A little light weekend reading, courtesy of the Securities and Exchange Commission staff, which posted three new Compliance & Disclosure Interpretations related to Regulation S-K.

The March 12 C&DIs are the latest to update the staff’s views in light of the new Proxy Disclosure Enhancements rule that took effect Feb. 28.

Questions 119.25 and 119.26, relate to reporting Executive Compensation amounts in the Summary Compensation Table under Item 402(c). The third, Question 133.12, relates to the reporting of compensation consultant fees as required under Item 407.

More help for companies on complying with the Securities and Exchange Commission’s new Proxy Disclosure Enhancements rule: The staff of the Division of Corporation Finance has posted six new Compliance and Disclosure Interpretations.

Among other things, the rule, adopted by the SEC in December, requires new disclosure about executive pay, risks and risk oversight, and directors’ experience and qualifications, and requires much faster reporting of shareholder vote results.

The new interpretations published Feb. 16 include new questions 116.07, 117.05; 119.21, 119.22 and 119.23, which offer guidance on disclosure under Items 401, 402(a), and Item 402(c) of Regulation S-K.
The staff also added new question 121A.01 related to Exchange Act Form 8-K, which explains how issuers should calculate the four-business day filing period for disclosing the results of a shareholder vote.

They follow other staff guidance on the new requirements issued in January and December.

RiskMetrics Group has published some guidance for companies, in the form of three frequently asked questions, about how its voting policies may apply to some of the disclosures required under the Securities and Exchange Commission’s new proxy disclosure rule.

The rule adopted by the SEC in December, which includes new disclosure about risk-management oversight, “risky” compensation, and director qualifications, among other things, are effective for proxy statements issued on or after Feb. 28, 2010, by companies with a fiscal year ending on Dec. 15, 2009 or later.

RMG says the FAQs are intended to provide “high-level guidance regarding the way in which the RMG Research Department will generally view certain issues in the context of preparing proxy analyses and vote recommendations for U.S. companies,” but shouldn’t be construed as “a guarantee as to how RMG’s Research Department will apply its benchmark policy in any particular situation.”

Topics addressed include what RiskMetrics will look for in the new disclosure requirement on risks raised by compensation programs, and how it will view non-disclosure, how it will analyze compensation consultant fee disclosures, and views and the prospects for related voting recommendations regarding the new disclosures on director qualifications, diversity policies, and board leadership and oversight of risk management.

Noting that some companies may say nothing in their proxy statement, rather than make a negative disclosure, if they conclude they have no material adverse risks caused by pay, RMG says that, while it doesn’t have a policy regarding non-disclosure, it advises issuers to, “at a minimum, talk about their process and any mitigating features (such as claw-backs or bonus banks) that they have adopted.”

With respect to compensation consultant fee disclosures, RMG said since the data is brand new, it won’t apply any formula or any specific policy with regard to fees (i.e. raising concerns if fees for other services exceed fees for compensation consulting). Rather, RMG says it will analyze the issue after proxy season and will then “develop, in consultation with clients, any policy guidelines that are warranted.”

RMG also said it’s too early to speculate about potential policy changes related to the new disclosures on director qualifications, diversity policies, and board leadership and oversight of risk management.

Additional information clarifying directors’ qualifications “will not be determinative in any recommendation but rather will provide additional insight that may be considered in overall evaluations, as warranted,” the FAQs state.

With respect to board leadership and diversity and the board’s oversight of risk management, RMG hasn’t made any policy changes related to director elections in 2010.

“We look forward to seeing substantive discussion of these issues, and will incorporate meaningful information into analysis of related shareholder proposals, as appropriate, although RMG policy regarding those proposals is unchanged for 2010,” RMG says.

Despite the progress made during the last year, both with respect to financial reform and reform of the Securities and Exchange Commission’s enforcement program, there’s more work to do, according to at least one SEC official.

