As we all know, Item 402(j) of Regulation S-K gives companies broad latitude in how they present the quantification of the estimated payments and benefits that their named executive officers would receive upon a termination of employment or a change in control. Unlike most of the other subsections of Item 402 (which prescribe a specific tabular format for the presentation of the required compensation information), Item 402(j) only calls for narrative disclosure of this information and lets companies decide for themselves the format they will use to provide this information. As the SEC informally noted at the time Item 402 was amended, given the numerous variations in companies’ post-employment compensation arrangements, it wasn’t practical to devise a single table that would be workable for most companies.
Over the years, we’ve seen a wide variety of tabular presentations as part of the required Item 402(j) disclosure (and even a few situations where the estimated payments and benefits were provided in a narrative format). Some of these tables are pretty easy to read, while others tend to be quite complex, reflecting the underlying nature of the post-employment compensation arrangements themselves.
Earlier this week, I happened to come across a presentation that I really liked in the definitive proxy statement of Monro, Inc. Over the course of five pages (beginning on page 37) the company presents a separate description and table for each of five triggering events, which makes the disclosure easy to read and understand.
The section starts with the following paragraph:
The following is a summary setting forth potential payments payable to our Named Executive Officers (other than Mr. Mellor) upon termination of employment or a change in control of the Company under their employment arrangements or letter agreements and our other compensation programs in effect as of March 26, 2022. Specifically, compensation payable to each of our Named Executive Officers upon voluntary termination, involuntary termination without cause, retirement, termination following a change in control, and in the event of death or disability of the executive is discussed below. The amounts shown in the tables below assume that such termination was effective as of March 26, 2022. Therefore, they include amounts earned through such time and are estimates of the amounts which would be paid out to the executives (or their beneficiaries) upon their termination. Due to the number of factors that affect the nature and amount of any benefits provided upon the events discussed below, any actual amounts paid or distributed may be different. Factors that could affect these amounts include the timing during the year of any such event, the price of our common stock and the executive’s age. These benefits are in addition to benefits available generally to salaried employees upon termination, such as earned but unpaid salary through the date of termination and amounts accrued and vested under our 401(k) Plan.
It then provides a subsection listing on payments and benefits that a named executive officer is entitled to receive without regard to the nature of the employment termination. This is followed by separate subsections addressing payments made upon an involuntary termination of employment without cause; payments upon retirement (which doesn’t have a table, since the named executive officers are not entitled to receive retirement benefits — other than under their Section 401(k) plan and nonqualified deferred compensation plan); payments made upon death or permanent disability (each with its own separate table); and payments made upon a change in control of the company. It’s well-organized and provides an element-by-element breakdown of what each named executive officer would receive under each different scenario. Obviously, it takes up more space than most companies allocate to this topic, but if you’re thinking about simplifying this disclosure, it’s worth a look. It certainly makes the information more accessible to a reader.
— Mark Borges, CompensationStandards.com, July 8, 2022
