
[Federal Register: December 23, 2009 (Volume 74, Number 245)]
[Rules and Regulations]               
[Page 68333-68367]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23de09-18]                         


[[Page 68333]]

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Part II





Securities and Exchange Commission





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17 CFR Parts 229, 239, 240, et al.



Proxy Disclosure Enhancements; Final Rule


[[Page 68334]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 229, 239, 240, 249 and 274

[Release Nos. 33-9089; 34-61175; IC-29092; File No. S7-13-09]
RIN 3235-AK28

 
Proxy Disclosure Enhancements

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: We are adopting amendments to our rules that will enhance 
information provided in connection with proxy solicitations and in 
other reports filed with the Commission. The amendments will require 
registrants to make new or revised disclosures about: compensation 
policies and practices that present material risks to the company; 
stock and option awards of executives and directors; director and 
nominee qualifications and legal proceedings; board leadership 
structure; the board's role in risk oversight; and potential conflicts 
of interest of compensation consultants that advise companies and their 
boards of directors. The amendments to our disclosure rules will be 
applicable to proxy and information statements, annual reports and 
registration statements under the Securities Exchange Act of 1934, and 
registration statements under the Securities Act of 1933 as well as the 
Investment Company Act of 1940. We are also transferring from Forms 10-
Q and 10-K to Form 8-K the requirement to disclose shareholder voting 
results.

DATES: Effective Date: February 28, 2010.

FOR FURTHER INFORMATION CONTACT: N. Sean Harrison, Special Counsel, at 
(202) 551-3430 or Anne Krauskopf, Senior Special Counsel, at (202) 551-
3500, in the Division of Corporation Finance; or with respect to 
questions regarding investment companies, Alberto Zapata, Senior 
Counsel, Division of Investment Management, at (202) 551-6784, U.S. 
Securities and Exchange Commission, 100 F Street, NE., Washington, DC 
20549.

SUPPLEMENTARY INFORMATION: We are adopting amendments to Items 401,\1\ 
402,\2\ and 407 \3\ of Regulation S-K; \4\ Schedule 14A \5\ and Forms 
8-K,\6\ 10-Q,\7\ and 10-K \8\ under the Securities Exchange Act of 1934 
(``Exchange Act''); \9\ and Forms N-1A,\10\ N-2,\11\ and N-3,\12\ 
registration forms used by management investment companies to register 
under the Investment Company Act of 1940 (``Investment Company Act'') 
\13\ and to offer their securities under the Securities Act of 1933 
(``Securities Act'').\14\
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    \1\ 17 CFR 229.401.
    \2\ 17 CFR 229.402.
    \3\ 17 CFR 229.407.
    \4\ 17 CFR 229.10 et al.
    \5\ 17 CFR 240.14a-101.
    \6\ 17 CFR 249.308.
    \7\ 17 CFR 249.308a.
    \8\ 17 CFR 249.310.
    \9\ 15 U.S.C. 78a et seq.
    \10\ 17 CFR 239.15A and 274.11A.
    \11\ 17 CFR 239.14 and 274.11a-1.
    \12\ 17 CFR 239.17a and 274.11b.
    \13\ 15 U.S.C. 80a-1 et seq.
    \14\ 15 U.S.C. 77a et seq.
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Table of Contents

I. Background and Overview of the Amendments
II. Discussion of the Amendments
    A. Enhanced Compensation Disclosure
    1. Narrative Disclosure of the Company's Compensation Policies 
and Practices as They Relate to the Company's Risk Management
    a. Proposed Amendments
    b. Comments on the Proposed Amendments
    c. Final Rule
    2. Revisions to the Summary Compensation Table
    a. Proposed Amendments
    b. Comments on the Proposed Amendments
    c. Final Rule
    d. Transition
    e. Comment Responses Regarding Rulemaking Petition and Other 
Requests for Comment
    B. Enhanced Director and Nominee Disclosure
    1. Proposed Amendments
    2. Comments on the Proposed Amendments
    3. Final Rule
    C. New Disclosure About Board Leadership Structure and the 
Board's Role in Risk Oversight
    1. Proposed Amendments
    2. Comments on the Proposed Amendments
    3. Final Rule
    D. New Disclosure Regarding Compensation Consultants
    1. Proposed Amendments
    2. Comments on the Proposed Amendments
    3. Final Rule
    E. Reporting of Voting Results on Form 8-K
    1. Proposed Amendments
    2. Comments on the Proposed Amendments
    3. Final Rule
III. Paperwork Reduction Act
IV. Cost-Benefit Analysis
V. Consideration of Impact on the Economy, Burden on Competition and 
Promotion of Efficiency, Competition and Capital Formation
VI. Final Regulatory Flexibility Analysis
VII. Statutory Authority and Text of the Amendments

I. Background and Overview of the Amendments

    On July 10, 2009, we proposed a number of revisions to our rules 
that were designed to improve the disclosure shareholders of public 
companies receive regarding compensation and corporate governance.\15\ 
As discussed in detail below, we have taken into consideration the 
comments received on the proposed amendments and are adopting several 
amendments to our rules. Among other improvements, the new disclosure 
requirements adopted today enhance the information provided in annual 
reports, and proxy and information statements to better enable 
shareholders to evaluate the leadership of public companies.
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    \15\ See Release No. 33-9052 (July 10, 2009) [74 FR 35076] 
(``Proposing Release'').
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    As discussed more fully in the Proposing Release, during the past 
few years, investors have increasingly focused on corporate 
accountability and have expressed the desire for additional information 
that would enhance their ability to make informed voting and investment 
decisions. The disclosure enhancements we are adopting respond to this 
focus, and will significantly improve the information companies provide 
to shareholders with regard to the following:
     Risk: By requiring disclosure about the board's role in 
risk oversight and, to the extent that risks arising from a company's 
compensation policies and practices are reasonably likely to have a 
material adverse effect on the company, disclosure about such policies 
and practices as they relate to risk management;
     Governance and Director Qualifications: By requiring 
expanded disclosure of the background and qualifications of directors 
and director nominees and new disclosure about a company's board 
leadership structure, and accelerating the reporting of information 
regarding voting results; and
     Compensation: By revising the reporting of stock and 
option awards in the Summary Compensation Table \16\ and Director 
Compensation Table,\17\ and requiring disclosure of potential conflicts 
of interest of compensation consultants in certain circumstances. We 
believe that providing a more transparent view of these key risk, 
governance and compensation matters

