35076 Federal Register / Vol. 74, No. 136 / Friday, July 17, 2009 / Proposed Rules 

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. 

18See 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). 

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. 

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 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/

rules/proposed.shtml); 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number S7–13–09 on the subject line; 

or 

• Use the Federal Rulemaking ePortal 

(http://www.regulations.gov). Follow the 

instructions for submitting comments. 

Paper Comments 

• 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

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 reexamine our disclosure rules to provide 

investors with important and relevant 

information upon which to base their 

proxy voting and investment decisions. 

The amendments proposed today 

would add new disclosure requirements 

on several topics that are designed to 

enhance the information included in 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
Federal Register / Vol. 74, No. 136 / Friday, July 17, 2009 / Proposed Rules 35077 

19The 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)]. 

22The 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). 

23Release No. 34–31326 (Oct. 16, 1992) [52 FR 

48276] (‘‘1992 adopting release’’). 

24See Release No. 33–8732A (Aug. 29, 2006) [71 

FR 53518]; Release No. 33–8765 (Dec. 22, 2006) [71 

FR 78338]. 

25Shortly 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. 

26See, 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. 

27See, 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, § 7001, 123 Stat. 115, 517 (2009). 

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. 

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 nonmanagement parties. We believe the 

proposed revisions will provide 

certainty in how the rules operate and 

facilitate the proxy solicitation process. 

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

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 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
35078 Federal Register / Vol. 74, No. 136 / Friday, July 17, 2009 / Proposed Rules 

28See, 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. 

29See, 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/

ej2mxgcl4qbguyozahqba4xzsiht7wyqxcdcjhsyfbvl4

jwcurjanaslkfm4up6xgxuf5c57

ogpkxt44shucmryo3ja/ExecutiveCompensation

SecretaryGeithnerFeb62009.pdf. 

30See proposed Item 402(b)(2) of Regulation S– 

K. If a company had a policy against providing 

compensation that encouraged imprudent risktaking, 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. 

31To 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. 

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 wellbeing 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

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 nonexecutive 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. 

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: 

• At a business unit of the company 

that carries a significant portion of the 

company’s risk profile; 

• At a business unit with 

compensation structured significantly 

differently than other units within the 

company; 

• At business units that are 

significantly more profitable than others 

within the company; 

• At business units where the 

compensation expense is a significant 

percentage of the unit’s revenues; or 

• 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 nonexclusive. 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: 

• 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; 

• The company’s risk assessment or 

incentive considerations, if any, in 

structuring its compensation policies or 

in awarding and paying compensation; 

• 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; 

• The company’s policies regarding 

adjustments to its compensation 

policies to address changes in its risk 

profile; 

• Material adjustments the company 

has made to its compensation policies 

or practices as a result of changes in its 

risk profile; and 

• 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. 

• 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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Federal Register / Vol. 74, No. 136 / Friday, July 17, 2009 / Proposed Rules 35079 

32Pursuant 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 sharebased 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. 

34See 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. 

35See Release No. 33–6962 (Oct. 16, 1992) [57 FR 

48126]. 

36See 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. 

37See Release No. 33–8765 in note 24 above. 38 Item 402(d)(2)(viii) of Regulation S-K. 39See, 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. 

40See 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’’). 

Request for Comment 

• 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? 

• 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? 

• Should other elements of 

compensation that may encourage 

excessive risk taking be highlighted in 

the CD&A? 

• 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? 

• 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? 

• Are there certain risks that are more 

clearly aligned with compensation 

practices the disclosure of which would 

be important to investors? 

• 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? 

• 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

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

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 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
35080 Federal Register / Vol. 74, No. 136 / Friday, July 17, 2009 / Proposed Rules 

41See 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’’). 

42See 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.’’). 

43Pursuant 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. 

44Summary 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. 

