letters in the absence of the adoption of the proposed 
amendment, only the parties to whom the letters were addressed can 
rely upon them. See Eastbourne Capital, L.L.C. in note above; Icahn 
Associates Corp. in note 108 above.
    \147\ It is possible that more non-management soliciting persons 
will seek to round out their short slates with other non-management 
persons' nominees and, as a result, more non-management nominees and 
fewer management nominees will be elected. As a practical matter, 
however, it is unclear how often non-management persons would seek 
to round out their short slates in this manner and, if they did, 
whether they would attract enough votes to increase the number of 
successful non-management nominees and decrease the number of 
successful management nominees. In this regard, we note that there 
appear to have been few instances in the past in which more than one 
non-management person sought to round out a short slate with respect 
to a single election of directors.

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[[Page 35098]]

4. Exchange Act Rule 14a-4(e)
    We propose to clarify Exchange Act Rule 14a-4(e) by revising it to 
provide specifically that the ``reasonable specified conditions'' under 
which the shares represented by a proxy will not be voted must be 
objectively determinable.\148\ As a result, the proposed amendment 
would provide certainty regarding the fact that the ``reasonable 
specified conditions'' under which the shares represented by a proxy 
will not be voted must be objectively determinable. There may be 
persons who have different views or are uncertain about this fact and 
would not, in the absence of the clarification, recognize that the 
conditions must be objectively determinable and act accordingly. 
Consequently, the clarification may cause some persons to revise the 
conditions they otherwise would state to make them objectively 
determinable or refrain from soliciting because they do not wish to 
state objectively determinable conditions.
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    \148\ Exchange Act Rule 14a-4(e) requires that a proxy statement 
or form of proxy provide that the shares represented by the proxy be 
voted ``subject to reasonable specified conditions.''
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5. Exchange Act Rule 14a-12(a)(1)(i)
    We propose to clarify Exchange Act Rule 14a-12(a)(1)(i) by revising 
it to provide specifically that when a soliciting communication is made 
before providing shareholders with a full proxy statement and that 
communication includes required participant information through a 
legend advising security holders where they can obtain the information, 
the information to which the legend refers must be filed under cover of 
Schedule 14A, as part of a proxy statement or other soliciting 
materials, no later than the time the first soliciting communication is 
made.\149\ As a result, the proposed amendment would provide certainty 
regarding when the participant information to which the legend refers 
must be filed. There may be persons who have different views or are 
uncertain about this fact and would not, in the absence of the 
clarification, recognize that the participant information must be filed 
by the time the first soliciting communication is made. Consequently, 
the clarification may cause some persons to file the participant 
information earlier than they otherwise would or delay the start of a 
solicitation due to taking additional time to prepare and file the 
participant information.
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    \149\ Exchange Act Rule 14a-12 permits a solicitation to be made 
before furnishing security holders with a proxy statement meeting 
the requirements of Rule 14a-3(a) if, among other requirements, each 
written communication that is part of the solicitation contains 
specified participant information. Rule 14a-12(a)(1)(i) requires 
such information to include the identity of the participants in the 
solicitation and a description of their direct or indirect interests 
or a legend advising security holders where they can obtain that 
information.
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B. Benefits

1. Disclosure Amendments
    The proposed disclosure amendments are intended to enhance 
transparency of a company's compensation policies and its impact on 
risk taking; director and nominee qualifications; company leadership 
structure and the role of the board in the risk management process; 
potential conflicts of interest of compensation consultants; and voting 
results at annual and special meetings.
a. Benefits Related to Expanded Compensation Discussion and Analysis 
Disclosure
    Expanding the Compensation Discussion and Analysis to include a 
discussion of the company's overall compensation program and how it 
relates to the company's approach to risk management may benefit 
investors in several ways. Incentive schemes and other compensation for 
employees may affect risk-taking behavior in the company's operations. 
To the extent that risks arising from a company's overall compensation 
policies for employees generally may have a material 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 should also lead to increased value to 
investors.
b. Benefits Related to Revisions to Summary Compensation Table 
Disclosure
    As a result of the proposed Summary Compensation Table revision, 
companies would no longer need to prepare and report the allocation of 
equity awards' grant date fair value over time commensurate with 
financial statement recognition of compensation costs for executive and 
director compensation tabular reporting or as a footnote to the 
Director Compensation Table. Further, in preparing stock awards and 
option awards disclosure in the Summary Compensation Table and Director 
Compensation Table, companies no longer would 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 proposed amendments. The effects of the proposed 
amendments in making this 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 for the fiscal year, potentially allowing 
companies to better explain in Compensation Discussion and Analysis how 
decisions with respect to these awards relate to other compensation 
decisions in the context of total compensation for the year. 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. However, because the proposals would eliminate the requirement 
to report the grant date fair value of individual awards in the Grants 
of Plan-Based Awards Table, there would not be disclosure of 
incremental fair value with respect to individual awards that were 
repriced or otherwise materially modified during the year, potentially 
limiting this benefit.
    Under the proposed 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 current rules. To the extent that this 
proposed change better aligns the identification of named executive 
officers with compensation decisions for

[[Page 35099]]

the year, it may make it easier for companies to track executive 
compensation for reporting purposes.
    Smaller reporting companies are not required to provide a Grants of 
Plan-Based Awards Table or a Compensation Discussion and Analysis, but 
are required to provide a Summary Compensation Table. Investors in 
these companies may benefit from reporting stock awards and option 
awards based on full grant date fair value in the grant year, as 
opposed to the current reporting approach based on financial statement 
recognition of the awards.
c. Benefits Related to Enhanced Director and Nominee Disclosure
    The proposed amendments to Item 401 of Regulation S-K would 
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. This increased information 
also may improve investor confidence because investors could determine 
more easily whether a particular director and the entire board 
composition is an appropriate choice for a given company at the time.
    Disclosure of management's or other proponents' rationale for their 
nominees' membership on the board and on specific committees may 
benefit investors by enabling them to better assess the rationale in 
favor of a particular nominee. Investors would 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.
    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.
    Expanded disclosure of legal proceedings involving directors, 
nominees and executive officers, 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.
d. Benefits Related to New Disclosure about Company Leadership 
Structure and the Board's Role in the Risk Management Process
    Investors may benefit from new disclosure about company 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 
registered investment management 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.
    Disclosures of the board's role in the risk management process may 
also benefit investors. Expanded disclosure of the board's role in risk 
management may enable investors to better evaluate whether the board is 
exercising appropriate oversight of risk management. 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.
e. 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 non-executive 
compensation services occur allows 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 additional revenue streams, 
they may face incentives to cater, to some degree, to management 
preferences in recommending executive compensation packages. To the 
degree that these relationships are more transparent under the proposed 
amendments, investors benefit through their ability to better monitor 
the process of setting executive pay. This benefit may be limited to 
the degree that compensation consultants have potential conflicts of 
interest related to other material relationships with the company or 
other conflicts not specifically enumerated in the proposed amendments.
f. Benefits Related to Reporting of Voting Results on Form 8-K
    The proposed amendments to Form 8-K would 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.
2. Proxy Solicitation Process Amendments
    We believe the proposed proxy solicitation process amendments may 
result in benefits as follows.
a. Exchange Act Rule 14a-2(b)(1) Introductory Text
    The proposed amendment to the introductory text of Exchange Act 
Rule 14a-2(b)(1) may cause more persons to furnish an unmarked copy of 
management's proxy card requested to be returned directly to 
management.\150\ Consequently, the proposed amendment may result in the 
benefit of aiding efforts by persons not seeking proxy authority to 
facilitate voting by shareholders sharing their views on matters 
submitted for shareholder approval--such as in a ``just vote no'' 
campaign--without having to incur the costs and efforts of conducting a 
fully-regulated proxy solicitation and provide shareholders a 
convenient opportunity to indicate their votes after hearing those 
views.
---------------------------------------------------------------------------