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will help shareholders make more informed voting and investment 
decisions.
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    \16\ Item 402(c) and 402(n) of Regulation S-K [17 CFR 229.402(c) 
and 229.402(n)].
    \17\ Item 402(k) and 402(r) of Regulation S-K [17 CFR 229.402(k) 
and 229.402(r)].
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    We received over 130 comment letters in response to the proposed 
amendments.\18\ These letters came from corporations, pension funds, 
professional associations, trade unions, accounting firms, law firms, 
consultants, academics, individual investors and other interested 
parties. In general, the commenters supported the objectives of the 
proposed new requirements. Most investors supported the manner in which 
we proposed to achieve these objectives and, in some cases, urged us to 
require additional disclosure from companies. Other commenters, 
however, opposed some of the proposed revisions and suggested 
modifications to the proposals.
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    \18\ The public comments we received are available on our Web 
site at http://www.sec.gov/comments/s7-13-09/s71309.shtml. Comments 
are also available for Web site viewing and copying in the 
Commission's Public Reference Room, 100 F Street, NE., Washington, 
DC 20549, on official business days between the hours of 10 a.m. and 
3 p.m.
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    We have reviewed and considered all of the comments that we 
received on the proposed amendments. The adopted rules reflect changes 
made in response to many of these comments. We discuss our revisions 
with respect to each proposed rule amendment in more detail throughout 
this release. The amendments that we are adopting will require:
     To the extent that risks arising from a company's 
compensation policies and practices for employees are reasonably likely 
to have a material adverse effect on the company, discussion of the 
company's compensation policies or practices as they relate to risk 
management and risk-taking incentives that can affect the company's 
risk and management of that risk;
     Reporting of the aggregate grant date fair value of stock 
awards and option awards granted in the fiscal year in the Summary 
Compensation Table and Director Compensation Table to be computed in 
accordance with Financial Accounting Standards Board Accounting 
Standards Codification Topic 718, Compensation--Stock Compensation 
(``FASB ASC Topic 718''),\19\ rather than the dollar amount recognized 
for financial statement purposes for the fiscal year, with a special 
instruction for awards subject to performance conditions;
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    \19\ Both our rule proposal and the former disclosure 
requirement used the nomenclature Financial Accounting Standards 
Board Statement of Financial Accounting Standards No. 123 (revised 
2004) Share-Based Payment (FAS 123R). We are updating our references 
in this release and the final rules to reflect that the FASB 
Accounting Standards Codification has superseded all references to 
previous FASB standards for interim or annual periods ending on or 
after September 15, 2009.
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     New disclosure of the qualifications of directors and 
nominees for director, and the reasons why that person should serve as 
a director of the company at the time at which the relevant filing is 
made with the Commission; the same information would be required in the 
proxy materials prepared with respect to nominees for director 
nominated by others;
     Additional disclosure of any directorships held by each 
director and nominee at any time during the past five years at any 
public company or registered investment company;
     New disclosure regarding the consideration of diversity in 
the process by which candidates for director are considered for 
nomination by a company's nominating committee;
     Additional disclosure of other legal actions involving a 
company's executive officers, directors, and nominees for director, and 
lengthening the time during which such disclosure is required from five 
to ten years;
     New disclosure about a company's board leadership 
structure and the board's role in the oversight of risk;
     New disclosure about the fees paid to compensation 
consultants and their affiliates under certain circumstances; and
     Disclosure of the vote results from a meeting of 
shareholders on Form 8-K generally within four business days of the 
meeting.
    With respect to management investment companies that are registered 
under the Investment Company Act (``funds''),\20\ the amendments we are 
adopting will require expanded disclosure regarding director and 
nominee qualifications; past directorships held by directors and 
nominees; and legal proceedings involving directors, nominees, and 
executive officers to funds; and new disclosure about leadership 
structure and the board's role in the oversight of risk.
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    \20\ Management investment companies typically issue shares 
representing an interest in a changing pool of securities, and 
include open-end and closed-end companies. An open-end company is a 
management company that is offering for sale or has outstanding any 
redeemable securities of which it is the issuer. A closed-end 
company is any management company other than an open-end company. 
See Section 5 of the Investment Company Act [15 U.S.C. 80a-5].
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    The Proposing Release also included several proposed amendments to 
our rules governing the proxy solicitation process. We have decided to 
defer consideration of those proposed amendments at this time, pending 
our consideration of our proposal intended to facilitate shareholder 
director nominations in companies' proxy materials.\21\
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    \21\ See Release No. 33-9046 (June 10, 2009) [74 FR 29024].
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II. Discussion of the Amendments

A. Enhanced Compensation Disclosure

1. Narrative Disclosure of the Company's Compensation Policies and 
Practices as They Relate to the Company's Risk Management
    We proposed amendments to our Compensation Discussion and Analysis 
(``CD&A'') requirements to broaden their scope to include a new section 
regarding how the company's overall compensation policies for employees 
create incentives that can affect the company's risk and management of 
that risk. We are adopting the disclosure requirements generally as 
proposed, but we are revising the placement of the new required 
disclosures and the disclosure threshold, as suggested by commenters.
a. Proposed Amendments
    Under the amendments we proposed, companies would be required to 
discuss and analyze their broader compensation policies and overall 
actual compensation practices for employees generally, including non-
executive officers, if risks arising from those compensation policies 
or practices may have a material effect on the company. As we stated in 
the Proposing Release, we believe that disclosure of a company's 
compensation policies and practices in certain circumstances can help 
investors identify whether the company has established a system of 
incentives that can lead to excessive or inappropriate risk taking by 
employees.
    The proposed amendments enumerated a non-exclusive list of 
situations where compensation programs may raise material risks to 
companies, and several examples of the types of issues that would be 
appropriate for a company to discuss and analyze. The illustrative 
examples, consistent with the principles-based approach of the CD&A, 
were intended to help identify the types of situations in which the 
disclosure may be required.
b. Comments on the Proposed Amendments
    Comments on the proposal were mixed. Individual investors, trade 
unions, institutional investors and pension funds supported the 
proposals.\22\ Some of these commenters

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believed the new CD&A disclosure would improve the ability of investors 
to make informed investment decisions.\23\ Other commenters believed 
the amendments would significantly improve shareholders' understanding 
of both the process by which pay is set and the substantive policies 
that guide companies' risk assessment or incentive considerations in 
structuring compensation policies or awarding compensation.\24\
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    \22\ See, e.g., letters from American Federation of Labor and 
Congress of Industrial Organizations (``AFL-CIO''), American 
Association of Retired Persons (``AARP''), Grahall Partners LLC, 
Institute of Internal Auditors (``IIA''), Pfizer Inc., Risk and 
Insurance Management Society, Inc. (``RIMS''), State of Connecticut 
Treasurer's Office (``CTO''), State of Wisconsin Investment Board 
(``SWIB''), Ralph S. Saul, Teachers Insurance and Annuity 
Association of America--College Retirement and Equities Fund 
(``TIAA-CREF''), and Mark Whitton.
    \23\ See, e.g., letters from California State Teachers' 
Retirement System (``CalSTRS''), and RIMS.
    \24\ See, e.g., letters from Service Employees International 
Union (``SEIU''), and Walden Asset Management.
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    Most companies, law firms and bar groups opposed the proposal.\25\ 
Concerns that were expressed included, for example, that the proposed 
amendments would not lead to meaningful disclosures,\26\ and that the 
CD&A was already long and the proposed amendments would add length 
without a corresponding benefit to shareholders.\27\ Another concern 
expressed by commenters was that the linkage between risk-taking and 
executive compensation is not well understood, and that the disclosures 
provided under the proposed amendments would likely be boilerplate that 
could give investors a false sense of comfort regarding risk and risk-
taking.\28\
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    \25\ See, e.g., letters from the American Bar Association 
(``ABA''), Robert Ahrenholz, American Electric Power, Business 
Roundtable, StanCorp Financial Group, and Wisconsin Electric 
Corporation.
    \26\ See, e.g., letters from Association Corporate Counsel 
(``ACC''), BorgWarner Inc., NACCO Industries, Inc. (``NACCO''), and 
Sullivan & Cromwell (``S&C'').
    \27\ See, e.g., letters from National Association of Corporate 
Directors (``NACD'') and S&C.
    \28\ See, e.g., letters from ABA and DolmatConnell Partners, 
Inc. (``DolmatConnell'').
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    Other commenters argued that it was not appropriate to expand the 
CD&A beyond the named executive officers to include disclosure of the 
company's broader compensation policies and overall compensation 
practices for employees generally.\29\ Some of these commenters argued 
that expanding the CD&A would represent a fundamental shift in the 
approach to the CD&A.\30\ Concerns were also expressed that risk 
management, risk-taking incentives and related business strategy are 
complex subjects that could not be adequately analyzed in CD&A without 
adding voluminous text to an already lengthy proxy statement.\31\
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    \29\ See, e.g., letters from BorgWarner, NACCO and the Society 
of Corporate Secretaries and Corporate Governance Professionals 
(``SCSGP'').
    \30\ See, e.g., letters from BorgWarner and NACCO.
    \31\ See e.g., letter of NACD.
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    Comments also were mixed on the illustrative examples included with 
the proposed amendments. Some commenters supported the list, noting 
that the additional disclosures would provide investors with a better 
understanding of a company's compensation policies and how such 
policies can create incentives that could affect the company's risk 
profile and ability to manage that risk.\32\ Other commenters asserted 
that the proposed revisions would lead to boilerplate disclosures and 
information that would not be meaningful to investors.\33\
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    \32\ See, e.g., letters from CalSTRS, Council of Institutional 
Investors (``CII''), Glass Lewis & Co (``Glass Lewis''), and RIMS.
    \33\ See e.g., letters of Business Roundtable and Cleary 
Gottlieb Steen & Hamilton LLP (``Cleary Gottlieb'').
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    Several commenters recommended that we revise the disclosure 
threshold in the proposed amendments, which we proposed as ``may have a 
material effect'' on the company.\34\ Suggested alternatives included 
changing the standard to ``likely to have a material effect,'' 
``reasonably likely to have a material effect,'' or ``will likely have 
a material effect.'' \35\ Some commenters believed the ``may have a 
material effect'' standard was too speculative and that basing the 
disclosure standard on whether the risks are ``reasonably likely to 
have a material effect'' would give companies more certainty and 
provide investors with more meaningful disclosure.\36\ Commenters also 
noted that, to avoid voluminous and extraneous disclosure, the 
requirement should focus on compensation arrangements that are likely 
to promote risk-taking behavior that could have a significant and 
damaging impact on the company's operations.\37\
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    \34\ See letters from ACC, BorgWarner, Davis Polk & Wardwell LLP 
(``Davis Polk''), Honeywell International Inc. (``Honeywell''), 
NACCO, and SCSGP.
    \35\ See letters from ABA, ACC, BorgWarner, Davis Polk, 
Honeywell, NACCO, and SCSGP.
    \36\ See letters from ABA and Davis Polk.
    \37\ See letters from ABA and Pearl Meyer & Partners (``Pearl 
Meyer'').
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c. Final Rule
    After considering the comments, we are adopting the disclosure 
requirement substantially as proposed with some modifications. We 
continue to believe that it is important for investors to be informed 
of the compensation policies and practices that are likely to expose 
the company to material risk, but we recognize that, consistent with 
the comments received, we should revise our proposals. We have tailored 
the final amendments to address many of the concerns expressed by 
commenters, consistent with the purposes to be advanced by the 
disclosure.
    The final rule requires a company to address its compensation 
policies and practices for all employees, including non-executive 
officers, if the compensation policies and practices create risks that 
are reasonably likely to have a material adverse effect on the 
company.\38\ As noted above, the proposed rules would have required 
discussion and analysis of compensation policies if risks arising from 
those compensation policies ``may have a material effect on the 
company.'' We agree with the suggestions of several commenters that the 
new requirements should have a ``reasonably likely'' disclosure 
threshold. Companies are familiar with the ``reasonably likely'' 
disclosure threshold used in our Management Discussion and Analysis 
(``MD&A'') rules,\39\ and this approach would parallel the MD&A 
requirement, which requires risk-oriented disclosure of known trends 
and uncertainties that are material to the business. We believe that 
the ``reasonably likely'' threshold also addresses concerns of some 
commenters that the proposed requirements might have caused companies 
attempting compliance to burden shareholders and investors with 
voluminous disclosure of potentially insignificant and unnecessarily 
speculative information about their compensation policies. By focusing 
on risks that are ``reasonably likely to have a material adverse 
effect'' on the company, the amendments are intended to elicit 
disclosure about incentives in the company's compensation policies and 
practices that would be most relevant to investors.\40\ This change 
from the proposal also addresses concerns some commenters raised that 
the proposal did not allow companies to consider compensating or 
offsetting steps or controls designed to limit risks of certain 
compensation arrangements.\41\ If a company has compensation policies 
and practices for different groups that