While he praised some of the progress made to date, SEC Commissioner Luis Aguilar, in a Feb. 5 speech, said more change is needed, both by the SEC and lawmakers crafting regulatory reform.

“Whether reform legislation comes soon or not, the SEC must continue its own revitalization,” Aguilar said in remarks at the SEC Speaks conference in Washington, D.C. In particular, he flagged two issues he says would go “a long way to truly empowering our staff and removing barriers from their path.”

First, he repeated his call for the SEC to revisit its 2006 Penalty Statement, which he described as “a misguided approach to how to weigh factors one considers when deciding whether to seek a corporate penalty.”

“Every day these guidelines are in place they adversely impact the cases we are working on,” Aguilar said.

Under that framework, which prioritizes the presence or absence of a direct benefit to the company as a result of the violation and the degree to which the penalty will recompense or further harm the injured shareholders, Aguilar said, “the conduct itself becomes of secondary importance, and the Commission fails to appropriately focus on deterrence.”

He also called for the establishment of a uniform audit trail for securities trading to provide the staff quicker access to information regarding trades. Currently, the staff relies on information from the Electronic Blue Sheet system and information from the self-regulatory organizations, which he described as “an outdated, patchwork approach.”

Aguilar advocated replacing the current system with a searchable repository of trading data that would provide the staff with a “near real-time view of market activity.” He said such a system should be scalable to allow for the inclusion of new products and practices in securities markets, and ideally the derivatives markets.

As previously reported, SEC Commissioner Mary Schapiro noted in a speech at the same event that the commission will consider staff recommendations in the spring to have the SROs develop and implement a consolidated audit trail that captures customer and order event information across markets to help improve market surveillance.

Meanwhile, Aguilar noted that promised e-proxy changes and investor education efforts are coming. He said the SEC soon will establish educational efforts to help investors “understand e-Proxy and their rights” and amend its rules so that the process “is less confusing to investors.”

Under the current rule, companies can post their proxy materials online and send shareholders a notice that they’re available without sending a full set of paper materials unless requested. However, data showed that participation by retail investors plummeted at some companies that used the so-called “notice only” model, sparking criticism by some, including Aguilar, who urged the SEC to either fix or scrap e-proxy.

Aguilar said he’ll be “watching to see if the amendments result in real improvement.”

He also reiterated his call for the SEC to be self-funded. While an early draft of the Senate financial regulation reform bill provided for self-funding, it’s unclear whether that provision will make it into any final legislation. As recently reported, the President’s recent budget request of $1.258 billion for fiscal 2011 would increase the Commission’s coffers by roughly $139 million, or 12 percent over its fiscal 2010 funding level, and would enable the agency to add hundreds of staff positions.

In order for reforms to be sustainable, Aguilar said existing rules must be “implemented fully and enforced.” For example, pointing to the recently adopted Proxy Disclosure Enhancement rule, which requires greater disclosure about board member qualifications, Aguilar said the usefulness of that disclosure to investors will depend on how well the rule requirements are implemented.

“To that end, I commend those who will work to meet not only the letter of the law, but the spirit as well,” he said.

His remarks were part of a broader speech lamenting the lack of progress on financial regulatory reform. Despite the “intense focus” on financial reform over the last year, Aguilar said “very little has changed.”

“There have been many speeches given and many preliminary steps taken toward regulatory reform, but for all the activity, reform itself has yet to be achieved,” he said. For example, he said over-the-counter derivatives, hedge funds, and municipal securities markets “still lack appropriate regulation, and our inspection and enforcement efforts in these areas continue to be severely undermined.”

Aguilar also chastised the use of the reform process by some as an “opportunity to weaken strong investor-focused laws arising from lessons learned in prior crises.” In particular, he has criticized the Wall Street Reform and Consumer Protection Act passed by the House in December because it would exempt non-accelerated filers—which he says account for 50 percent of all U.S. public companies—from having an outside audit of their internal controls as required under Section 404(b) of Sarbanes-Oxley. The Senate draft bill was silent on that issue.