    \150\ See Part IV.A.1 above.
---------------------------------------------------------------------------

b. Exchange Act Rule 14a-2(b)(1)(ix)
    The proposed amendment to Exchange Act Rule 14a-2(b)(1)(ix) may 
cause more persons to refrain from soliciting in the absence of an 
exemption or solicit in compliance with all of the generally applicable 
proxy solicitation requirements.\151\ To the extent such persons 
refrain from

[[Page 35100]]

soliciting without an exemption, shareholders may benefit by not being 
called upon to make a voting decision in regard to a matter while 
possibly being unaware of the soliciting person's substantial interest 
in the matter. To the extent such persons solicit in compliance with 
all of the generally applicable proxy solicitation requirements, 
shareholders may benefit by having information regarding the soliciting 
person's substantial interest in the matter that they otherwise might 
not have.
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    \151\ See Part IV.A.2 above.
---------------------------------------------------------------------------

c. Exchange Act Rule 14a-4(d)(4)
    The proposed amendment to Exchange Act Rule 14a-4(d)(4) may cause 
more non-management soliciting persons to seek to round out their short 
slates with other non-management persons' nominees.\152\ The 
amendment's effective codification of a no-action position the staff 
has taken in the past may benefit non-management soliciting persons who 
wish to round out their short slates with other non-management persons' 
nominees by enabling them to avoid the cost of seeking a no-action 
letter. To the extent more non-management soliciting persons seek to 
round out their slates with other non-management persons' nominees, 
shareholders may benefit from having more choices in deciding for whom 
they will vote.
---------------------------------------------------------------------------

    \152\ See Part IV.A.3 above.
---------------------------------------------------------------------------

d. Exchange Act Rule 14a-4(e)
    The proposed amendment to Exchange Act Rule 14a-4(e) may cause some 
persons to revise the conditions they otherwise would state to make 
them objectively determinable or refrain from soliciting because they 
do not wish to state objectively determinable conditions.\153\ To the 
extent such persons revise the conditions they state to make them 
objectively determinable, solicited shareholders may benefit by being 
better able to make an informed decision in regard to granting proxy 
authority and confirm that any later withholding of shares from voting 
is consistent with the authority granted. To the extent such persons 
refrain from soliciting, shareholders may benefit from not being called 
upon to make a decision in regard to granting proxy authority or 
confirming that any later withholding of shares from voting is 
consistent with the authority granted where such decisions would be 
more difficult due to a lack of objectively determinable conditions.
---------------------------------------------------------------------------

    \153\ See Part IV.A.4 above.
---------------------------------------------------------------------------

e. Exchange Act Rule 14a-12(a)(1)(i)
    The proposed amendment to Exchange Act Rule 14a-12(a)(1)(i) may 
cause some persons to file legend-referenced participant information 
earlier than they otherwise would or delay the start of a solicitation 
due to taking additional time to prepare and file the participant 
information.\154\ To the extent such persons file the participant 
information sooner or delay the start of a solicitation until ready to 
file the participant information, shareholders may benefit from having 
the participant information with which they can begin to evaluate the 
solicitation from the time they first are solicited.
---------------------------------------------------------------------------

    \154\ See Part II.A.5 above.
---------------------------------------------------------------------------

C. Costs

1. Disclosure Amendments
    The proposed rules would impose new disclosure requirements on 
companies. Some of the proposed disclosures are designed to build upon 
existing requirements to elicit a more detailed discussion of overall 
compensation policy and its impact on risk taking, director and nominee 
qualifications and legal proceedings and the interests of compensation 
consultants. To the degree that the proposed amendments require 
collecting information currently available, costs related to 
information collection will be limited.
a. Costs Related to Expanded Compensation Discussion and Analysis 
Disclosure
    Expanded Compensation Discussion and Analysis disclosure will 
increase costs to companies as the proposed amendments would impose 
additional information gathering and drafting requirements. We believe 
that there may be information gathering costs, even though the 
information required may be readily available because this information 
may need to be reported up from business units and analyzed. Using our 
PRA burden estimates, we estimate the aggregate annual cost of the 
proposed amendments to CD&A to be approximately $29,950,652.\155\ In 
addition, there may be costs in assessing whether risk arising from 
compensation policies and practices may have a material effect on the 
company, and if they may, there will be cost in drafting the additional 
disclosure. This could include the cost of hiring additional advisors 
to assist in the analysis as well as potential liability if risk is not 
identified as having a material effect on the company.
---------------------------------------------------------------------------

    \155\ This estimate is based on the estimated total burden hours 
of 86,683 (the annual responses for the schedules and forms that 
would include the proposed CD&A amendments multiplied by 16 hours), 
an assumed 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.
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b. Costs Related to Revisions to Summary Compensation Table Disclosure
    Investors may face some costs related to revisions in executive 
compensation reporting. The proposed amendments would rescind the 
requirement to report the full grant date fair value of each individual 
equity award in the Grants of Plan-Based Awards Table and corresponding 
footnote disclosure in the Director Compensation Table. Although the 
Outstanding Equity Awards at Fiscal Year-End Table would continue to 
provide useful disclosure of the contractual terms of outstanding 
equity awards, the contribution of an individual grant to the aggregate 
grant date fair value of awards would not be disclosed under the 
proposed amendments. Investors will therefore be less able to determine 
the manner in which an individual grant affects the aggregate grant 
date fair value of equity awards granted in the year.
    Grant date fair value guidelines under FAS 123R call for management 
to exercise judgment. For example, the valuation of stock options 
requires assumptions about stock volatility and choice among several 
valuation methods. For financial statement recognition purposes, this 
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. If 
achievement of the performance condition later is no longer considered 
probable, the amount of compensation cost previously recognized is 
reversed in the period when it is determined that achievement of the 
condition is no longer probable. In addition, awards that are 
classified as ``liability awards'' under FAS 123R (such as an award 
that is cash settled) are re-measured at each financial statement 
reporting date through the date the awards are settled. Some investors 
may believe that Summary Compensation Table and Director Compensation 
Table disclosure of stock awards and option awards measured based on 
financial statement recognition principles provides a clearer