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mitigate or balance incentives, these could be considered in deciding 
whether risks arising from the company's compensation policies and 
practices for employees are reasonably likely to have a material 
adverse effect on the company as a whole.
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    \38\ See new Item 402(s) of Regulation S-K. As we noted in the 
Proposing Release, to the extent that risk considerations are a 
material aspect of the company's compensation policies or decisions 
for named executive officers, the company is required to discuss 
them as part of its CD&A under the current rules.
    \39\ See Item 303 of Regulation S-K [17 CFR 229.303].
    \40\ See note 36 above and accompanying text.
    \41\ See letters from ABA and Center on Executive Compensation.
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    In addition, we have modified the proposal to provide that 
disclosure is only required if the compensation policies and practices 
are reasonably likely to have a material ``adverse'' effect on the 
company, as opposed to any ``material effect'' as proposed. As noted in 
the Proposing Release, well-designed compensation policies can enhance 
a company's business interests by encouraging innovation and 
appropriate levels of risk-taking. By focusing the disclosure on 
material adverse effects, the final rule should help avoid voluminous 
and unnecessary discussion of compensation arrangements that may 
mitigate inappropriate risk-taking incentives.
    We are also moving the new requirements into a separate paragraph 
in Item 402 of Regulation S-K.\42\ As adopted, the new disclosure 
requirements will not be a part of the CD&A.\43\ We were persuaded by 
commenters who asserted that it would be potentially confusing to 
expand the CD&A beyond the named executive officers to include 
disclosure of the company's broader compensation policies and practices 
for employees. CD&A provides discussion and analysis of the 
compensation of the named executive officers and the information 
contained in the Summary Compensation Table and other required tables, 
and the new disclosure requirements would be inconsistent with that 
approach because they would cover all employees, not just the named 
executive officers.\44\
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    \42\ See new Item 402(s) of Regulation S-K.
    \43\ In making this change, we also revised the final rule from 
what was proposed by eliminating the term ``generally.'' Previously, 
we believed this term was helpful to distinguish the proposed 
amendments from the CD&A for the named executive officers by 
emphasizing that it also applied to non-executive officers. Because 
we are moving the new requirements into a separate paragraph, we do 
not believe the term is needed. Moreover, one commenter noted that 
the term could be confusing in light of the examples listed in the 
rule. See letter from ABA.
    \44\ See letters from BorgWarner, NACCO and SCSGP.
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    The final rule will contain, as proposed, the non-exclusive list of 
situations where compensation programs may have the potential to raise 
material risks to companies, and the examples of the types of issues 
that would be appropriate for a company to address. Under the 
amendments, the situations that would require disclosure will vary 
depending on the particular company and its compensation program. We 
believe situations that potentially could trigger discussion include, 
among others, compensation policies and practices:
     At a business unit of the company that carries a 
significant portion of the company's risk profile;
     At a business unit with compensation structured 
significantly differently than other units within the company;
     At a business unit that is significantly more profitable 
than others within the company;
     At a business unit where the compensation expense is a 
significant percentage of the unit's revenues; and
     That vary significantly from the overall risk and reward 
structure of the company, such as when bonuses are awarded upon 
accomplishment of a task, while the income and risk to the company from 
the task extend over a significantly longer period of time.
    This is a non-exclusive list of situations where compensation 
programs may have the potential to raise material risks to the company. 
There may be other features of a company's compensation policies and 
practices that have the potential to incentivize its employees to 
create risks that are reasonably likely to have a material adverse 
effect on the company. However, disclosure under the amendments is only 
required if the compensation policies and practices create risks that 
are reasonably likely to have a material adverse effect on the company. 
We note that in the situations listed above, a company may under 
appropriate circumstances conclude that its compensation policies and 
practices are not reasonably likely to have a material adverse effect 
on the company.
    We are adopting, as proposed, the illustrative examples of the 
issues that would potentially be appropriate for a company to address. 
As we stated in the Proposing Release, the examples are non-exclusive 
and that the application of an example should be tailored to the facts 
and circumstances of the company. We believe that a principles-based 
approach, similar to our CD&A requirements, utilizing illustrative 
examples strikes an appropriate balance that will effectively elicit 
meaningful disclosure. If a company determines that disclosure is 
required, we believe examples of the issues that companies may need to 
address regarding their compensation policies or practices include the 
following:
     The general design philosophy of the company's 
compensation policies and practices for employees whose behavior would 
be most affected by the incentives established by the policies and 
practices, as such policies and practices relate to or affect risk 
taking by those employees on behalf of the company, and the manner of 
their implementation;
     The company's risk assessment or incentive considerations, 
if any, in structuring its compensation policies and practices or in 
awarding and paying compensation;
     How the company's compensation policies and practices 
relate to the realization of risks resulting from the actions of 
employees in both the short term and the long term, such as through 
policies requiring claw backs or imposing holding periods;
     The company's policies regarding adjustments to its 
compensation policies and practices to address changes in its risk 
profile;
     Material adjustments the company has made to its 
compensation policies and practices as a result of changes in its risk 
profile; and
     The extent to which the company monitors its compensation 
policies and practices to determine whether its risk management 
objectives are being met with respect to incentivizing its employees.
    We believe using illustrative examples helps to identify the types 
of disclosure that may be applicable. However, companies must assess 
the information that is identified by the example in light of the 
company's particular situation. Thus, for example, we would not expect 
to see generic or boilerplate disclosure that the incentives are 
designed to have a positive effect, or that compensation levels may not 
be sufficient to attract or retain employees with appropriate skills in 
order to enable the company to maintain or expand operations.
    Consistent with the approach taken in the proposals, smaller 
reporting companies will not be required to provide the new disclosure, 
even though the new rule will not be part of CD&A.\45\ At this time, we 
believe that such companies are less likely to have the types of 
compensation policies and practices that are intended to be addressed 
in this rulemaking.\46\
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    \45\ Because smaller reporting companies are not required to 
provide CD&A disclosure, we did not propose to require that they 
provide the new disclosure.
    \46\ See, e.g., letter of Committee on Securities Law of the 
Business Law Section of the Maryland State Bar Association (``In our 
view smaller reporting companies and their compensation structures 
generally are not geared towards the kind of disclosure that would 
be required by the proposal''). The amendments will not alter the 
reporting requirements for smaller reporting companies under Item 
402. Specifically, smaller reporting companies are permitted to 
provide the scaled disclosures specified in Items 402(l) through (r) 
of Regulation S-K, rather than the disclosure specified in Items 
402(a) through (k) of Regulation S-K.