45Some 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). 46See 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/AUsersGuidetotheSECPay

Disclosures102762.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 planbased awards table, instead of the figures disclosed 

in the SCT stock awards and options awards 

columns.’’). 47Correlating Stock Awards and Option Awards 

reporting to financial statement recognition often 

can involve negative adjustments to the numbers 

reported. In particular: 

» 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. 

» 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. 

48See G. Morgenson, Weird and Weirder 

Numbers on Pay Reports, N.Y. TIMES, Mar. 11, 

2007. 

49See 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.’’). 

50See 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.’’). 

51See Release No. 33–8765 in note 24 above at 

78340 (citing letter from Fenwick & West LLP). 

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

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

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

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— 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
Federal Register / Vol. 74, No. 136 / Friday, July 17, 2009 / Proposed Rules 35081 

52See 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)). 

53See 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’’). 

54See Item 402(d)(2)(viii) of Regulation S–K and 

Instruction 7 to Item 402(d). 

55Current Instruction to Item 402(k)(2)(iii) and 

(iv) of Regulation S–K. 

56This 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. 

rather than factors unrelated to those 

decisions, cause the named executive 

officers to change. 

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. 

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: 

• 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 

• 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

Request for Comment 

• 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? 

• 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? 

• 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? 

• 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? 

• 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 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
35082 Federal Register / Vol. 74, No. 136 / Friday, July 17, 2009 / Proposed Rules 

57See 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. 

58See Item 402(c)(1) of Regulation S–K. 

59See Item 402(n)(1) of Regulation S–K. 

60This amount would be computed based on the 

individual award grant date fair values reported in 

that year’s Grants of Plan Based Award Table. 

61However, 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. 

62We 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]. 

63See, 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.’’). 

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? 

• 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, noncash 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? 

• 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? 

• 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? 

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

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

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 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
Federal Register / Vol. 74, No. 136 / Friday, July 17, 2009 / Proposed Rules 35083 

64Pub. 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]. 

66 15 U.S.C. 78l. 

67 15 U.S.C. 78o(d). 

68Under 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. 

69Release No. 33–7106 (Nov. 1, 1994) [59 FR 

55385]. 

70Consistent 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). 

operational challenges can be important 

attributes for directors of public 

companies. Moreover, developments 

such as the enactment of the SarbanesOxley Act of 2002 64 and corporategovernance 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. 

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 fiveyear 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). 

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

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 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
35084 Federal Register / Vol. 74, No. 136 / Friday, July 17, 2009 / Proposed Rules 

71Management 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]. 

72See 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). 

73See 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 closedend management investment companies. Form N– 

3 is used by separate accounts, organized as 

management investment companies, which offer 

variable annuity contracts. 

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. 

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

Request for Comment 

• 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? 

• 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? 

• 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? 

• 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? 

• 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? 

• 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? 

• Should we require disclosure of 

other directorships for more than the 

past five years? If so, for how long? 

• 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. 

• 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? 

• 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: 

Æ Any civil or administrative 

proceedings resulting from involvement 

in mail fraud, or wire fraud; 

Æ 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; 

Æ Any disciplinary sanctions 

imposed by a stock, commodities or 

derivatives exchange or other selfregulatory organization; or 

Æ 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? 

• 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? 

• 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? 

• 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 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
Federal Register / Vol. 74, No. 136 / Friday, July 17, 2009 / Proposed Rules 35085 

74See, 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.’’) 

75Section 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.’’ 

76See 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). 

79See 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 § 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, § 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 § 704; 

New York Stock Exchange Listed Company Manual 

§ 302.00. 

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. 

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. 

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

Request for Comment 

• Are the proposed amendments to 

Item 407 appropriate? Are there 

additional disclosure requirements that 

should also be included in these 

proposed requirements? 

• Are there certain considerations 

that would affect the company’s 

leadership structure that should be 

highlighted in the proposed 

amendment? If so, explain. 

• Are there any additional disclosures 

about a company’s leadership that 

would be helpful to investors? 