[[Page 35101]]

understanding of compensation earned in the reporting period because it 
takes into account potential adjustments regarding such factors as term 
of the option and changes in market value over time. To the extent that 
an investor would prefer to also see disclosure of this measure for 
purposes of voting or investment decisions, the proposed amendments may 
entail a cost.
    In particular, the required re-measurement of liability awards 
under the current rules may help to reveal situations in which 
companies grant awards that subsequently change in value. For example, 
if a company grants an option-based liability award under the proposed 
amendments, the impact of subsequent events on the stock price, and 
therefore on the award value, would not be reflected in the Summary 
Compensation Table in the current or subsequent year. In contrast, 
under the current rule, reported compensation in the next year could be 
higher or lower as the result of re-measurement. To the extent that 
investors prefer to see changes in value of liability award 
compensation decisions reflected in the Summary Compensation Table, 
presentation of grant date fair value in the table may represent a 
cost. This cost, however, is limited to the degree that changes in 
value of liability based awards are reflected elsewhere in the proxy 
statement or can be inferred from previously disclosed award terms. 
Additionally, awards classified as ``equity awards'' under FAS 123R are 
not re-measured, and therefore any changes in the value of such awards 
are not currently reflected in the Summary Compensation Table and will 
also not be reflected under the proposed amendments.
    Under the proposed 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.
    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 currently required measure of 
stock awards and option awards to full grant date fair value reporting. 
We expect that any such additional costs will be limited by the fact 
that full grant date fair value information required under the 
proposals is also collected to comply with financial reporting 
purposes. Because companies other than smaller reporting companies 
currently are required to report the grant date fair value of 
individual equity awards, we expect that they will incur only 
negligible costs in switching to the proposed Summary Compensation 
Table and Director Compensation Table disclosure requirements.
c. Costs Related to Enhanced Director and Nominee Disclosure
    Companies may face some information gathering and reporting costs 
related to enhanced director and nominee disclosure. Using our PRA 
burden estimates, we estimate the aggregate annual cost to operating 
companies to be approximately $11,775,000.\156\ With respect to our PRA 
burden estimates for registered management investment companies, we 
estimate the aggregate annual cost to be approximately $3,489,800.\157\ 
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, however, we expect that 
certain costs will be limited.
---------------------------------------------------------------------------

    \156\ This estimate is based on the estimated total burden hours 
of 38,820 (the annual responses for the schedules and forms that 
would include the proposed enhanced director and nominee disclosure 
multiplied by 4 hours), 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.
    \157\ This estimate is based on the estimated total burden hours 
of 11,371, 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.
---------------------------------------------------------------------------

d. Costs Related to New Disclosure About Company Leadership Structure 
and the Board's Role in the Risk Management Process
    Companies may face some costs related to new disclosure about 
company leadership structure. Disclosure of the board's role in the 
risk management process 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.\158\ With respect to our PRA burden estimates for 
registered management investment companies, we estimate the aggregate 
annual cost to be approximately $6,367,200.\159\ 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 the risk management process.
---------------------------------------------------------------------------

    \158\ This estimate is based on the estimated total burden hours 
of 47,880 (the annual responses for Schedules 14A and 14C multiplied 
by 6 hours), an assumed 75%/25% split of the burden hours, and an 
hourly rate of $200 for internal staff time and $400 for external 
professionals.
    \159\ 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.
---------------------------------------------------------------------------

e. Costs Related to New Disclosure Regarding Compensation Consultants
    Companies may face some costs related to new disclosure about other 
services provided by compensation consultants and aggregate fees. Using 
our PRA burden estimates, we estimate the aggregate annual cost to be 
approximately $7,980,000.\160\ 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 different compensation consultants for services 
that had previously been provided by only one compensation consultant. 
Possible increased costs might include the costs associated with the 
time each new compensation consultant will need to learn about the 
company and decline in any economies of scale the compensation 
consultant may have factored into fees charged to the company. To the 
extent that fees for compensation consultants decline, rather than 
increase as a result of any improvement in competition under the 
proposed amendments, this represents a potential cost to compensation 
consultants, if any increase in the volume of business does not offset 
fee reductions.
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    \160\ This estimate is based on the estimated total burden hours 
of 31,920 (the annual responses for Schedules 14A and 14C multiplied 
by 4 hours), an assumed 75%/25% split of the burden hours, and an 
hourly rate of $200 for internal staff time and $400 for external 
professionals.
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f. Costs Related to Reporting of Voting Results on Form 8-K
    Shareholders who are used to receiving this information in Form 10-
Q filing may incur costs of adapting

[[Page 35102]]

their research practices to find this information in 8-K filings, which 
may involve searching through a number of filings. This adjustment may 
be costly, 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 engaged in a contested election may face some 
additional information gathering and reporting costs related to 
reporting shareholder voting results on Form 8-K, as these companies 
would need to file a Form 8-K to report preliminary voting results in 
addition to reporting final vote results. Using our PRA burden 
estimates, we estimate the aggregate annual cost to be approximately 
$1,842,750.\161\
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    \161\ This estimate is based on the estimated 7,371 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.
---------------------------------------------------------------------------

2. Proxy Solicitation Process Amendments
    We believe the proposed proxy solicitation process amendments may 
result in costs as follows.
a. Exchange Act Rule 14a-2(b)(1) Introductory Text
    The proposed amendment to the introductory text of Exchange Act 
Rule 14a-2(b)(1) may cause more persons to furnish an unmarked copy of 
management's proxy card requested to be returned directly to 
management.\162\ If more persons avail themselves of that procedure, 
companies may increase soliciting activity in an effort to 
counterbalance its use and, as a result, incur additional costs.
---------------------------------------------------------------------------

    \162\ See Part IV.A.1 above.
---------------------------------------------------------------------------

b. Exchange Act Rule 14a-2(b)(1)(ix)
    The proposed amendment to Exchange Act Rule 14a-2(b)(1)(ix) may 
cause more persons to refrain from soliciting in the absence of an 
exemption or solicit in compliance with all of the generally applicable 
proxy solicitation requirements.\163\ To the extent such persons 
refrain from soliciting, shareholders may be denied the opportunity to 
consider such persons' views in making a voting decision. To the extent 
such persons solicit in compliance with all of the generally applicable 
proxy solicitation requirements, they may incur greater costs than they 
otherwise would have.\164\
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    \163\ See Part IV.A.2 above.
    \164\ We recently cited certain evidence that indicated the 
average cost to a soliciting shareholder engaged in a proxy contest 
is $368,000. See Release No. 33-9046 in 22 above at 29073.
---------------------------------------------------------------------------

c. Exchange Act Rule 14a-4(d)(4)
    The proposed amendment to Exchange Act Rule 14a-4(d)(4) may cause 
more non-management soliciting persons to seek to round out their short 
slates with other non-management persons' nominees.\165\ Consequently, 
companies may increase soliciting activity in an effort to 
counterbalance such rounding out and, as a result, incur additional 
costs.
---------------------------------------------------------------------------

    \165\ See Part IV.A.3 above.
---------------------------------------------------------------------------

d. Exchange Act Rule 14a-4(e)
    The proposed amendment to Exchange Act Rule 14a-4(e) may cause some 
persons to revise the conditions they otherwise would state to make 
them objectively determinable or refrain from soliciting because they 
do not wish to state objectively determinable conditions.\166\ To the 
extent such persons revise the conditions to make them objectively 
determinable or refrain from soliciting, shareholders may lose the 
opportunity to grant proxy authority to a person that might exercise 
some degree of discretion in a manner that could be beneficial to the 
shareholders. The inability to grant proxy authority to a person that 
might exercise some degree of discretion may cause some shareholders to 
decide to attend a meeting and, as a result, incur costs accordingly.
---------------------------------------------------------------------------