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[[Page 68338]]

    In the Proposing Release, we requested comment on whether we should 
require a company to affirmatively state that it has determined that 
the risks arising from its compensation policies are not reasonably 
expected to have a material effect on the company if it has concluded 
that disclosure was not required. Commenters were mixed in their 
response to this request. Several commenters believed that companies 
should be required to affirmatively state that they have determined 
that the risks arising from their broader compensation policies are not 
reasonably expected to have a material effect.\47\ Others believed that 
the proposed amendments should not require an affirmative statement 
because it would not provide investors with useful information and 
would create potential liability for companies.\48\ Another commenter 
noted that our disclosure rules have not traditionally required 
companies to address affirmatively matters that the company has 
determined are not applicable to it.\49\ We believe an approach 
consistent with our prior practice is appropriate and the final rule 
does not require a company to make an affirmative statement that it has 
determined that the risks arising from its compensation policies and 
practices are not reasonably likely to have a material adverse effect 
on the company.
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    \47\ See, e.g., letters from Calvert Group, Ltd. (``Calvert''), 
Grahall Partners and Integrated Governance Solutions.
    \48\ See, e.g., letters from the Business Roundtable, Honeywell, 
Pfizer and S&C.
    \49\ See letter from ABA.
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2. Revisions to the Summary Compensation Table
    We proposed to amend Item 402 of Regulation S-K to revise Summary 
Compensation Table and Director Compensation Table disclosure of stock 
awards and option awards to require disclosure of the aggregate grant 
date fair value of awards computed in accordance with FASB ASC Topic 
718. The revised disclosure \50\ would replace previously mandated 
disclosure of the dollar amount recognized for financial statement 
reporting purposes for the fiscal year in accordance with FASB ASC 
Topic 718, and would affect the calculation of total compensation, 
including for purposes of determining who is a named executive 
officer.\51\ We are adopting the revisions substantially as proposed 
with some changes in response to comments.
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    \50\ Items 402(c)(2)(v) and (vi), 402(k)(2)(iii) and (iv), 
402(n)(2)(v) and (vi), and 402(r)(2)(iii) and (iv) of Regulation S-
K.
    \51\ Items 402(a)(3)(iii) and (iv) and 402(m)(2)(ii) and (iii) 
of Regulation S-K.
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a. Proposed Amendments
    As we stated in the Proposing Release, we proposed these amendments 
because of comments we previously received from a variety of sources 
that the information that investors would find most useful and 
informative in the Summary Compensation Table and Director Compensation 
Table is the full grant date fair value of equity awards made during 
the covered fiscal year. Investors may consider compensation decisions 
made during the fiscal year, which usually are reflected in the full 
grant date fair value measure but not in the financial statement 
recognition measure, to be material to voting and investment decisions.
    We also proposed to rescind the requirement to report the full 
grant date fair value of each individual equity award in the Grants of 
Plan-Based Awards Table \52\ and the corresponding footnote disclosure 
to the Director Compensation Table \53\ because these disclosures may 
be considered duplicative of the aggregate grant date fair value to be 
provided in the amended Summary Compensation Table. In addition, we 
proposed to amend Instruction 2 to the salary and bonus columns of the 
Summary Compensation Table so that companies would not be required to 
report in those columns the amount of salary or bonus forgone at a 
named executive officer's election, and the non-cash awards received 
instead of salary or bonus would be reported in the column applicable 
to the form of award elected. As proposed, the Summary Compensation 
Table disclosure would reflect the form of compensation ultimately 
received by the named executive officer.
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    \52\ Item 402(d)(2)(viii) of Regulation S-K and Instruction 7 to 
Item 402(d).
    \53\ Instruction to Item 402(k)(2)(iii) and (iv) of Regulation 
S-K.
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b. Comments on the Proposed Amendments
    A broad spectrum of commenters supported the proposal to revise the 
Summary Compensation Table and Director Compensation Table disclosure 
of stock awards and option awards to require disclosure of the 
aggregate grant date fair value of awards.\54\ Most commenters agreed 
that because aggregate grant date fair value disclosure better reflects 
compensation committee decisions with respect to stock and option 
awards,\55\ it is more informative to voting and investment decisions 
\56\ and a better measure for purposes of identifying named executive 
officers.\57\ However, some commenters objected that use of grant date 
fair value to identify named executive officers may result in 
relatively frequent changes in the named executive officer group based 
on grants of ``one time'' multi-year awards to newly hired executives 
or special awards to enhance retention.\58\
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    \54\ See, e.g., letters from AARP, Business Roundtable, State of 
Wisconsin Investment Board (``SWIB''), Pfizer, SCSGP, S&C, United 
Brotherhood of Carpenters and Joiners of America (``United 
Brotherhood of Carpenters''), United States Proxy Exchange 
(``USPX'').
    \55\ See, e.g., letters from Business Roundtable (``Generally, 
we support the Proposed Rules, as they likely will produce 
disclosure that, in most situations, is more in line with how 
compensation committees view annual equity compensation--that is, 
disclosure of the equity compensation that a company grants in a 
particular year.''); and SCSGP (``We support this change. The 
aggregate grant date fair value is generally used by compensation 
committees in determining the amount of stock and options to award, 
whereas the current disclosure requirement confusingly focuses on 
accounting considerations that may have no bearing on compensation 
decisions.'').
    \56\ See, e.g., letter of United Brotherhood of Carpenters 
(``The proposed SCT reporting of equity awards will help inform 
investment decisions, as well as important investor voting decisions 
regarding executive compensation and director performance.'').
    \57\ See, e.g., letter of Mercer (``Because the value included 
in the SCT determines the identification of at least three of the 
named executive officers (other than the principal executive officer 
and the principal financial officer), disclosure of the full grant-
date fair value would also better align the identification of these 
officers with company compensation decisions.'').
    \58\ See, e.g., letter of Protective Life Corporation.
---------------------------------------------------------------------------

    As discussed in detail below, many commenters expressed concern 
that the amount to be reported in the table for performance awards 
would be calculated without regard to the likelihood of achieving the 
relevant performance objectives, which could discourage companies from 
granting these awards.\59\ Others, however, suggested that the design 
of equity awards is driven by numerous considerations, and companies 
would continue to make equity awards subject to performance 
conditions.\60\
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    \59\ See, e.g., letters from ABA, Business Roundtable, Center on 
Executive Compensation, Cleary Gottlieb, Compensia, Honeywell, 
Frederic W. Cook & Co., Inc., Pearl Meyer, Protective Life 
Corporation, Securities Industry and Financial Markets Association 
(SIFMA), SCSGP, and Towers Perrin.
    \60\ See, e.g., letter from Hewitt Associates LLC (``Hewitt'').