• Should we require disclosure of the 

specific duties performed by the board’s 

chair or independent lead director? 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
35086 Federal Register / Vol. 74, No. 136 / Friday, July 17, 2009 / Proposed Rules 

80 17 CFR 229.303. 

81 17 CFR 229.305. 

82See Release No. 33–8340 (Nov. 24, 2003) [68 FR 

69204]. 83CFR 229.407(e)(3)(iii). 84See, for example, J. Creswell, Pressing for 

Independent Advice from Consultants, N.Y. TIMES, 

Apr. 8 2007. 

85See, 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). 

87See 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. 

88See proposed Item 407(e)(3)(iii) of Regulation 

S–K. 

• 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? 

• 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. 

• Should we make any special 

accommodations in these proposed 

amendments for smaller reporting 

companies? If so, what accommodations 

should be made and why? 

• 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? 

• 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)? 

• 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 openend 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

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. 

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

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

• The nature and extent of all 

additional services provided to the 

company or its affiliates during the last 

fiscal year by the compensation 


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Federal Register / Vol. 74, No. 136 / Friday, July 17, 2009 / Proposed Rules 35087 

89On 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. 

90We 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. 

consultant and any affiliates of the 

consultant; 

• The aggregate fees paid for all 

additional services, and the aggregate 

fees paid for work related to 

determining or recommending the 

amount or form of executive and 

director compensation; 

• Whether the decision to engage the 

compensation consultant or its affiliates 

for non-executive compensation 

services was made, recommended, 

subject to screening or reviewed by 

management; and 

• 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 broadbased 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, nondiscriminatory 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

Request for Comment 

• 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? 

• 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? 

• 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? 

• 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? 

• 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? 

• 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. 

• 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? 

• 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 noncompensation related service provided 

as proposed? 

• 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? 

• 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? 

• 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 


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35088 Federal Register / Vol. 74, No. 136 / Friday, July 17, 2009 / Proposed Rules 

91 17 CFR 240.14a–2(b)(1). 

92 17 CFR 240.14a–2(b)(1)(ix). 

93 17 CFR 240.14a–4(d)(4). 

94 17 CFR 240.14a–4(e). 

95 17 CFR 240.14a–12(a)(1)(i). 

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 

• To what extent would requiring the 

reporting of voting results on Form 8– 

K provide more timely information to 

investors and the markets? 

• 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? 

• 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? 

• Are there alternative methods to 

disseminate this information to 

investors sooner or within a similar time 

frame that would be more effective or 

appropriate? 

• 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? 

• Would the proposal impose any 

significant costs or difficulties on 

companies? If so, what type and amount 

of costs? Are these short-term or onetime costs to adjust a company’s 

reporting procedures, or long-term, 

ongoing costs? 

• 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? 

• Would the accuracy of disclosure of 

voting results be affected as a result of 

a Form 8–K filing requirement? 

• 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: 

• 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; 

• 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; 

• 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

• 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 

• 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. 

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 


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Federal Register / Vol. 74, No. 136 / Friday, July 17, 2009 / Proposed Rules 35089 

96 1992 adopting release in note 23 above. 

97Exchange Act Rule 14a–2(b)(1). 

98 Indeed, the soliciting person has not foreclosed 

any voting option available to the shareholder. 

99See 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). 

100This clarification is consistent with advice the 

staff informally has provided in response to related 

inquiries since the rule was adopted. 

101Providing 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. 

102 17 CFR 240.14a–103. 

103 17 CFR 240.14a–6(g). 

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.’’ 

105For 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. 

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

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

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

Request for Comment 

• 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? 

• 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? 

• 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? 

• 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? 

• 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

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. 

Request for Comment 

• 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 


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35090 Federal Register / Vol. 74, No. 136 / Friday, July 17, 2009 / Proposed Rules 

106See Exchange Act Rule 14a–4(d)(4). 

107 1992 adopting release in note 23 above at 

48288. 

108See 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 nonmanagement 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. 