    \166\ See Part IV.A.4 above.
---------------------------------------------------------------------------

e. Exchange Act Rule 14a-12(a)(1)(i)
    The proposed amendment to Exchange Act Rule 14a-12(a)(1)(i) may 
cause some persons to file legend-referenced participant information 
earlier than they otherwise would or delay the start of a solicitation 
due to taking additional time to prepare and file the participant 
information.\167\ To the extent such persons file the participant 
information sooner, they may incur additional costs to accelerate the 
preparation and filing of the information. To the extent such persons 
delay the start of a solicitation until when ready to file the 
participant information, they may lose time during which the 
shareholders can consider the solicitation and, thereby, reduce the 
likelihood of a successful solicitation.
---------------------------------------------------------------------------

    \167\ See Part IV.A.5 above.
---------------------------------------------------------------------------

D. Request for Comment

    We request data to quantify the costs and the value of the benefits 
described above. We seek estimates of these costs and benefits, as well 
as any costs and benefits not already defined, that may result from the 
adoption of these proposed amendments. We also request qualitative 
feedback on the nature of the benefits and costs described above and 
any benefits and costs we may have overlooked.

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 also requires us,\168\ 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.
---------------------------------------------------------------------------

    \168\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    Section 2(b) of the Securities Act,\169\ Section 3(f) of the 
Exchange Act,\170\ and Section 2(c) of the Investment Company Act 
require us,\171\ 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.
---------------------------------------------------------------------------

    \169\ 15 U.S.C. 77b(b).
    \170\ 15 U.S.C. 78c(f).
    \171\ 15 U.S.C. 80a-2(c).
---------------------------------------------------------------------------

    The proposed amendments to Regulation S-K are intended to provide 
additional important information to investors about corporate boards 
and management structure; and the clarity of executive compensation 
available to investors and the financial markets. These proposals would 
enhance investors' understanding of how corporate resources are used, 
and enable shareholders to better evaluate the actions of the board of 
directors and executive officers in fulfilling their responsibilities.
    The proposed disclosure amendments would enhance our reporting 
requirements. These proposed amendments are designed to enhance 
transparency of a company's compensation policies and its impact on 
risk taking; director and nominee qualifications; board leadership 
structure; the potential conflicts of

[[Page 35103]]

compensation consultants; and to provide investors with clearer and 
more meaningful executive compensation disclosure. The proposed 
amendments would also accelerate the reporting of the results of 
shareholder votes at a company's annual or special meeting. The 
proposed amendments should improve the ability of investors to make 
informed voting and investment decisions, and, therefore lead to 
increased efficiency and competitiveness of the U.S. capital markets.
    The proposed disclosure amendments should also increase efficiency 
and competitiveness of the U.S. capital markets by providing investors 
with additional information on risk incentives and companies' risk 
management practices. This information could be used by investors in 
allocating capital across companies, toward companies where the risk 
incentives appear better aligned with an investor's appetite for risk. 
The new disclosure may also encourage competition amongst companies to 
demonstrate superior risk management practices and improved incentive 
structures for management and employees of the company.
    The proposed disclosure amendments also may affect competition 
among compensation consultants. Additional disclosure of consulting 
fees may provide an informational advantage to firms and increase 
competition, as firms can use this information to bid for additional 
services and potentially negotiate lower rates.
    The proposed amendments to our rules governing the proxy 
solicitation process are intended to provide clarity and address issues 
that have arisen. We believe these proposals would provide certainty to 
soliciting parties and facilitate communications with shareholders. 
Additional clarity and facilitated communications would promote 
efficiency.
    We request comment on whether the proposed amendments would promote 
efficiency, competition, and capital formation. Commenters are 
requested to provide empirical data and other factual support for their 
view to the extent possible.

VI. Small Business Regulatory Enforcement Fairness Act

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (SBREFA) \172\ we solicit data to determine whether the 
proposed rule amendments constitute a ``major'' rule. Under SBREFA, a 
rule is considered ``major'' where, if adopted, it results or is likely 
to result in:
---------------------------------------------------------------------------

    \172\ 5 U.S.C. 603.
---------------------------------------------------------------------------

    <bullet> An annual effect on the economy of $100 million or more 
(either in the form of an increase or a decrease);
    <bullet> A major increase in costs or prices for consumers or 
individual industries; or
    <bullet> Significant adverse effects on competition, investment or 
innovation.
    Commenters should provide empirical data on (a) the annual effect 
on the economy; (b) any increase in costs or prices for consumers or 
individual industries; and (c) any effect on competition, investment or 
innovation. We request your comments on the reasonableness of this 
estimate.

VII. Initial Regulatory Flexibility Act Analysis

    This Initial Regulatory Flexibility Analysis (IRFA) has been 
prepared in accordance with the Regulatory Flexibility Act.\173\ It 
relates to proposed revisions to the rules under the Securities Act, 
Exchange Act and Investment Company Act regarding executive 
compensation and corporate governance disclosures and the proxy 
solicitation process.
---------------------------------------------------------------------------

    \173\ 5 U.S.C. 601.
---------------------------------------------------------------------------

A. Reasons for, and Objectives of, the Proposed Action

    These proposals are designed to enhance the executive compensation 
and corporate governance disclosures provided by companies, and clarify 
and address issues that have arisen in the proxy solicitation process. 
Specifically, in regard to disclosure, the proposals are intended to 
enhance the transparency of a company's compensation policies and its 
impact on risk taking; director and nominee qualifications; board 
leadership structure; the potential conflicts of compensation 
consultants; and to provide investors with clearer and more meaningful 
executive compensation disclosure. We are also proposing amendments to 
our proxy rules that would clarify the manner in which they operate and 
to eliminate potential obstacles to shareholder communication.

B. Legal Basis

    We are proposing the amendments pursuant to Sections 3(b), 6, 7, 10 
and 19(a) of the Securities Act; Sections 12, 13, 14(a), 15(d), and 
23(a) of the Exchange Act, and Sections 8, 20(a), 24(a), 30, and 38 of 
the Investment Company Act.

C. Small Entities Subject to the Proposed Action

    The proposed amendments would affect some companies that are small 
entities. The Regulatory Flexibility Act defines ``small entity'' to 
mean ``small business,'' ``small organization,'' or ``small 
governmental jurisdiction.'' \174\ 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 157 \175\ and Exchange Act Rule 
0-10(a) \176\ 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 proposed amendments would affect small entities that have 
a class of securities that are registered under Section 12 of the 
Exchange Act or that are required to file reports under Section 15(d) 
of the Exchange Act. In addition, the proposals also would affect small 
entities that file, or have filed, a registration statement that has 
not yet become effective under the Securities Act and that has not been 
withdrawn. 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.\177\ We believe that 
the proposals would affect small entities that are investment 
companies. We estimate that there are approximately 212 investment 
companies that may be considered small entities.
---------------------------------------------------------------------------

    \174\ 5 U.S.C. 601(6).
    \175\ 17 CFR 230.157.
    \176\ 17 CFR 240.0-10(a).
    \177\ 17 CFR 270.0-10(a).
---------------------------------------------------------------------------

D. Reporting, Recordkeeping, and Other Compliance Requirements

    The proposed disclosure 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 would require small entities that are operating 
companies to provide:\178\
---------------------------------------------------------------------------

    \178\ The proposed requirements to discuss and analyze a 
company's overall compensation programs as they may have a material 
impact on risk management practices would not apply to smaller 
reporting companies.