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[[Page 68339]]

    With respect to the proposal to rescind the requirement to report 
the full grant date fair value of each individual equity award in the 
Grants of Plan-Based Awards Table, the comments were mixed. While some 
commenters supported this proposal,\61\ others stated that retaining 
disclosure of the grant date fair value of individual awards would 
continue to provide investors valuable information. Because different 
companies may vary in the assumptions they apply to compute grant date 
fair value, some commenters noted that retaining this disclosure makes 
it easier for investors to assess how companies determined fair value 
for individual grants.\62\ Further, different types of equity awards 
can have different incentive effects, making it important that 
shareholders understand the value associated with each type of award 
granted and the mix of values among various award types.\63\ Commenters 
pointed out that reporting the separate value of multiple individual 
awards provides investors more information regarding the specific 
decisions of the compensation committee, so that investors can better 
evaluate those decisions and understand pay for performance.\64\
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    \61\ See letters from Buck Consultants, Chadbourne Park, Mercer, 
Pfizer, Protective Life Corporation, and S&C.
    \62\ See letters from AFL-CIO, Compensia and Graef Crystal.
    \63\ See letters from Compensia, Frederic W. Cook & Co., Inc., 
and Risk Metrics.
    \64\ See letters from Center on Executive Compensation, Hewitt, 
Pearl Meyer, Towers Perrin, and Universities Superannuation Scheme, 
et al.
---------------------------------------------------------------------------

    We also received a wide range of comments on our proposal to amend 
Instruction 2 to the salary and bonus columns of the Summary 
Compensation Table. Some commenters favored this amendment because, as 
stated in the Proposing Release, it would report compensation in the 
form actually received.\65\ Other commenters, however, said it is 
important to report the form of compensation that the compensation 
committee originally awarded, so that investors can understand the 
overall compensation strategy and the intended distribution of risk 
among different types of compensation.\66\
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    \65\ See, e.g., letters from Pfizer and RiskMetrics.
    \66\ See letters from Center on Executive Compensation, and 
Pearl Meyer.
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c. Final Rule
    After considering the comments received, we are adopting the 
proposed amendments to revise Summary Compensation Table and Director 
Compensation Table disclosure of stock awards and option awards to 
require disclosure of the aggregate grant date fair value of awards 
computed in accordance with FASB ASC Topic 718, with a special 
instruction for awards subject to performance conditions as described 
below. We agree with commenters that aggregate grant date fair value 
disclosure better reflects the compensation committee's decision with 
regard to stock and option awards. We remain of the view that it is 
more meaningful to shareholders if company compensation decisions--
including decisions to grant large ``one time'' multi-year awards--
cause the named executive officers to change. In circumstances where 
such a large ``new hire'' or ``retention'' grant results in the 
omission from the Summary Compensation Table of another executive 
officer whose compensation otherwise would have been subject to 
reporting, the company can consider including compensation disclosure 
for that executive officer to supplement the required disclosures.
    Based on comments received, we are clarifying how performance 
awards \67\ are disclosed. Most commenters stated that reporting the 
aggregate grant date fair value of performance awards based on maximum 
performance could discourage companies from granting these awards.\68\ 
Noting that compensation committees take performance-contingent 
conditions into account when granting such awards, commenters said that 
the grant date fair value reported for awards with a performance 
condition should instead be based on the probable outcome of the 
performance conditions, consistent with the recognition criteria in the 
accounting literature.\69\ As commenters stated, because performance 
awards generally are designed to incentivize attainment of target 
performance and set a higher maximum performance level as a ``cap'' on 
attainable compensation, requiring disclosure of an award's value to 
always be based on maximum performance would overstate the intended 
level of compensation and result in investor misinterpretation of 
compensation decisions. This could also discourage the grant of awards 
with difficult--or any--performance conditions, and lead to inflated 
benchmarking values used to set equity award or total compensation 
levels at other companies.
---------------------------------------------------------------------------

    \67\ Performance awards include only those awards that are 
subject to performance conditions as defined in the Glossary to FASB 
ASC Topic 718.
    \68\ See, e.g., letters from ABA, Business Roundtable, Center on 
Executive Compensation, Cleary Gottlieb, Compensia, Honeywell, 
Frederic W. Cook & Co., Inc., Pearl Meyer, Protective Life 
Corporation, SIFMA, SCSGP, and Towers Perrin.
    \69\ FASB ASC Topic 718.
---------------------------------------------------------------------------

    We are persuaded that the value of performance awards reported in 
the Summary Compensation Table, Grants of Plan-Based Awards Table and 
Director Compensation Table should be computed based upon the probable 
outcome of the performance condition(s) as of the grant date because 
that value better reflects how compensation committees take 
performance-contingent vesting conditions into account in granting such 
awards. We are adopting new Instructions to these tables to clarify 
that this amount will be consistent with the grant date estimate of 
compensation cost to be recognized over the service period, excluding 
the effect of forfeitures.\70\ To provide investors additional 
information about an award's potential maximum value subject to changes 
in performance outcome, we will also require in the Summary 
Compensation Table and Director Compensation Table footnote disclosure 
of the maximum value assuming the highest level of performance 
conditions is probable.\71\ Such footnote disclosure will permit 
investors to understand an award's maximum value without raising the 
concerns associated with requiring its tabular disclosure.\72\
---------------------------------------------------------------------------

    \70\ See Instruction 3 to Item 402(c)(2)(v) and (vi), 
Instruction 8 to Item 402(d), and Instruction 3 to Item 402(n)(2)(v) 
and (vi).
    \71\ See Instruction 3 to Item 402(c)(2)(v) and (vi), and 
Instruction 3 to Item 402(n)(2)(v) and (vi).
    \72\ See, e.g., letter from ABA.
---------------------------------------------------------------------------

    We are requiring disclosure of awards granted during the year, as 
proposed. A number of commenters responded to our request for comment 
by indicating that they would prefer disclosure of the aggregate grant 
date fair value of equity awards granted for services in the relevant 
fiscal year, even if granted after fiscal year end, rather than awards 
granted during the relevant fiscal year, as proposed.\73\ Other 
commenters expressed concern that revising the proposal in this way 
would result in a lack of uniformity that would confuse investors, 
would be inconsistent with the FASB ASC Topic 718 grant date, and could 
invite manipulated

[[Page 68340]]

reporting.\74\ We recognize that a ``performance year'' standard for 
reporting equity awards in securities in the relevant fiscal year may 
sometimes better align compensation disclosure with compensation 
decision making, and may be more consistent with Summary Compensation 
Table salary and bonus disclosure.\75\ However, because it appears that 
multiple subjective factors, which could vary significantly from 
company to company, influence equity awards granted after fiscal year 
end, we are concerned that changing the approach to reporting could 
result in inconsistencies that would erode comparability. One commenter 
noted that many companies make equity awards after the end of the 
fiscal year based on executive performance during the last completed 
fiscal year, but determining whether an equity award was granted 
primarily for services performed during the last completed fiscal year 
can be a highly subjective determination and the factors that influence 
the decision of when to report an equity award may vary significantly 
from company to company.\76\ Companies should continue to analyze in 
CD&A their decisions to grant post-fiscal year end equity awards where 
those decisions could affect a fair understanding of named executive 
officers' compensation for the last fiscal year,\77\ and consider 
including supplemental tabular disclosure where it facilitates 
understanding the CD&A.
---------------------------------------------------------------------------

    \73\ See, e.g., letters from ACC, Ameriprise Financial, Inc., 
BorgWarner, Business Roundtable, Cleary Gottlieb, Committee on 
Securities Law of the Business Law Section of the Maryland State Bar 
Association, Frederic W. Cook & Co., Inc., Graef Crystal, Davis 
Polk, General Mills, Inc., Glass Lewis, Grahall Partners, LLC., 
Honeywell, JP Morgan Chase & Co., RiskMetrics, SCSGP, SIFMA, and 
S&C. These commenters suggested this approach would better align the 
amounts reported in the Summary Compensation Table with the 
compensation decisions discussed in CD&A, and clarify the 
relationship between pay and performance.
    \74\ See letters from Buck Consultants, Compensia, Pearl Meyer, 
Protective Life Corporation, and United Brotherhood of Carpenters.
    \75\ Instruction 1 to Item 402(c)(2)(iii) and (iv) provides that 
if the amount of salary or bonus earned for the fiscal year cannot 
be calculated as of the most recent practicable date, footnote 
disclosure of this fact and the date the amount is expected to be 
determined is required. When determined, the omitted amount and a 
recalculated total compensation figure must be reported in a filing 
under Item 5.02(f) of Form 8-K [17 CFR 249.308].
    \76\ See letter from Compensia.
    \77\ Instruction 2 to Item 402(b).
---------------------------------------------------------------------------