109 1992 adopting release in note 23 above at 

48288. 

110 1992 adopting release in note 23 above at 

48287–48288. 

111 15 U.S.C. 78m(d). 

112 15 U.S.C. 78m(g). 

113A 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. 

exemption would be unavailable? If so, 

please provide examples of details that 

would be helpful. 

• 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. 

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. 

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 nonmanagement slate and, as a result, are 

effectively advantaged, as security 

holders may vote for them on two or 

more proxy cards where nonmanagement 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. 

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 nonmanagement 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 nonmanagement soliciting person that seeks 

to round out its short slate with any 

nominee named in another nonmanagement 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. 

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 nonmanagement soliciting person that seeks 

to round out its short slate with any 

nominee named in another nonmanagement 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 

• 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? 

• 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 


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116We 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. 

117Release No. 34–4185 (Nov. 5, 1948) [13 FR 

6680]. 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. 

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 nonmanagement 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? 

• 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? 

• 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? 

• 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? 

• 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 nonmanagement 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? 

• 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 nonmanagement 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

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. 

Request for Comment 

• Will specifying that reasonable 

specified conditions must be objectively 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
35092 Federal Register / Vol. 74, No. 136 / Friday, July 17, 2009 / Proposed Rules 

121 17 CFR 240.14a–3(a). 

122See Release No. 33–7760 (Oct. 22, 1999) [64 

FR 61408]. 

123For 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. 

determinable have any harmful effect on 

proxy solicitation practices? 

• 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. 

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. 

Request for Comment 

• 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? 

• Does the proposed amendment 

adequately clarify how the participant 

information must be filed? 

• 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 

• Would this compliance schedule be 

workable? 

• Are any special transition 

provisions necessary for any aspects of 

the proposed amendments? If so, please 

explain what would be needed and 

why. 

• 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. 

• Are there any disclosures required 

in the proxy statement that we should 

consider proposing to eliminate in light 

of the proposed amendments? 

• 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? 

• 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? 

• 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? 

• 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 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
Federal Register / Vol. 74, No. 136 / Friday, July 17, 2009 / Proposed Rules 35093 

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

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? 

• 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? 

• 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? 

• 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: 

(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: 

• 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; 

• 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; 

• Additional disclosure of any 

directorships held by each director and 

nominee at any time during the past five 

years at public companies; 

• 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; 

• New disclosure about a company’s 

board leadership structure and the 

board’s role in the risk management 

process; 

• 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 

• 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: 

• 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; 

• Additional disclosure of any 

directorships held by each director and 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
35094 Federal Register / Vol. 74, No. 136 / Friday, July 17, 2009 / Proposed Rules 

128The proposed amendment to Exchange Act 

Rule 14a–4(d)(4) would require that a nonmanagement 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. 

nominee at any time during the past five 

years at public companies; and 

• 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: 

• 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 

• 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 nonmanagement 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 nonmanagement persons that seek to round 

out their short slates and, as a result, 

would not increase any existing 

disclosure burden.128

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 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
Federal Register / Vol. 74, No. 136 / Friday, July 17, 2009 / Proposed Rules 35095 

129Release No. 33–8183 (Jan. 28, 2003) [68 FR 

6006] (which we estimated to be two hours). 

130Release 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. 

131Release No. 33–8340 (Nov. 24, 2003) [68 FR 

69204] (which we estimated to be three hours). 

132The 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. 

133We 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. 

134We 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. 

135Figures in both tables have been rounded to 

the nearest whole number. 

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: 

• Sixteen hours for the proposed 

amendments to CD&A; 

• Four hours for the proposed 

enhanced director and nominee 

disclosure; 

• Six hours for the proposed 

disclosures about company leadership 

structure and the board’s role in risk 

management; 

• Four hours for the proposed 

disclosures regarding compensation 

consultants; and 

• 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: 

• 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 

• 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. 

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. 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
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136The 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. 137We 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. 

138We 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. 