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[[Page 35104]]

    <bullet> Disclosure of the aggregate grant date fair value of 
equity awards computed in accordance with FAS 123R;
    <bullet> Additional disclosure about compensation consultants 
employed by companies, including disclosure about the full scope of 
services provided by the consultants or its affiliates and the related 
fees for such services; and
    <bullet> Disclosure of the results of shareholder votes on Form 8-K 
within four business days after the end of the meeting.
    In addition, these amendments would require small entities that are 
operating companies or registered management investment companies to 
provide:
    <bullet> Disclosure of the qualifications of directors and nominees 
for director, and a brief discussion of the specific experience, 
qualifications, attributes or skills that qualify that person to serve 
as a director for the company at that time, 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 and structure;
    <bullet> Added disclosure regarding certain legal proceedings 
involving a company's directors, nominees for director and executive 
officers; and
    <bullet> Disclosure about a company's board leadership structure 
and the board's role in the risk management process.
    The proposed proxy rule amendments would provide certainty to 
soliciting parties and facilitate communications with shareholders and, 
as a result, would not impose any reporting or recordkeeping 
requirements on small entities. These proposed amendments would affect 
both large and small entities equally. The proposed proxy rule 
amendments set forth clear, uniform standards to aid companies and 
other soliciting parties in the process of soliciting proxies under our 
rules.

E. Duplicative, Overlapping, or Conflicting Federal Rules

    We believe the proposed amendments would not duplicate, overlap, or 
conflict with other Federal rules.

F. Significant Alternatives

    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 
proposed disclosure amendments, we considered the following 
alternatives:
    <bullet> Establishing different compliance or reporting 
requirements or timetables that take into account the resources 
available to small entities;
    <bullet> Clarifying, consolidating or simplifying compliance and 
reporting requirements under the rules for small entities;
    <bullet> Using performance rather than design standards; and
    <bullet> Exempting small entities from all or part of the 
requirements.
    Currently, small entities are subject to some different compliance 
or reporting requirements under Regulation S-K and the proposed 
amendments would not affect 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. Therefore small entities would not be required 
to disclose their overall compensation practices. Other than the 
proposed amendments to the Grants of Plan-Based Awards Table, the 
remaining proposed disclosure requirements would apply to small 
entities to the same extent as larger issuers.
    As noted above, the proposed amendments to CD&A would not apply to 
small entities. We are not proposing to expand the existing alternative 
reporting requirements under Item 402 of Regulation S-K, or establish 
additional different compliance requirements or an exemption from 
coverage of the proposed amendments for small entities. The proposed 
amendments would provide investors with greater transparency regarding 
director and nominee qualifications; board leadership structure and 
their role in the risk management process; potential conflicts of 
compensation consultants; and voting results at annual and special 
meetings. We do not believe these disclosures will create a significant 
new burden; we do, however, believe uniform, comparable disclosures 
across all companies will help shareholders and the markets.
    The proposed amendments would clarify, consolidate and simplify the 
reporting requirements for all public companies including small 
entities. The proposed amendments would 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 design rather than performance 
standards in connection with the proposed amendments for two reasons. 
First, based on our past experience, we believe the proposed revisions 
would be more useful to investors if there were specific disclosure 
requirements. The proposed disclosures are intended to result in more 
comprehensive and clear disclosure. Second, the specific disclosure 
requirements in the proposed amendments would promote consistent 
disclosure among all companies. We seek comment on whether we should 
exempt small entities from any of the proposed disclosures or scale the 
proposed amendments to reflect the characteristics of small entities 
and the needs of their investors.

G. Solicitation of Comments

    We encourage the submission of comments with respect to any aspect 
of this Initial Regulatory Flexibility Analysis. In particular, we 
request comments regarding:
    <bullet> How the proposed amendments can achieve their objective 
while lowering the burden on smaller entities;
    <bullet> The number of small entity companies that may be affected 
by the proposed amendments;
    <bullet> The existence or nature of the potential impact of the 
proposed amendments on small entity companies discussed in the 
analysis; and
    <bullet> How to quantify the impact of the proposed amendments.
    Respondents are asked to describe the nature of any impact and 
provide empirical data supporting the extent of the impact. Such 
comments will be considered in the preparation of the Final Regulatory 
Flexibility Analysis, if the proposed rule amendments are adopted, and 
will be placed in the same public file as comments on the proposed 
amendments themselves.

VIII. Statutory Authority and Text of the Proposed Amendments

    The amendments contained in this release are being proposed 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 in 17 CFR Parts 229, 239, 240, 249, 270 and 279

    Reporting and recordkeeping requirements, Securities.

[[Page 35105]]

Text of the Proposed Amendments

    For the reasons set out in the preamble, the Commission proposes to 
amend 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, 77iii, 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 Sec.  229.401 by:
    a. Revising paragraph (e)(1);
    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, revise the phrase ``during 
the past five years'' to read ``during the past ten years''.
    The revisions read as follows:


Sec.  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, attributes or skills that qualify that person to serve 
as a director for the registrant at the time that the disclosure is 
made, and as a member of any committee that the person serves on or is 
chosen to serve on (if known), in light of the registrant's business 
and structure. If material, this disclosure should cover more than the 
past five years, and include information about the person's risk 
assessment skills, 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 professional competence, which 
may include, depending upon the circumstances, such specific 
information as the size of the operation supervised.
* * * * *
    3. Amend Sec.  229.402 by:
    a. Redesignating paragraph (b)(1) introductory text and paragraphs 
(b)(1)(i) through (vi) as paragraphs (b)(1)(i) introductory text and 
(b)(1)(i)(A) through (F);
    b. Redesignating paragraph (b)(2) introductory text and paragraphs 
(b)(2)(i) through (xv) as paragraphs (b)(1)(ii) introductory text and 
(b)(1)(ii)(A) through paragraph (b)(1)(ii)(O);
    c. Redesignating the Instructions to Item 402(b) as Instructions to 
Item 402(b)(1)(i) and (b)(1)(ii);
    d. Adding a heading to newly redesignated paragraph (b)(1)(i);
    e. Revising the introductory text to newly redesignated paragraph 
(b)(1)(ii);
    f. Revising newly redesignated Instructions to Item 402(b)(1)(i) 
and (b)(1)(ii);
    g. Adding new paragraph (b)(2);
    h. Adding Instructions 1, 2, and 3 to Item 402(b);
    i. Revising Instruction 2 to Item 402(c)(2)(iii) and (iv), 
paragraphs (c)(2)(v) and (c)(2)(vi), the Instructions to Item (c)(2)(v) 
and (vi), and paragraph (c)(2)(ix)(G);
    j. Revising the Grants of Plan-Based Awards Table in paragraph 
(d)(1);
    k. Removing the period at the end of paragraphs (d)(2)(iii) and 
(d)(2)(iv) and adding a semicolon in its place;
    l. Adding ``and'' at the end of paragraph (d)(2)(vi), removing 
``and'' at the end of paragraph (d)(2)(vii) and adding a period in its 
place;
    m. Removing paragraph (d)(2)(viii) and Instruction 7 to Item 
402(d);
    n. Revising paragraphs (k)(2)(iii) and (k)(2)(iv) and the 
Instruction to Item (k)(2)(iii) and (iv);
    o. Revising paragraph (k)(2)(vii)(I) and Instruction to Item 
402(k);
    p. Revising Instruction 2 to Item 402(n)(2)(iii) and (iv);
    q. Revising paragraphs (n)(2)(v), (n)(2)(vi) and the Instruction to 
Item 402(n)(2)(v) and (vi);
    r. Revising paragraph (n)(2)(ix)(G);
    s. Revising paragraphs (r)(2)(iii), (r)(2)(iv) and (r)(2)(vii)(I) 
before the Instruction, and Instruction to Item 402(r).
    The revisions and additions read as follows:


Sec.  229.402  (Item 402) Compensation.

* * * * *
    (b) Compensation discussion and analysis. (1)(i) Compensation 
discussion and analysis for the named executive officers. * * *
* * * * *
    (ii) While the material information to be disclosed under 
Compensation Discussion and Analysis for the Named Executive Officers 
will vary depending upon the facts and circumstances, examples of such 
information may include, in a given case, among other things, the 
following:
* * * * *
    Instruction 1 to Item 402(b)(1)(i) and (b)(1)(ii). The purpose of 
the Compensation Discussion and Analysis for the Named Executive 
Officers is to provide to investors material information that is 
necessary to an understanding of the registrant's compensation policies 
and decisions regarding the named executive officers.
    Instruction 2 to Item 402(b)(1)(i) and (b)(1)(ii). The Compensation 
Discussion and Analysis for the Named Executive Officers should be of 
the information contained in the tables and otherwise disclosed 
pursuant to this Item. It should also cover actions regarding executive 
compensation that were taken after the registrant's last fiscal year's 
end. Actions that should be addressed might include, as examples only, 
the adoption or implementation of new or modified programs and policies 
or specific decisions that were made or steps that were taken that 
could affect a fair understanding of the named executive officer's 
compensation for the last fiscal year. Moreover, in some situations it 
may be necessary to discuss prior years in order to give context to the 
disclosure provided.
    (2) Compensation discussion and analysis of the registrant's 
overall compensation program as it relates to the registrant's risk 
management. To the extent that risks arising from the registrant's 
compensation policies and overall actual compensation practices for 
employees generally may have a material effect on the registrant, 
discuss

[[Page 35106]]

the registrant's policies or practices of compensating its employees, 
including non-executive officers, as they relate to risk management 
practices and/or risk-taking incentives. While the situations requiring 
disclosure will vary depending on the particular registrant and 
compensation policies, situations that may trigger disclosure include, 
among others, compensation policies: At a business 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 business units that are 
significantly more profitable than others within the registrant; at 
business units 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 (b)(2) is to provide investors 
material information concerning how the registrant compensates and 
incentivizes its employees that may create risk. While the information 
to be disclosed pursuant to this paragraph (b)(2) 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:
    (i) The general design philosophy of the registrant's compensation 
policies for employees whose behavior would be most impacted by the 
incentives established by the policies, as such policies relate to or 
affect risk taking by employees on behalf of the registrant, and the 
manner of its implementation;
    (ii) The registrant's risk assessment or incentive considerations, 
if any, in structuring compensation policies or in awarding and paying 
compensation;
    (iii) How the registrant's compensation policies 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;
    (iv) The registrant's policies regarding adjustments to its 
compensation policies to address changes in its risk profile;
    (v) Material adjustments the company has made to its compensation 
policies or practices as a result of changes in risk profile; and
    (vi) The extent to which the registrant monitors its compensation 
policies to determine whether its risk management objectives are being 
met with respect to incentivizing its employees.
    Instruction 1 to Item 402(b). The Compensation Discussion and 
Analyses provided pursuant to paragraph (b) should focus on the 
material principles underlying the registrant's compensation policies 
and decisions and the most important factors relevant to analysis of 
those policies and decisions. The Compensation Discussion and Analyses 
shall reflect the individual circumstances of the registrant and shall 
avoid boilerplate language and repetition of the more detailed 
information set forth in the tables and narrative disclosures that 
follow.
    Instruction 2 to Item 402(b). Registrants are not required to 
disclose target levels with respect to specific quantitative or 
qualitative performance-related factors considered by the compensation 
committee or the board of directors, or any other factors or criteria 
involving confidential trade secrets or confidential commercial or 
financial information, the disclosure of which would result in 
competitive harm for the registrant. The standard to use when 
determining whether disclosure would cause competitive harm for the 
registrant is the same standard that would apply when a registrant 
requests confidential treatment of confidential trade secrets or 
confidential commercial or financial information pursuant to Securities 
Act Rule 406 (17 CFR 230.406) and Exchange Act Rule 24b-2 (17 CFR 
240.24b-2), each of which incorporates the criteria for non-disclosure 
when relying upon Exemption 4 of the Freedom of Information Act (5 
U.S.C. 552(b)(4)) and Rule 80(b)(4) (17 CFR 200.80(b)(4)) thereunder. A 
registrant is not required to seek confidential treatment under the 
procedures in Securities Act Rule 406 and Exchange Act Rule 24b-2 if it 
determines that the disclosure would cause competitive harm in reliance 
on this instruction; however, in that case, the registrant must discuss 
how difficult it will be for the executive or how likely it will be for 
the registrant to achieve the undisclosed target levels or other 
factors.
    Instruction 3 to Item 402(b). Disclosure of target levels that are 
non-GAAP financial measures will not be subject to Regulation G (17 CFR 
244.100 through 244.102) and Item 10(e) (Sec.  229.10(e)); however, 
disclosure must be provided as to how the number is calculated from the 
registrant's audited financial statements.
    (c) * * *
    (2) * * *
    Instructions to Item 402(c)(2)(iii) and (iv).
* * * * *
    2. Registrants need not include in the salary column (column (c)) 
or bonus column (column (d)) any amount of salary or bonus forgone at 
the election of a named executive officer pursuant to a registrant's 
program under which stock, equity-based or other forms of non-cash 
compensation may be received by a named executive officer instead of a 
portion of annual compensation earned in a covered fiscal year. 
However, the receipt of any such form of non-cash compensation instead 
of salary or bonus earned for a covered fiscal year must be disclosed 
in the appropriate column of the Summary Compensation Table 
corresponding to that fiscal year (e.g., stock awards (column (e)); 
option awards (column (f)); all other compensation (column (i))), or, 
if made pursuant to a non-equity incentive plan and therefore not 
reportable in the Summary Compensation Table when granted, a footnote 
must be added to the salary or bonus column so disclosing and referring 
to the Grants of Plan-Based Awards Table (required by paragraph (d) of 
this Item) where the award is reported.
    (v) For awards of stock, the aggregate grant date fair value 
computed in accordance with FAS 123R (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 FAS 123R (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 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