    Although we proposed to revise Instruction 2 to the salary and 
bonus column of the Summary Compensation Table so that companies would 
not be required to report in those columns the amount of salary or 
bonus forgone at a named executive officer's election and the non-cash 
awards received instead of salary or bonus would be reported in the 
column applicable to the form of award elected, we have decided not to 
adopt this amendment. We agree with commenters that disclosing the 
amounts of salary and bonus that the compensation committee awarded 
better enables investors to understand the relative weights the company 
applied to annual incentives and salary.\78\ This information provides 
investors more insight into the extent to which a company's 
compensation strategy pays for performance, may be heavily weighted in 
salary, or may be heavily weighted in annual incentives. Consistent 
with our decision to amend our rules to require disclosure enabling 
investors to better understand the risks involved in compensation 
programs, we are retaining the current version of this instruction, so 
that investors can understand overall compensation strategy and the 
intended distribution of risk among different types of compensation. 
Companies will continue to report the forgone amounts in the salary or 
bonus column, with footnote disclosure of the receipt of non-cash 
compensation that refers to the Grants of Plan-Based Awards Table where 
the stock, option or non-equity incentive plan awarded the named 
executive officer elected is reported.\79\
---------------------------------------------------------------------------

    \78\ See, e.g., letters from Center on Executive Compensation 
and Pearl Meyer.
    \79\ Instruction 2 to Item 402(c)(2)(iii) and (iv).
---------------------------------------------------------------------------

    Finally, based on the comments received, we have decided not to 
rescind, as was proposed, the requirement to report the full grant date 
fair value of each equity award in the Grants of Plan-Based Awards 
Table and the Director Compensation Table. We agree with commenters 
that, because this disclosure reveals the value associated with each 
type of equity award granted and the mix of values among various awards 
with different incentive effects, retaining it will help investors 
better evaluate the decisions of the compensation committee.\80\
---------------------------------------------------------------------------

    \80\ See letters from Center on Executive Compensation and Pearl 
Meyer.
---------------------------------------------------------------------------

d. Transition
    To facilitate year-to-year comparisons, consistent with our 
proposal, we will implement the Summary Compensation Table amendments 
by requiring companies providing Item 402 disclosure for a fiscal year 
ending on or after December 20, 2009 to present recomputed disclosure 
for each preceding fiscal year required to be included in the table, so 
that the stock awards and option awards columns present the applicable 
full grant date fair values, and the total compensation column is 
correspondingly recomputed.\81\ The stock awards and option awards 
columns amounts should be computed based on the individual award grant 
date fair values reported in the applicable year's Grants of Plan-Based 
Awards Table, except that awards with performance conditions should be 
recomputed to report grant date fair value based on the probable 
outcome as of the grant date, consistent with FASB ASC Topic 718. In 
addition, if a person who would be a named executive officer for the 
most recent fiscal year (2009) also was disclosed as a named executive 
officer for 2007, but not for 2008, the named executive officer's 
compensation for each of those three fiscal years must be reported 
pursuant to the amendments.\82\ However, companies are not required to 
include different named executive officers for any preceding fiscal 
year based on recomputing total compensation for those years pursuant 
to the amendments, or to amend prior years' Item 402 disclosure in 
previously filed Forms 10-K or other filings.
---------------------------------------------------------------------------

    \81\ Commenters generally favored this approach as a means of 
ensuring year-to-year comparability, and said it would not be 
difficult to comply. See, e.g., letters from Glass Lewis, Mercer, 
and Pfizer.
    \82\ However, a smaller reporting company, which is required to 
provide disclosure only for the two most recent fiscal years, could 
provide Summary Compensation Table disclosure only for 2009 if the 
person was a named executive officer for 2009 but not for 2008.
---------------------------------------------------------------------------

e. Comment Responses Regarding Rulemaking Petition and Other Requests 
for Comment
    We requested comment regarding a rulemaking petition recommending 
Summary Compensation Table disclosure of stock and option awards based 
on the annual change in value of awards.\83\ We also requested comment 
on whether any potential amendments to the Grants of Plan-Based Awards 
Table or the Outstanding Equity Awards at Fiscal Year-End Table should 
be considered to better illustrate the relationship between pay and 
company performance. Most commenters did not support the petition's 
recommendation because they believed it would not report the board's 
compensation decisions, on which investors focus in making voting and 
investment decisions, and could result in disclosure of negative 
numbers.\84\ However, several commenters recommended other tabular 
revisions to highlight how compensation may be related to the company's 
performance.\85\ Most of these suggestions were in anticipation that 
legislation establishing an annual ``say-on-pay'' shareholder advisory 
vote may be enacted.\86\ Commenters most

[[Page 68341]]

frequently recommended adding a column to the Outstanding Equity Awards 
at Fiscal Year-End Table to report the fiscal year end intrinsic value 
of outstanding options and stock appreciation rights (``SARs'').\87\
---------------------------------------------------------------------------

    \83\ See May 26, 2009, rulemaking petition submitted by Ira T. 
Kay and Steven Seelig, Watson Wyatt Worldwide, File No. 4-585, at 
http://www.sec.gov/rules/petitions/2009/petn4-585.pdf.
    \84\ See, e.g., letters from Protective Life Corporation, 
RiskMetrics.
    \85\ See, e.g., letters from Center on Executive Compensation, 
Graef Crystal, Paul Hodgson, Don Meiers and Dan Gode.
    \86\ The United States House of Representatives has passed H.R. 
3269, the Corporate and Financial Institution Compensation Fairness 
Act of 2009, which would provide shareholders an advisory vote to 
approve the compensation of executives in any proxy, consent, or 
authorization for an annual meeting.
    \87\ See, e.g., letters from Cleary Gottlieb, Compensia, Grant 
Thornton, Hewitt, Pearl Meyer, and Towers Perrin. We would not 
object if companies voluntarily add a column captioned ``Value of 
unexercised in-the-money options/SARs at fiscal year end ($)'' to 
the Outstanding Awards at Fiscal Year-End Table to report these 
fiscal year end intrinsic values.
---------------------------------------------------------------------------

    In addition, we solicited comment on whether there are other 
initiatives we should consider proposing to improve executive 
compensation disclosure, such as including disclosure of each executive 
officer's compensation, not just the named executive officers; 
eliminating the instruction providing that performance targets can be 
excluded based on the potential adverse competitive effect on the 
company of their disclosure; making the CD&A part of the Compensation 
Committee Report, and requiring the report to be ``filed;'' additional 
disclosure regarding ``hold to retirement'' and/or claw back 
provisions; and internal pay ratios.\88\ Commenters who addressed these 
topics expressed mixed views.\89\
---------------------------------------------------------------------------