Meanwhile, he lauded two initiatives he advocated last year: the creation of the Investor Advisory Committee and the streamlining of the formal order process, which delegated the power to issue a subpoena to senior staff. Aguilar said the change has resulted in “a huge improvement in the speed and efficiency” by which the enforcement staff can conduct an investigation.

Amid fury over bank bonus pay, the head of the House Financial Services Committee wants the Securities and Exchange Commission to require public companies to disclose the compensation of their top-paid employees who aren’t senior executives, which would essentially revive a proposal the agency panned in 2006.

Under current SEC rules, companies disclose the pay of their chief executive officer, chief financial officer, and three highest-paid executive officers.

Financial Services Committee Chairman Barney Frank said the SEC “should expand the disclosure,” according to a Feb. 2 report by Bloomberg. Doing so would potentially force Wall Street firms to reveal how much their top traders and money managers earn.

“They can do that without us,” Frank is quoted as saying. “There’s no point in legislating.”

Steven Adamske, Communications Director for the House Committee on Financial Services, confirmed the report of Frank’s comments as correct.

“We don’t have an exact time for when we will have new legislation, but as Mr. Frank points out in the story, the SEC does not have to wait for us,” he told Compliance Week in an e-mail.

Frank’s remarks come amid backlash over reports that some banks are paying billions in bonuses a year after receiving huge government bailouts.

The idea is reminiscent of a proposal, floated and ultimately dropped by the SEC in 2006 when it overhauled its rules on pay disclosure, that would’ve required companies to disclose the total compensation and job description of their three highest-paid non-executive employees who earn more than the company’s named executive officers.

Dubbed the “Katie Couric rule,” since it would’ve required disclosure of the celebrity journalist’s eye-popping pay as anchor of the “CBS Evening News,” the proposal was later revised in response to sharp criticism from Corporate America. The narrower version targeted only non-executive employees with management responsibilities, excluding most traders, top salesmen, entertainers, and professional athletes. However, the SEC eventually dropped the proposal amid a firestorm of criticism from the business community, which argued that the disclosure wouldn’t be material to investors and wouldn’t help them understand pay decisions, since non-executive pay is often set differently from that of executive officers. Companies also said it would put them at a competitive disadvantage in the market for managerial talent.

In an e-mail response to a request for comment, SEC spokesman John Heine said, “The SEC recently revised our executive compensation disclosure rules and routinely reviews our rules to ensure they provide meaningful information to investors.”

As previously reported, the SEC adopted new proxy disclosure rules in mid-December that require more disclosure about the relationship of a company’s pay policies and practices to risk management and the board’s role in risk oversight, among other things, amid concerns that Wall Street pay practices contributed to the financial crisis by incentivizing executives to take huge risks.

Frank also told Bloomberg that lawmakers are “discussing expanding legislation that lets shareholders weigh in on corporate pay” to give shareholders of financial companies “a vote on the percentage of annual revenue that’s allocated to pay.”

The House already approved a measure to give public company shareholders a non-binding advisory vote on pay for the named executive officers disclosed in corporate proxies as part of its Wall Street Reform legislation. The Senate is still hammering out its own reform legislation. An earlier draft also included a say-on-pay provision.

The Securities and Exchange Commission staff published more new Compliance and Disclosure Interpretations related to the new proxy disclosure enhancements rule.

The rule, adopted by the SEC on Dec. 16, requires greater disclosure about executive pay, risks and risk oversight, and directors’ experience and qualifications. It also changes the way stock and option awards made to executives and directors get reported in corporate proxies and requires much faster reporting of shareholder vote results.

The latest interpretations follow guidance issued by the staff on Dec. 22 on transitioning to the new rule, previously reported here.

The updated guidance under Regulation S-K includes New Questions 116.05, 116.06, 117.04, 119.20, 128A.01, 133.10, and 133.11. The staff also added new transition questions 6 and 7.