[[Page 35107]]

fair value, computed as of the repricing or modification date in 
accordance with FAS 123R, with respect to that repriced or modified 
award.
* * * * *
    (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 columns (e) or (f); and
* * * * *
    (d) * * *
    (1) * * *

                                                               Grants of Plan-Based Awards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                         Estimated future payouts under non- Estimated future payouts under equity   All other    All other
                                            equity incentive plan awards             incentive plan awards             stock        option     Exercise
                                        ---------------------------------------------------------------------------   awards:      awards:      or base
                                                                                                                     number of    number of    price of
            Name             Grant date                                                                              shares of    securities    option
                                          Threshold  Target ($)    Maximum    Threshold      Target      Maximum      stock or    underlying  awards  ($/
                                             ($)                     ($)     (<greek-i>)  (<greek-i>)  (<greek-i>)     units       options        Sh)
                                                                                                                    (<greek-i>)  (<greek-i>)
(a)                                 (b)         (c)         (d)         (e)          (f)          (g)          (h)          (i)          (j)         (k)
--------------------------------------------------------------------------------------------------------------------------------------------------------
PEO
PFO
A
B
C
--------------------------------------------------------------------------------------------------------------------------------------------------------

* * * * *
    (k) * * *
    (2) * * *
    (iii) For awards of stock, the aggregate grant date fair value 
computed in accordance with FAS 123R (column (c));
    (iv) For awards of stock options, with or without tandem SARs 
(including awards that subsequently have been transferred), the 
aggregate grant date fair value computed in accordance with FAS 123R 
(column (d));
    Instruction to Item 402(k)(2)(iii) and (iv). For each director, 
disclose by footnote to the appropriate column, the aggregate number of 
stock awards and the aggregate number of option awards outstanding at 
fiscal year end.
* * * * *
    (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 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; and Instructions to 
paragraph (c)(2)(viii) 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 (k) of this Item that correspond to 
analogous disclosures provided for in paragraph (c) of this Item to 
which they refer.
* * * * *
    (n) * * *
    (2) * * *
    Instructions to Item 402(n)(2)(iii) and (n)(2)(iv). 1. * * *
    2. Smaller reporting companies need not include in the salary 
column (column (c)) or bonus column (column (d)) any amount of salary 
or bonus forgone at the election of a named executive officer pursuant 
to a smaller reporting company's program under which stock, equity-
based or other forms of non-cash compensation may be received by a 
named executive officer instead of a portion of annual compensation 
earned in a covered fiscal year. However, the receipt of any such form 
of non-cash compensation instead of salary or bonus earned for a 
covered fiscal year must be disclosed in the appropriate column of the 
Summary Compensation Table corresponding to that fiscal year (e.g., 
stock awards (column (e)); option awards (column (f)); all other 
compensation (column (i))), or, if made pursuant to a non-equity 
incentive plan and therefore not reportable in the Summary Compensation 
Table when granted, a footnote must be added to the salary or bonus 
column so disclosing and referring to the narrative disclosure to the 
Summary Compensation Table (required by paragraph (o) of this Item) 
where the material terms of the award are reported.
    (v) For awards of stock, the aggregate grant date fair value 
computed in accordance with FAS 123R (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 FAS 123R (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 
reported in column (f), the incremental fair value, computed as of the 
repricing or modification date in accordance with FAS 123R, with 
respect to that repriced or modified award.
* * * * *
    (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

[[Page 35108]]

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 FAS 123R (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 FAS 123R (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(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.
* * * * *
    4. Amend Sec.  229.407 by revising paragraph (e)(3)(iii) and adding 
paragraph (h) before the Instructions to Item 407 to read as follows:


Sec.  229.407  (Item 407) Corporate governance.

* * * * *
    (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) 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. If any compensation consultants or their affiliates played 
a role in determining or recommending the amount or form of executive 
and director compensation and they also provided additional services to 
the registrant or its affiliates during the registrant's last completed 
fiscal year (including 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), then disclose the nature and the 
extent of all additional services provided, as well as 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 their affiliates for these other services was made, 
subject to screening, or recommended, by management, and whether the 
compensation committee or the board approved such other services of the 
compensation consultants or their affiliates.
* * * * *
    (h) Company leadership structure. Briefly describe the registrant's 
leadership structure, 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. 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 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 registrant's risk management and the effect 
that this has on the company'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 continues to read in part as 
follows:

    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, 78u-5, 
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, unless otherwise 
noted.
* * * * *
    7. Amend Sec.  240.14a-2 by revising paragraph (b)(1) introductory 
text; and paragraph (b)(1)(ix) to read as follows:


Sec.  240.14a-2  Solicitations to which Sec.  240.14a-3 to Sec.  
240.14a-15 apply.

* * * * *
    (b) * * *
    (1) Any solicitation by or on behalf of any person who does not, at 
any time during such solicitation, seek directly or indirectly, either 
on its own or another's behalf, the power to act as proxy for a 
security holder and does not furnish or otherwise request, or act on 
behalf of a person who furnishes or requests, a form of revocation, 
abstention, consent or authorization. Provided, however, that for 
purposes of this paragraph (b)(1), the term ``form of revocation'' does 
not include an unmarked duplicate of a form of proxy that the 
registrant provides to security holders if the person who furnishes 
such unmarked duplicate requests that it be returned directly to the 
registrant, and provided further that the exemption set forth in this 
paragraph shall not apply to:
* * * * *
    (ix) Any person, whether or not a security holder of the registrant 
who, because of a substantial interest in the subject matter of the 
solicitation, is likely to receive a benefit from a successful 
solicitation other than a benefit:

[[Page 35109]]

    (A) Realized as a security holder of the registrant that would be 
shared pro rata by all other holders of the same class of securities; 
or
    (B) Arising from the person's employment with the registrant; and
* * * * *
    8. Amend Sec.  240.14a-4 by revising paragraphs (d)(4) and (e) to 
read as follows:


Sec.  240.14a-4  Requirements as to proxy.