    \88\ See Proposing Release at Section II.H.
    \89\ Commenters who addressed these topics generally opposed 
expanding executive compensation disclosure beyond the named 
executive officers, stating that it would not add meaningful 
information. See, e.g., letters from BorgWarner, Business 
Roundtable, Hewitt, Pearl Meyer, SCSGP and SIFMA. Some commenters 
opposed eliminating the ability to omit disclosure of performance 
targets based on competitive harm to the company, stating that 
disclosure would discourage use of performance targets or that 
adverse consequences to the company would outweigh the targets' 
informative value to investors. See, e.g., letters from BorgWarner, 
Business Roundtable, SCSGP, and Pearl Meyer (supporting disclosure 
of the percentage of target awards actually earned). Other 
commenters supported requiring retrospective disclosure of 
performance targets for awards in completed periods. See letters 
from RiskMetrics, SEIU, State Board of Administration of Florida, 
and Towers Perrin (supporting the competitive harm exclusion for 
performance cycles in effect when the proxy statement is 
distributed). Some commenters supported making CD&A part of the 
Compensation Committee Report as a means to improve CD&A disclosure 
quality, often recommending that the combined document be ``filed.'' 
See letters from AFL-CIO, Jesse M. Brill, United Brotherhood of 
Carpenters, Hodak Value Advisors, RiskMetrics, and SEIU. Others 
supported retaining the current disclosure roles and status of the 
CD&A and Compensation Committee Report, finding no compelling 
reasons to change them. See, e.g., letters from Ameriprise 
Financial, Pearl Meyer, and SIFMA. Some commenters favored requiring 
enhanced disclosure of hold-to-retirement and clawback policies to 
demonstrate whether compensation practices foster a long-term value 
approach. See letters from Jesse M. Brill, SEIU, and State Board of 
Administration of Florida. Others opposed adding specific 
requirements, often noting that if such policies are material to 
compensation decisions, principles-based CD&A currently subjects 
them to disclosure. See, e.g., letters from Buck Consultants, 
Business Roundtable, Pearl Meyer, and Towers Perrin. Commenters 
similarly divided about requiring disclosure of internal pay ratios. 
See letters from Jesse M. Brill, Pearl Meyer, SCSGP and SIFMA. One 
commenter opposed all of the potential initiatives on which we 
solicited comment, stating that they ``would generate extensive 
disclosures of questionable relevance.'' See letter from Pfizer.
---------------------------------------------------------------------------

    Our goal at this stage is to adopt discrete amendments to improve 
compensation disclosure in proxy statements, such as the changes to 
option reporting in the Summary Compensation Table and Director 
Compensation Table, that can be implemented for the 2010 proxy season. 
Therefore, we are not adopting any other changes to executive 
compensation disclosure at this time. However, we will consider the 
comments received in connection with future rulemaking initiatives on 
compensation disclosure.

B. Enhanced Director and Nominee Disclosure

    We proposed to amend Item 401 of Regulation S-K to expand the 
disclosure requirements regarding the qualifications of directors and 
nominees, past directorships held by directors and nominees, and the 
time period for disclosure of legal proceedings involving directors, 
nominees and executive officers. We are adopting the changes generally 
as proposed, but have made revisions in response to comments.
1. Proposed Amendments
    Under the proposed amendments, a company would be required to 
disclose for each director and any nominee for director the particular 
experience, qualifications, attributes or skills that qualified that 
person to serve as a director of the company, and as a member of any 
committee that the person serves on or is chosen to serve on, in light 
of the company's business. In addition to the expanded narrative 
disclosure regarding director and nominee qualifications, the proposed 
amendments would require disclosure of any directorships held by each 
director and nominee at any time during the past five years at public 
companies and registered investment companies, and would lengthen the 
time during which disclosure of legal proceedings involving directors, 
director nominees and executive officers is required from five to ten 
years. As proposed, this expanded disclosure would apply to incumbent 
directors, to nominees for director who are selected by a company's 
nominating committee, and to any nominees put forward by another 
proponent in its proxy materials.
    We proposed that the disclosures under the Item 401 amendments 
would appear in proxy and information statements on Schedules 14A and 
14C, annual reports on Form 10-K and registration statements on Form 10 
under the Exchange Act, as well as in registration statements under the 
Securities Act.
    We also proposed to apply the expanded disclosure requirements 
regarding director and nominee qualifications, past directorships held 
by directors and nominees, and the time frame for disclosure of legal 
proceedings involving directors, nominees, and executive officers to 
funds. Specifically, we proposed to amend Schedules 14A and 14C to 
apply these expanded requirements to fund proxy and information 
statements, where action is to be taken with respect to the election of 
directors, and to amend Forms N-1A, N-2, and N-3 to require that funds 
include the expanded disclosures regarding director qualifications and 
past directorships in their statements of additional information.\90\
---------------------------------------------------------------------------

    \90\ Form N-1A is used by open-end management investment 
companies. Form N-2 is used by closed-end management investment 
companies. Form N-3 is used by separate accounts, organized as 
management investment companies, which offer variable annuity 
contracts.
---------------------------------------------------------------------------

2. Comments on the Proposed Amendments
    Comments on the proposal were mixed. Individual investors, trade 
unions, institutional investors and pension funds supported the 
proposals. Several of these commenters noted that the amendments would 
be a helpful step forward in providing investors and shareholders with 
additional information they need to make more informed investment and 
voting decisions relating to corporate governance and the election of 
directors.\91\ Most companies, law firms and bar groups opposed the 
proposal. Many of the commenters opposed to the proposed amendments 
expressed concern about requiring companies to disclose the 
qualifications, attributes and skills of directors and nominees on a 
person-by-person basis.\92\ Some of

[[Page 68342]]

these commenters believed that requiring disclosure of the 
qualifications, attributes and skills of directors and nominees on a 
person-by-person basis would not elicit meaningful disclosure. They 
asserted that well-assembled boards usually consist of a diverse 
collection of individuals who bring a variety of complementary skills 
that nominating committees and boards generally consider in the broader 
context of the board's overall composition, with a view toward 
constituting a board that, as a body, possesses the appropriate skills 
and experience to oversee the company's business. Another concern 
expressed by commenters opposed to the proposed amendments was that the 
disclosure of specialized knowledge or background of particular 
directors could lead to heightened liability.\93\
---------------------------------------------------------------------------

    \91\ See, e.g., letters from Board of Directors Network, Forum 
of Executive Women, Integrated Governance Solutions, Norges Bank 
Investment Management (``Norges Bank''), and Ralph Saul.
    \92\ See, e.g., letters from ABA, Ameriprise, Business 
Roundtable, BorgWarner, Davis Polk, Honeywell, JPMorgan, Southern 
Company (``Southern''), and Wisconsin Energy.
    \93\ See, e.g., letters from ABA, Ameriprise and Business 
Roundtable.
---------------------------------------------------------------------------

    Commenters also objected to the use of term ``qualify'' in the 
proposed amendment. They noted that the term ``qualify'' would only be 
relevant to the extent that a company's governing instruments create 
minimum qualifications for directors, such as a requirement to own a 
certain amount of shares in the company.\94\ Other commenters believed 
that ``risk assessment skills'' should not be singled out for specific 
discussion, but rather should be considered as part of the discussion 
of the board's aggregate skills and attributes.\95\ These commenters 
stated that a better alternative may be to address risk as separate 
disclosure topic to elicit more detailed disclosure about risk.
---------------------------------------------------------------------------

    \94\ See letter from ABA.
    \95\ See, e.g., letters from Honeywell and Protective Life 
Corporation.
---------------------------------------------------------------------------

    Several commenters believed that it would be inappropriate to 
require disclosure of the specific experience, qualifications or skills 
that qualify a person to serve as a member of a particular board 
committee.\96\ According to these commenters, other than having at 
least one member of the board with ``financial expertise'' satisfying 
the requirements for the audit committee, companies generally do not 
select individuals to serve on the board based on what committee they 
will serve on. These commenters noted that in many instances, companies 
will rotate directors among several committee positions during their 
tenure on the board.\97\
---------------------------------------------------------------------------

    \96\ See letters from SCSGP, S&C and Southern.
    \97\ See, e.g., letters from SCSGP and S&C.
---------------------------------------------------------------------------

    On the question of how frequently the disclosure should be 
required, many commenters supported having the disclosure provided on 
an annual basis for all continuing directors and new nominees.\98\ 
These commenters noted that the overall composition of the board 
changes when new nominees are introduced and annual disclosure would 
facilitate shareholders' assessments of the quality of the board as a 
whole, which must be analyzed in relation to any changes in the 
company's strategy, relevant risks, operations and organization. 
However, several other commenters stated that if the requirements are 
adopted, they should only be required when a director is first 
nominated.\99\
---------------------------------------------------------------------------

    \98\ See, e.g., letters from IIA, Norges Bank, Pax World 
Management Corporation, and RiskMetrics.
    \99\ See letters from BorgWarner, Business Roundtable, Cleary 
Gottlieb, SCSGP and S&C.
---------------------------------------------------------------------------

