A few questions of the ABA's Joint Committee on Employee Benefits answered by the SEC

By Cydney Posner

Compensationstandards.com has posted some useful notes (apparently there are more to come) from the meeting held annually between the ABA's Joint Committee on Employee Benefits and the SEC staff. The notes are a preview of the more formal (and more definitive) summary that is usually circulated several months after the meeting. The staff answered a few questions regarding proxies.

Prior Year Information for a New NEO.The staff clarified that, when an individual (whether or not an executive officer) becomes an NEO for the first time, Item 402(a)(4) calls for only current year information in the SCT.

A Perquisite's "Total Cost." Here's a question that we had also asked the staff, but to which we had not yet heard a response. The FAQs provide that no perk disclosure is required if the executive officer has fully reimbursed the company for the "total cost" of the perk. However, if disclosure is required, the amount reported must be the "aggregate incremental cost." The staff confirmed that "total cost" is different from "aggregate incremental cost." Of course, the staff refused to provide a "bright line" definition, but did indicate that "total cost" generally would be the amount that the NEO would have to pay to obtain the benefit independent of the company's intervention or involvement. For example, if an NEO uses a seat in the company's luxury box (which the company purchased for business purposes, but is not using), even though there is no incremental cost of the seat to the company, the NEO would have to reimburse the company for the actual cost of the ticket to avoid perquisite disclosure.

Nonqualified Deferred Compensation Earnings. Item 402(i)(2)(iv) requires disclosure in the Aggregate Earnings in Last FY column of the Nonqualified Deferred Compensation Table of the dollar amount of aggregate interest or other earnings accrued during the registrant’s last fiscal year. "Earnings" include the appreciation in the value of the investments into which NEO and company contributions are made, along with dividends and other similar items. The table is intended to provide an ongoing reconciliation of an NEO's NQDC activities from year to year.

Director Equity Awards.The information called for by the Instruction to Item 402(k)(2)(ii) and (iv) requires disclosure that is parallel to the comparable disclosure for NEOs. Accordingly, the grant date fair value information is required only for equity awards made during the company's last completed FY (similar to the information required in the Grants of Plan-Based Awards Table); and information about outstanding awards is required only for unexercised stock options (whether or not currently exercisable) and unvested stock awards (similar to the information required in the Outstanding Equity Awards at Fiscal Year-End Table).