I provided insight in a recent Law360 article on the CEO pay ratio disclosure requirements mandated by the Dodd-Frank Act. The disclosure requires that public companies disclose the compensation of its chief executive and its median average employee, as well as the ratio between the two. Companies will soon have to comply by disclosing the pay gap for fiscal 2017 in their annual 10-K reports and in their 2018 proxy statements.
On October 11, the SEC proposed amendments to modernize and simplify disclosure requirements in Regulation S-K, which were mandated by the Fixing America’s Surface Transportation (FAST) Act. In large part, the proposed amendments follow the recommendations of a November 2016 report from the SEC staff. As one SEC commissioner put it, the incremental adjustments to Regulation S-K are meant to “prune” the SEC’s existing disclosure regime rather than as “an exercise in slash-and-burn clearcutting.”
Below are six highlights from the SEC’s proposed amendments to Regulation S-K:
- Rules for Management’s Discussion and Analysis (MD&A) would be amended to clarify that a registrant need only provide a period-to-period comparison for the two most recent fiscal years presented in the financial statements and may hyperlink to the prior year’s annual report for additional period-to-period comparison. The proposed amendments would require hyperlinks to information that is incorporated by reference if that information is available on EDGAR. Instruction 1 to Item 303(a).
With the September 1, 2017, deadline fast approaching for complying with the SEC’s new rules on exhibit hyperlinks, we have updated our March blog post with the frequently asked question below.
How does one link to an exhibit in a 30-year old registration statement that was filed as one gigantic ASCII file? The only available “link” would be to the whole file.
Based on recent informal Staff discussions relating to this question, we were instructed that the filer should hyperlink to the ASCII filing containing the exhibit and clearly identify the hyperlinked exhibit that is being incorporated by reference from the ASCII filing. By way of example, the hyperlink description could look something like this:
3.1 Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Form S-1 Registration Statement filed with the SEC on XX XX, XXX) (File No. XXX-XXXXXX)
Alternatively, the registrant could voluntarily choose to re-file the old exhibit with the present filing.
For most companies, the end of June means the end of the second fiscal quarter, which means right now you are hard at work finalizing the company’s interim financial statements and preparing its Form 10-Q for an August filing deadline. The end of the second quarter also means that it is time to check the company’s filing status for Exchange Act reports for fiscal 2018.
Know Your Filing Status
While the determination of whether a company will qualify as an “accelerated filer” or “large accelerated filer” for 2018 will not take effect until the date your Form 10-K is filed for fiscal 2017 (or, if earlier, your 10-K due date), the determination of your public float is calculated as of the last business day of the most recently completed second fiscal quarter, or June 30 for companies with a calendar fiscal year. Below are reminders for the different types of filers.
I wrote an article published by Securities Regulation Daily discussing the upcoming “say-when-on-pay” votes that many companies will hold during their annual meetings this year. Because Dodd-Frank mandates that the vote be held every six years, a great portion of companies last held the say-when-on-pay vote immediately following the enactment of Dodd-Frank in 2011 and must vote again in 2017. The say-when-on-pay vote is a non-binding advisory referendum on the frequency of a non-binding advisory vote regarding executive compensation.
While the vote was relatively anticlimactic in 2011 due to the wide regard many institutional shareholders held for annual say-on-pay votes, it is worth noting the importance of the Form 8-K disclosure requirements in relation to the vote.
To review details on these technical requirements as outlined in the full article – download PDF. The full article, “Annual Meeting 8-K: Don’t Forget Say-When-on-Pay Determination,” was published by Securities Regulation Daily on June 15, 2017.
The Wall Street Journal yesterday published an interesting article regarding the SEC Staff’s attention to non-GAAP financial measure disclosure issues in the SEC comment letter process. The article highlights the ongoing focus of the SEC staff on non-GAAP financial disclosure issues following the revised (and more stringent) non-GAAP financial guidance promulgated by the SEC in the spring of 2016, as well as inquiries that were received from a sizeable number of public companies in 2016 from the SEC Division of Enforcement focused on non-GAAP compliance. Continue Reading SEC Staff Continues Focus on non-GAAP Financial Disclosures
As we arrive at the height of the annual meeting season this May, many public companies will be holding say-when-on-pay votes this month in light of the requirement under the Dodd-Frank Act to hold such vote every six years and the fact that many public companies first held this vote in 2011 following the enactment of Dodd-Frank. In this regard, registrants should be reminded of the requirement under Item 5.07(d) to report the determination of the registrant, in light of the shareholder vote on say-when-on-pay, regarding how frequently the registrant intends to hold say-on-pay votes until the next required say-when-on-pay shareholder vote. Under the Form 8-K rules, this disclosure may be made in the Form 8-K disclosing the annual meeting voting results or in a separate Form 8-K amendment filed within 150 days following the date of the annual meeting (but, in any event no later than 60 days prior to the Rule 14a-8 shareholder proposal submission deadline).
Late Tuesday evening, Acting Chairman Michael Piwowar issued two statements — available here and here — announcing that he was directing the SEC Staff to reconsider whether the 2014 guidance on the conflict minerals rule is still appropriate and whether any additional relief is warranted. As a result, the SEC has created a website where interested parties can submit comments.
Following the completion of one of the most divisive presidential elections in U.S. history, the election of President Trump and the retention of Republican majorities in both the U.S. Senate and House will impact the public disclosures of many U.S. public companies. The expectation of the securities markets that the results of these elections will significantly impact the prospects of many companies was reflected in the sharp movements in the stock prices in various sectors which occurred shortly after the 2016 elections. While the overall stock market trend since the 2016 elections has been positive, companies in certain sectors such as manufacturing and financial institutions have achieved gains significantly in excess of market norms, with companies in other sectors, such as utility and certain healthcare sectors, having underperformed in relation to market norms (although some healthcare companies have recovered from stock market declines seen in the immediate aftermath of the elections).
As a former SEC Corp Fin staffer, I can certainly appreciate how closely the Staff reviews the specific disclosures related to internal controls and procedures and disclosure controls and procedures (DC&P) – just ask any registrant that has had to file a 10-K amendment for what they may believe is an immaterial error in their Sarbanes-Oxley Act certifications. However, if anybody needs further convincing, I point you to a recent comment letter made public where the Staff commented of the company’s failure to state the entire definition of disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d(e) when the registrant was stating its conclusion regarding the effectiveness of its disclosure controls and procedures. In particular, the Staff stated, “Although there is no requirement to disclose the full definition, specific reference to only a portion of the definition gives the appearance of limiting management’s conclusion solely to the portion referred to.” Please see below for the SEC comment exchange as well as the company’s revised disclosure (via redline):