139The burden allocation for Form 10 uses a 25% 

internal to 75% outside professional allocation. 

140The 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. 

141The 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 openended management investment companies 

registered with the Commission. 

TABLE 1.—INCREMENTAL PAPERWORK BURDEN UNDER THE PROPOSED AMENDMENTS FOR ANNUAL REPORTS; 

QUARTERLY REPORTS; PROXY AND INFORMATION STATEMENTS

Number of 

responses 136

Incremental 

burden hours/ 

form 

Total incremental burden 

hours 

75% Company 25% 

Professional 

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–K138 ........................................... 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. 14A140 ................................... 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 

TABLE 2—INCREMENTAL PAPERWORK BURDEN UNDER THE PROPOSED AMENDMENTS FOR REGISTRATION STATEMENTS

Number of 

responses 141

Incremental 

burden hours/ 

form 

Total incremental burden 

hours 

25% Company 75% 

Professional 

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: 

• 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; 

• Evaluate the accuracy of our 

estimates of the burden of the proposed 

collections of information; 

• Determine whether there are ways 

to enhance the quality, utility, and 

clarity of the information to be 

collected; 

• 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 

• 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, 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
Federal Register / Vol. 74, No. 136 / Friday, July 17, 2009 / Proposed Rules 35097 

142See Part II.F above. 

143Rule 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. 

145Rule 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. 

146As 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 nonmanagement nominees and decrease the number of 

Continued 

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. 

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

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 nonmanagement nominees can only be 

voted for on one. Consequently, the 

proposed amendment would provide 

additional flexibility to nonmanagement 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 nonmanagement soliciting persons to seek 

to round out their short slates with other 

non-management persons’ nominees.147


pwalker on DSK8KYBLC1PROD with PROPOSALS2
35098 Federal Register / Vol. 74, No. 136 / Friday, July 17, 2009 / Proposed Rules 

successful management nominees. In this regard, 

we note that there appear to have been few 

instances in the past in which more than one nonmanagement person sought to round out a short 

slate with respect to a single election of directors. 

148Exchange 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.’’ 

149Exchange 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. 

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. 

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. 

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 


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Federal Register / Vol. 74, No. 136 / Friday, July 17, 2009 / Proposed Rules 35099 

150See Part IV.A.1 above. 

151See Part IV.A.2 above. 

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 PlanBased 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 betterinformed 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 fullyregulated proxy solicitation and provide 

shareholders a convenient opportunity 

to indicate their votes after hearing 

those views. 

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 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
35100 Federal Register / Vol. 74, No. 136 / Friday, July 17, 2009 / Proposed Rules 

152See Part IV.A.3 above. 

153See Part IV.A.4 above. 

154See Part II.A.5 above. 

155This 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. 

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. 

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 nonmanagement soliciting persons seek to 

round out their slates with other nonmanagement persons’ nominees, 

shareholders may benefit from having 

more choices in deciding for whom they 

will vote. 

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. 

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 legendreferenced 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. 

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. 

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 


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Federal Register / Vol. 74, No. 136 / Friday, July 17, 2009 / Proposed Rules 35101 

156This 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. 157This 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. 158This 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. 

159This 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. 

160This 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. 

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 remeasurement 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. 

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. 

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. 

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 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
35102 Federal Register / Vol. 74, No. 136 / Friday, July 17, 2009 / Proposed Rules 

161This 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. 

162See Part IV.A.1 above. 

163See Part IV.A.2 above. 

164We 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. 

165See Part IV.A.3 above. 

166See Part IV.A.4 above. 

167See Part IV.A.5 above. 

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

169 15 U.S.C. 77b(b). 

170 15 U.S.C. 78c(f). 

171 15 U.S.C. 80a–2(c). 

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

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. 

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

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. 

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. 

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 legendreferenced 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. 

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. 

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. 

