I. History
II. SEC Rules and Regulations
III. SEC Staff Guidance
a. Compliance and Disclosure Interpretations 11-10
1. Directors Covered by Director Compensation Table 11-10
2. Footnote Disclosure Regarding Equity Awards 11-11
3. “All Other Compensation” Column 11-11
4. Interaction with Related Person Transaction Disclosure 11-12
5. Reporting Director Pension Benefits 11-12
b. Comment Letters 11-12
IV. Nasdaq “Golden Leash” Rules
V. How the Rules Work
- Evolution of Types of Director Pay 11-15
- Shareholders Focus on Director Pay 11-15
- Monitor Director Pay Levels 11-15
- Tabular Disclosure Format 11-15
- Total for Each Director 11-16
- Fewer Tables Required for Directors than NEOs 11-16
- Reporting More Than Required 11-16
- Omitting Columns If Not Applicable 11-16
- Anyone Serving Last Year As Non-Employee Director Covered 11-16
- NEOs & Executive Officers Who Don’t Earn Director’s Compensation Not Covered 11-16
- Omitting Fees That Can’t Be Determined 11-17
- Round Numbers & Report in Dollars 11-17
- Reporting of Equity Awards is Similar to Summary Compensation Table 11-17
- Reporting Deferred Payments 11-18
- Instructions Comparable to Summary Compensation Table Instructions 11-18
- No Director CD&A Required 11-18
- Need Footnote Disclosures 11-18
- Narrative Disclosure Required 11-18
- Trend of Expanded Narrative Disclosure 11-18
- Some Types of Compensation Not Reportable 11-19
- Perquisites & Other Personal Benefits 11-19
- Disclosure for Directors vs. NEOs Similar, But Not Identical 11-19
- Include All Other Compensation 11-19
- Determining Whether Severance is Reportable 11-20
- Charitable Donations in Director’s Name 11-20
- Disclosure of Hedging Policy 11-20
- Potential Need to Ratify Director Compensation 11-20
• Meaningful Limits 11-21
• Limits on Equity & Cash Compensation 11-22
• Avoid Problematic Pay Practices 11-22
• Improved Governance Procedures 11-22
• Committee Charter 11-22
• Independent Review 11-22
• Peer Group Benchmarking 11-23
• Improved Disclosure 11-23
- Shareholder & Proxy Advisor Policies on Director Pay Proposals 11-23
- Limited Relief for Smaller Reporting Companies 11-23
- Disclosure of Golden Leash Arrangements for Nasdaq Companies 11-24
- D&O Questionnaires Should Ask About Golden Leash Arrangements 11-25
- Failing to Timely Disclose Golden Leash Arrangements 11-25
- Independent Committee Not Expressly Required 11-25
VI. Common Questions and Our Analysis
a. Location of Director Compensation Table 11-26
b. Directors Covered by the Director Compensation Table 11-26
1. Director Joins Board After Fiscal Year-End 11-26
2. Director Leaves Before Fiscal Year-End 11-26
3. Director Leaves After Fiscal Year-End 11-26
4. Director Who Serves as NEO 11-27
5. Director Who Serves as Officer But Not NEO 11-27
6. Director Who Serves as Employee But Not Officer 11-27
7. Director Emeritus Compensation 11-28
8. Director Earned No Compensation 11-28
9. Director Waives Compensation 11-28
10. Director as CEO for Part of the Year 11-29
c. Aggregating/Disaggregating Director Compensation 11-31
1. Reporting for Each Director When Compensation Identical 11-31
2. Separating Cash from Equity Compensation 11-31
d. Reporting Director Cash Compensation 11-31
1. Meaning of “Earned or Paid” 11-31
2. Don’t Subtract Withholdings 11-32
3. Fees Forgone When Equity Elected Instead 11-32
4. Compensation Paid Prior to Joining Board of Directors 11-32
5. Special Committee Fees 11-33
e. Reporting Director Equity Compensation 11-33
1. Reporting Cash-Settled Equity Awards 11-33
2. Disclosure of Aggregate Outstanding Equity Awards 11-33
3. Equity Granted in Lieu of Retainer & Meeting Fees 11-35
4. Deferred Compensation Payable Partly in Equity 11-37
5. Grant Date Fair Value for Each Award 11-37
6. Grant Date Fair Value for Last Fiscal Year 11-38
7. Grant Date Fair Value & Dividends 11-38
8. Option Exercises & Vesting of Restricted Stock 11-38
9. Equity Awards Delivered to Director’s Employer 11-38
f. Reporting Non-Equity Incentive Plan Compensation 11-39
1. Earnings for Services Performed During Year 11-39
2. Earnings on Outstanding Awards 11-39
g. Reporting Director Pension Benefits & Nonqualified Deferred Compensation 11-40
1. Calculation of Change in Plan Value 11-40
2. Inclusion of Pension Benefits Earned as Former Employee 11-40
3. Omitting “Change in Pension Value” Column 11-41
4. Deferral of Shares Held in Phantom Stock Account 11-41
5. Reporting Earnings on Nonqualified Deferred Compensation 11-42
h. Reporting Compensation in “All Other Compensation” Column 11-42
1. Consulting Arrangements 11-42
2. Fees from Non-Public Parent As “Other Compensation” 11-43
3. Reporting Amounts “Accrued To” Director 11-43
4. Director Charitable Programs 11-44
5. Director Travel as Perquisite 11-46
6. Director Travel to Board Meeting 11-46
7. Director Travel to Teach Business Course 11-47
8. One Director Flying on Another Director’s Airplane 11-47
9. Administrative Support for Directors 11-48
10. iPad/Laptop a Perk? 11-48
11. Reimbursement of Perquisites 11-49
12. Foreign Tax Preparation Help 11-49
13. Tax Gross-Ups 11-50
14. Gifts to Directors 11-50
15. Fees Paid to Director’s Law Firm 11-53
16. SERP Payments Earned as NEO 11-53
17. Receipt of Retirement Benefits for Former Service as Employee 11-54
i. Footnotes & Narrative Accompanying Director Compensation Table 11-54
1. General Principles 11-54
2. Relationship to CD&A 11-55
3. Description of Different Types of Fees 11-56
4. Equity Award Footnotes 11-56
VII. Practice Pointers
- Consider CD&A Discussion of Director Compensation Principles 11-56
- Consider Describing All Perquisites Even If Below Disclosure Threshold 11-57
- Weigh the Costs/Benefits of Director Legacy & Charitable Gift Programs 11-57
- Address Committee Policies & Procedures for Determining Director Compensation 11-57
- Consider Disclosing Specific Compensation for Each Director by Name Even If Compensation Identical 11-58
- Note Differences in Supplemental Disclosure for Outstanding Director Equity Awards 11-58
VIII. Sample Disclosures
a. Directors Compensation Table/Narrative Sample 11-58
b. Footnote Disclosure of Cash & Equity Awards 11-63
c. Addressing Recent Revisions to Director Compensation Program 11-68
d. Disclosing Director Expenses 11-69
e. Example of Director Aircraft Use Disclosure 11-71