Get ready for new guidance on climate change disclosure. The Securities and Exchange Commission plans to vote next week on an interpretive release to provide guidance to companies on its current disclosure requirements.

According to a Sunshine Act notice posted Jan. 20, the SEC has scheduled an Open Meeting on Jan. 27, where it will consider a recommendation to publish an interpretive release to “provide guidance to public companies regarding the Commission’s current disclosure requirements concerning matters relating to climate change.”

Investor groups have long been pushing the SEC to issue guidance requiring companies to assess and disclose the risks they face from climate change.

If the Commission votes to publish the interpretive release, SEC spokesman John Nester clarified that it would be effective immediately upon publication, since it’s guidance, not a rule change.

Nester says the guidance is a response to “many factors, including that current guidance was written more than 25 years ago and much has changed since then.”

Also on the agenda is consideration of a recommendation to adopt new rules, rule amendments, and a new form under the Investment Company Act of 1940 governing money market funds.

Consider it a holiday gift from the Securities and Exchange Commission: The staff of the Division of Corporation Finance has posted new guidance for companies on transitioning to the recently approved proxy disclosure enhancements rule.

The five new Compliance & Disclosure Interpretations posted Dec. 22 comprise the staff’s interpretations of how the rule’s effective date applies to the filing of proxy statements, Form 10-Ks, Form 8-Ks, Securities Act registration statements, and Exchange Act registration statements.

The final rule, approved by the SEC on Dec. 16, requires companies to provide greater disclosure about executive pay, risks and risk oversight, and directors’ experience and qualifications. It also changes the way stock and option awards made to executives and directors get reported in corporate proxies and requires much faster reporting of shareholder vote results.

Among other things, the C&DIs clarify that, if an issuer’s fiscal year ends before Dec. 20, 2009, its 2009 Form 10-K and related proxy statement aren’t required to be in compliance with the new proxy disclosure requirements, even if filed on or after Feb. 28, 2010.

However, if an issuer’s fiscal year ends on or after Dec. 20, 2009, its Form 10-K and proxy statement must be in compliance with the new proxy disclosure requirements if filed on or after Feb. 28, 2010. Moreover, if that issuer is required to file a preliminary proxy statement and expects to file its definitive proxy statement on or after Feb. 28, 2010, the preliminary proxy statement must be in compliance with the new requirements, even if filed before Feb. 28, 2010. If that issuer files its 2009 Form 10-K before Feb. 28, 2010 and its proxy statement on or after Feb. 28, 2010, the proxy statement must comply with the new requirements.

The C&DIs also clarify that an issuer can voluntarily comply with the Summary Compensation Table and Director Compensation Table amendments, but only if it also complies with all other Regulation S-K amendments adopted in the release that apply to the form filed. Issuers may provide the other new disclosures without having to comply with all of the new requirements.

Those tasked with drafting proxy disclosures take note: The Securities and Exchange Commission has approved proposed amendments to its proxy disclosure rules, with some notable changes from the July proposing release, that you’ll have to incorporate into your 2010 proxy disclosures.

The SEC, in a 4-1 vote, okayed proposed changes to the disclosures companies are required to make about compensation, risk, and corporate governance. The rules, which will be effective Feb. 28, 2010, aim to provide shareholders with better information to make voting decisions.

However, the rules approved at the Dec. 16 open meeting include some important tweaks from the proposal floated in July to address concerns raised in the more than 130 comment letters submitted to the SEC.

Most notably, the amendments will require companies to address their compensation policies and practices for all employees, not just executive officers, if the compensation policies and practices create risks that are “reasonably likely to have a material adverse affect on a company.”

The higher “reasonably likely” disclosure threshold wasn’t in the original proposal. Those disclosures also won’t be included in the Compensation Discussion and Analysis, and smaller reporting companies aren’t required to provide that disclosure.