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 


pwalker on DSK8KYBLC1PROD with PROPOSALS2
Federal Register / Vol. 74, No. 136 / Friday, July 17, 2009 / Proposed Rules 35103 

172 5 U.S.C. 603. 173 5 U.S.C. 601. 

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). 

178The proposed requirements to discuss and 

analyze a company’s overall compensation 

Continued 

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: 

• An annual effect on the economy of 

$100 million or more (either in the form 

of an increase or a decrease); 

• A major increase in costs or prices 

for consumers or individual industries; 

or 

• 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. 

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. 

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


pwalker on DSK8KYBLC1PROD with PROPOSALS2
35104 Federal Register / Vol. 74, No. 136 / Friday, July 17, 2009 / Proposed Rules 

programs as they may have a material impact on 

risk management practices would not apply to 

smaller reporting companies. 

• Disclosure of the aggregate grant 

date fair value of equity awards 

computed in accordance with FAS 

123R; 

• 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 

• 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: 

• 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; 

• Added disclosure regarding certain 

legal proceedings involving a company’s 

directors, nominees for director and 

executive officers; and 

• 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: 

• Establishing different compliance or 

reporting requirements or timetables 

that take into account the resources 

available to small entities; 

• Clarifying, consolidating or 

simplifying compliance and reporting 

requirements under the rules for small 

entities; 

• Using performance rather than 

design standards; and 

• Exempting small entities from all or 

part of the requirements. 

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 PlanBased 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: 

• How the proposed amendments can 

achieve their objective while lowering 

the burden on smaller entities; 

• The number of small entity 

companies that may be affected by the 

proposed amendments; 

• The existence or nature of the 

potential impact of the proposed 

amendments on small entity companies 

discussed in the analysis; and 

• 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. 


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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 § 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: 

§ 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 § 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: 

§ 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 


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the registrant’s policies or practices of 

compensating its employees, including 

non-executive officers, as they relate to 

risk management practices and/or risktaking 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 performancerelated 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 nondisclosure 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 nonGAAP financial measures will not be 

subject to Regulation G (17 CFR 244.100 

through 244.102) and Item 10(e) 

(§ 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 nonequity 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 


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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

Name Grant date 

Estimated future payouts under nonequity incentive plan awards Estimated future payouts under equity 

incentive plan awards 

All other 

stock 

awards: 

number of 

shares of 

stock or 

units (#) 

All other 

option 

awards: 

number of 

securities 

underlying 

options (#) 

Exercise or 

base price 

of option 

awards 

($/Sh) 

Threshold 

($) Target ($) Maximum ($) 

Threshold 

(#) Target (#) Maximum (#) 

(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 nonequity 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 


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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 § 229.407 by revising 

paragraph (e)(3)(iii) and adding 

paragraph (h) before the Instructions to 

Item 407 to read as follows: 

§ 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 § 240.14a–2 by revising 

paragraph (b)(1) introductory text; and 

paragraph (b)(1)(ix) to read as follows: 

§ 240.14a–2 Solicitations to which 

§ 240.14a–3 to § 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: 


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(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 § 240.14a–4 by revising 

paragraphs (d)(4) and (e) to read as 

follows: 

§ 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 § 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 (§§ 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 (§ 240.14a–101), in any 

solicitation by any such other nonregistrant 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 § 240.14a–12 by revising 

paragraph (a)(1)(i) to read as follows: 

§ 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 

(§ 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 (§ 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 § 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: 

§ 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 

(§ 229.401, § 229.404(a) and (b), 

§ 229.405 and § 229.407(d)(4), (d)(5) and 

(h) of this chapter). 

* * * * * 

Item 22. Information required in 

investment company proxy statement. 

* * * * * 

(b) Election of Directors. * * * 

(3)(i) For each director or nominee for 

election as director, briefly discuss the 

specific experience, qualifications, 

attributes, or skills that 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 

(§§ 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). 


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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 

§ 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 nonvotes 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 

§ 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 

§ 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 

§§ 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 


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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 §§ 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 

§§ 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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