* * * * *
    (d) * * *
    (4) To consent to or authorize any action other than the action 
proposed to be taken in the proxy statement, or matters referred to in 
paragraph (c) of this section. A person shall not be deemed to be a 
bona fide nominee and the person shall not be named as such unless the 
person has consented to being named in the proxy statement and to serve 
if elected. Provided, however, that nothing in this Sec.  240.14a-4 
shall prevent any person soliciting in support of nominees who, if 
elected, would constitute a minority of the board of directors, from 
seeking authority to vote for nominees named in the registrant's or one 
or more other persons' proxy statements, so long as the soliciting 
party:
    (i) Seeks authority to vote in the aggregate for the number of 
director positions then subject to election;
    (ii) Represents that it will vote for all the nominees named in 
such other proxy statements, other than those nominees specified by the 
soliciting party;
    (iii) Provides the security holder an opportunity to withhold 
authority with respect to any other nominee named in such other proxy 
statements by writing the name of that nominee on the form of proxy;
    (iv) States on the form of proxy and in the proxy statement that 
there is no assurance that the nominees named in such other proxy 
statements will serve if elected with any of the soliciting party's 
nominees; and
    (v) If seeking authority to vote for nominees named in one or more 
other non-registrant persons' proxy statements, represents in the proxy 
statement that:
    (A) It has not agreed and will not agree to act, directly or 
indirectly, as a group or otherwise engage in any activities that would 
be deemed to cause the formation of a ``group'' as determined under 
section 13(d)(3) of the Exchange Act (15 U.S.C. 78m(d)(3)) and in 
Regulation 13D-G (Sec. Sec.  240.13d-1 through 240.13d-102) with any 
such other non-registrant person or persons; and
    (B) It has not acted and otherwise will not act as a 
``participant,'' as defined in Schedule 14A (Sec.  240.14a-101), in any 
solicitation by any such other non-registrant person or persons.
    (e) The proxy statement or form of proxy shall provide, subject to 
objectively determinable reasonable specified conditions, that the 
shares represented by the proxy will be voted and that where the person 
solicited specifies by means of a ballot provided pursuant to paragraph 
(b) of this section a choice with respect to any matter to be acted 
upon, the shares will be voted in accordance with the specifications so 
made.
* * * * *
    9. Amend Sec.  240.14a-12 by revising paragraph (a)(1)(i) to read 
as follows:


Sec.  240.14a-12  Solicitation before furnishing a proxy statement.

    (a) * * *
    (1) * * *
    (i) The identity of the participants in the solicitation (as 
defined in Instruction 3 to Item 4 of Schedule 14A (Sec.  240.14a-101)) 
and a description of their direct or indirect interests, by security 
holdings or otherwise, or, if that information previously has been 
filed either as part of a proxy statement or other soliciting materials 
under a cover page in the form set forth in Schedule 14A (Sec.  
240.14a-101) in connection with the solicitation, a prominent legend in 
clear, plain language advising security holders where they can obtain 
that filed information; and
* * * * *
    10. Amend Sec.  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).

    The revisions and additions read as follows:


Sec.  240.14a-101  Schedule 14A. Information required in proxy 
statement.

* * * * *

Item 7. Directors and Executive Officers.

* * * * *
    (b) The information required by Items 401, 404(a) and (b), 405 and 
407(d)(4), (d)(5) and (h) of Regulation S-K (Sec.  229.401, Sec.  
229.404(a) and (b), Sec.  229.405 and Sec.  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 qualify that person to serve as a director for the Fund at 
the time that the disclosure is made, and as a member of any committee 
that the person serves on or is chosen to serve on (if known), in light 
of the Fund's business and structure. If material, this disclosure 
should cover more than the past five years, and include information 
about the person's risk assessment skills, 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.
* * * * *
    (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 (Sec. Sec.  229.401(f) and (g), 229.404(a), 229.405, 
and 229.407(h) of this chapter).
    Instruction to Item 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).

[[Page 35110]]

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

    11. 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.
* * * * *
    12. Amend Form 8-K (referenced in Sec.  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

    If any matter was submitted to a vote of security holders, through 
the solicitation of proxies or otherwise, furnish 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 and the name of each other 
director whose term of office as a director continued after the 
meeting.
    (c) 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.
    (d) 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. If the matter voted upon at the meeting 
relates to a contested election of directors and the information called 
for by this Item is not definitively determined at the end of the 
meeting, the registrant shall disclose on Form 8-K under this Item 5.07 
the preliminary voting results within four business days after the 
preliminary voting results are determined; provided that in such an 
event, the registrant shall file an amended report on Form 8-K under 
this Item 5.07 within four business days after the final voting results 
are certified.
    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 furnished. The solicitation of any authorization or consent 
(other than a 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. Paragraph (a) need be answered only if 
paragraph (b) or (c) is required to be answered.
    Instruction 4 to Item 5.07. Paragraph (b) need not be answered if 
(i) proxies for the meeting were solicited pursuant to Regulation 14A 
under the Act, (ii) there was no solicitation in opposition to the 
management's nominees as listed in the proxy statement, and (iii) all 
of such nominees were elected. 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 5 to Item 5.07. Paragraph (c) must be answered for all 
matters voted upon at the meeting, including both contested and 
uncontested elections of directors.
    Instruction 6 to Item 5.07. If the registrant has furnished to its 
security holders proxy soliciting material containing the information 
called for by paragraph (d), the paragraph may be answered by reference 
to the information contained in such material.
    Instruction 7 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.
* * * * *

    Note: The text of Form 10-Q does not, and this amendment will 
not, appear in the Code of Federal Regulations.

    13. Amend Form 10-Q (referenced in Sec.  249.308a) by removing Item 
4 in Part II--Other Information, and redesignating Items 5 and 6 as 
Items 4 and 5.

    Note: The text of Form 10-K does not, and this amendment will 
not, appear in the Code of Federal Regulations.

    14. Amend Form 10-K (referenced in Sec.  249.310) by removing Item 
4 in Part I, and redesignating Items 5 through 15 as Items 4 through 
14.

PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

PART 274--FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 1940

    15. 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, 80a-24, 80a-26, and 80a-29, unless otherwise 
noted.
* * * * *
    16. Form N-1A (referenced in Sec. Sec.  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 Fund's leadership structure, 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 the extent of the board's role in the Fund's

[[Page 35111]]

risk management and the effect that this has on the Fund'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 qualify that person to serve 
as a director for the Fund at the time that the disclosure is made, and 
as a member of any committee that the person serves on, in light of the 
Fund's business and structure. If material, this disclosure should 
cover more than the past five years, and include information about the 
person's risk assessment skills, particular areas of expertise, or 
other relevant qualifications.
* * * * *
    17. Form N-2 (referenced in Sec. Sec.  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);
    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.
    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 Registrant's leadership structure, 
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 Registrant's risk management and the effect 
that this has on the Registrant's leadership structure.
* * * * *
    6. * * *
    (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 qualify that person to serve 
as a director for the Registrant at the time that the disclosure is 
made, and as a member of any committee that the person serves on, in 
light of the Registrant's business and structure. If material, this 
disclosure should cover more than the past five years, and include 
information about the person's risk assessment skills, particular areas 
of expertise, or other relevant qualifications.
* * * * *
    18. Form N-3 (referenced in Sec. Sec.  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);
    e. Adding new paragraph (e)(ii); and
    f. Adding paragraph (o).
    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 Registrant's leadership structure, 
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 Registrant's risk 
management and the effect that this has on the Registrant'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.
* * * * *
    (o) For each director, briefly discuss the specific experience, 
qualifications, attributes, or skills that qualify that person to serve 
as a director for the Registrant at the time that the disclosure is 
made, and as a member of any committee that the person serves on, in 
light of the Registrant's business and structure. If material, this 
disclosure should cover more than the past five years, and include 
information about the person's risk assessment skills, particular areas 
of expertise, or other relevant qualifications.
* * * * *

    By the Commission.

    Dated: July 10, 2009.
Elizabeth M. Murphy,
Secretary.
 [FR Doc. E9-16764 Filed 7-16-09; 8:45 am]
BILLING CODE 8010-01-P


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