Corporation Finance director Meredith Cross noted that the adopting release will include examples where companies might look for those issues and will instruct them to look at offsetting and mitigating factors.

The final rule will also require disclosure about the board’s role in risk oversight, instead of risk management as proposed, that’s focused on how that oversight is administered. For instance, whether that oversight resides with the audit committee or a separate risk committee, or to the extent it’s within different parts of the board, how those parts interact.

Required disclosures about the fees paid to compensation consultants and their affiliates were also modified from the proposing release. Under the final rule, disclosures of the fees paid and related disclosures won’t be required if the amount of additional services provided to the company by the consultant or an affiliate is less than $120,000 during the company’s fiscal year. The requirement also includes an expanded exception for consulting on broad-based plans such as 401(k)s or health insurance plans, and services limited to providing non-customized information such as surveys.

As expected, the rules also revise the reporting of stock and options awards so the full grant date fair value will be reported in the summary and director compensation tables, instead of the annual accounting charge.

For stock and options awards subject to performance conditions, the amount reported in the tables will be the aggregate fair value at grant date, based on the probable outcome of performance conditions. The maximum potential value of the awards will be disclosed in the footnotes to the tables.

The staff noted that, for fiscal years ending on or after Dec. 20 2009, companies will be required to present recomputed disclosure for all fiscal years included in the tables, but won’t be required to include different NEOs from any preceding fiscal years based on the recomputed total compensation.

The rules also expand the disclosure companies have to disclose about the experience, qualifications, and skills of individual directors and nominees and directors’ involvement in legal proceedings, and require companies to disclose whether and why their principle executive officer and chair roles are combined or split, and the role of a lead independent director, if the company has one.

In addition, the rules require disclosure of whether and, if so, how the nominating committee considers diversity in identifying nominees. If the committee or board has a policy for considering diversity in identifying nominees, the company must disclose how that policy is implemented and the effectiveness of that policy is assessed.

The rules also accelerate the reporting of voting results to require results be reported in Form 8-K within four business days of the meeting at which they’re held.

Meanwhile, proposed amendments to various proxy solicitation procedural rules were not included in the final rule. Due to the interrelation of some of those proposals to a pending SEC proposal intended to facilitate shareholder director nominations in company proxy materials, the staff recommended the SEC defer consideration of those proposals until it takes up the other rule.

Commissioner Kathleen Casey was the lone dissent on the rule. Her objections stemmed from the expanded disclosures related to director and nominee qualifications and the board’s consideration of diversity, which she said could undercut investors’ understanding of how companies assemble their boards and would encroach on the board’s decision-making authority.

Compliance Week will provide readers with full details and coverage of the final rule in its Dec. 22 edition.

As anticipated, the Securities and Exchange Commission has scheduled an open meeting for Dec. 16 to consider whether to adopt amendments to its rules to enhance the disclosures companies are required to make about compensation and other corporate governance matters.

While the form and effective date of any final rule the Commission might adopt remains to be seen, SEC officials have repeatedly said they want to have the rules in place in time for the 2010 proxy season.

The proposals, detailed in a 137-page proposing release published in July, call for greater disclosure of risks, executive compensation, or risks stemming from executive compensation. Most notably, as proposed, the rules would require companies be required to discuss and analyze compensation policies for all employees, including non-executive officers, if risks arising from those compensation policies or practices may have a material effect on the company.

The proposals would also require more disclosure about director nominees’ experience, and an explanation of whether companies separate their chairman and CEO roles and any possible compensation consultant conflicts of interests. Other proposed amendments would change how companies report the value of the stock and option awards granted to executives and directors and require disclosure much sooner of shareholder voting results. Comments on those proposals closed in September.

Also on the agenda for the meeting is consideration of amendments to the investment adviser custody rule (rule 206(4)-2) under the Investment Advisers Act of 1940) and related forms and rules.

Compliance Week will provide readers with full coverage of the SEC’s actions at the meeting in an upcoming edition.