    A broad spectrum of commenters supported the proposed amendments to 
require disclosure of any directorships at public companies held by 
each director and nominee at any time during the past five years 
instead of only currently held directorships, and to lengthen the time 
during which disclosure of legal proceedings is required from five to 
ten years.\100\ However, other commenters asserted that additional 
disclosure of past directorships would become voluminous and tend to 
obfuscate a nominee's most relevant credentials.\101\
---------------------------------------------------------------------------

    \100\ See, e.g., letters from AARP, AFL-CIO, CII, Evolution 
Petroleum, Pfizer, RILA, SCSGP, TIAA-CREF, United Brotherhood of 
Carpenters, and Universities Superannuation Scheme, et al. Cf. 
letters from AFSCME and Florida State Board of Administration 
(supporting the proposed amendment and also suggesting that the 
disclosure of legal proceedings involving fraud should not be 
subject to a time limit).
    \101\ See, e.g., letter from S&C.
---------------------------------------------------------------------------

    We requested comment on whether we should retain Item 407(c)(2)(v) 
of Regulation S-K in light of the proposed amendments to Item 401 of 
Regulation S-K. This item, among other things, requires disclosure of 
any minimum qualifications that a nominating committee believes must be 
met by someone nominated by a committee for a position on the board. 
Several commenters believed we should retain the disclosure currently 
required by Item 407(c)(2)(v) because this information allows 
shareholders to gain an understanding of the overall quality of the 
board and the board's priorities, and would improve the ability of 
shareholders to compare a nominee's background to the standards set by 
the board itself and to further evaluate board and committee 
composition.\102\
---------------------------------------------------------------------------

    \102\ See, e.g., letters from ABA and CII.
---------------------------------------------------------------------------

    We also requested comment on whether there were additional legal 
proceeding disclosures that reflect on a director's, executive 
officer's, or nominee's character and fitness to serve as a public 
company official that should be required to be disclosed, and we listed 
several possible additions to the current list. Several commenters 
agreed that the disclosure about the additional legal proceedings noted 
was important information that reflected on an individual's competence 
and integrity and as such, should be disclosed.\103\ Other commenters 
believed the current disclosure requirements were adequate.\104\
---------------------------------------------------------------------------

    \103\ See, e.g., letters from AARP, Colorado Public Employees' 
Retirement Association (``COPERA''), and Interfaith Center on 
Corporate Responsibility.
    \104\ See, e.g., letters from American Electric Power and S&C.
---------------------------------------------------------------------------

3. Final Rule
    After considering the comments, we are adopting the amendments to 
Item 401, but with several revisions. We believe the amendments will 
provide investors with more meaningful disclosure that will help them 
in their voting decisions by better enabling them to determine whether 
and why a director or nominee is an appropriate choice for a particular 
company.
    The final rules require companies to disclose for each director and 
any nominee for director the particular experience, qualifications, 
attributes or skills that led the board to conclude that the person 
should serve as a director for the company as of the time that a filing 
containing this disclosure is made with the Commission.\105\ The same 
disclosure, with respect to any nominee for director put forward by 
another proponent, would be required in the proxy soliciting materials 
of that proponent. This new disclosure will be required for all 
nominees and for all directors, including those not up for reelection 
in a particular year. The final rule requires this disclosure to be 
made annually because the composition of the entire board is important 
information for voting decisions. Although we are adopting the 
amendments to Item 401, we are not eliminating the disclosure 
requirements in Item 407(c)(2)(v) of Regulation S-K regarding the 
specific minimum qualifications and specific qualities or skills used 
by the nominating committee. We agree with commenters that this 
requirement should be retained because it will allow investors to 
compare and evaluate the skills and qualifications of each director

[[Page 68343]]

and nominee against the standards established by the board.\106\
---------------------------------------------------------------------------

    \105\ Consistent with the comments, we are revising the 
requirement to delete the term ``qualify,'' and instead we are 
focusing on the reasons for the decision that the person should 
serve as a director.
    \106\ See, e.g., letter from CII.
---------------------------------------------------------------------------

    The final rules do not require disclosure of the specific 
experience, qualifications or skills that qualify a person to serve as 
a committee member. In making this change from the proposal, we were 
persuaded by commenters who noted that many companies rotate directors 
among different committee positions to allow directors to gain 
different perspectives of the company.\107\ However, if an individual 
is chosen to be a director or a nominee to the board because of a 
particular qualification, attribute or experience related to service on 
a specific committee, such as the audit committee, then this should be 
disclosed under the new requirements as part of the individual's 
qualifications to serve on the board.
---------------------------------------------------------------------------

    \107\ See, e.g., letters from Davis Polk and Pfizer.
---------------------------------------------------------------------------

    The final amendments do not specify the particular information that 
should be disclosed. We believe companies and other proponents should 
be afforded flexibility in determining the information about a 
director's or nominee's skills, qualifications or particular area of 
expertise that would benefit the company and should be disclosed to 
shareholders. Accordingly, we have deleted the reference to ``risk 
assessment skills'' that was included in the proposed amendments.\108\ 
However, we note that if particular skills, such as risk assessment or 
financial reporting expertise, were part of the specific experience, 
qualifications, attributes or skills that led the board or proponent to 
conclude that the person should serve as a director, this should be 
disclosed.
---------------------------------------------------------------------------

    \108\ See, e.g., letters from Honeywell and Protective Life 
Corporation.
---------------------------------------------------------------------------

    We are adopting substantially as proposed the amendments to require 
disclosure of any directorships at public companies and registered 
investment companies held by each director and nominee at any time 
during the past five years. Item 401 presently requires disclosure of 
any current director positions held by each director and nominee in any 
company with a class of securities registered pursuant to Section 12 of 
the Exchange Act,\109\ or subject to the requirements of Section 15(d) 
of that Act,\110\ or any company registered as an investment company 
under the Investment Company Act. We believe that expanding this 
disclosure to include service on boards of those companies for the past 
five years (even if the director or nominee no longer serves on that 
board) will allow investors to better evaluate the relevance of a 
director's or nominee's past board experience, as well as professional 
or financial relationships that might pose potential conflicts of 
interest (such as past membership on boards of major suppliers, 
customers, or competitors).
---------------------------------------------------------------------------

    \109\ 15 U.S.C. 78l.
    \110\ 15 U.S.C. 78o(d).
---------------------------------------------------------------------------

    In addition to these amendments, we are adopting amendments as 
proposed to lengthen the time during which disclosure of legal 
proceedings involving directors, director nominees and executive 
officers is required from five to ten years. We believe it is 
appropriate to extend the required reporting period from five to ten 
years as a means of providing investors with more extensive information 
regarding an individual's competence and character. We were persuaded 
by commenters who believed that disclosures of legal proceedings during 
the ten-year period would provide investors with additional important 
information.\111\ We are also adopting amendments to expand the list of 
legal proceedings involving directors, executive officers, and nominees 
covered under Item 401(f) of Regulation S-K. Some commenters agreed 
that certain legal proceedings can reflect on an individual's 
competence and integrity to serve as a director, and that the 
additional disclosure noted in the proposing release would provide 
investors with valuable information for assessing the competence, 
character and overall suitability of a director, nominee or executive 
officer.\112\
---------------------------------------------------------------------------

    \111\ See, e.g., letters from ABA, AARP and COPERA.
    \112\ See, e.g., letters from AARP, CII, COPERA, SEIU, and USPX.
---------------------------------------------------------------------------

    In addition, consistent with our request for comment and comments 
received,\113\ we are amending Item 401(f) to require disclosure of 
additional legal proceedings. These new legal proceedings include:
---------------------------------------------------------------------------

    \113\ See note 103 above and accompanying text.
---------------------------------------------------------------------------

     Any judicial or administrative proceedings resulting from 
involvement in mail or wire fraud or fraud in connection with any 
business entity;
     Any judicial or administrative proceedings based on 
violations of Federal or State securities, commodities, banking or 
insurance laws and regulations, or any settlement \114\ to such 
actions; and
---------------------------------------------------------------------------

    \114\ This does not include disclosure of a settlement of a 
civil proceeding among private parties. We are including an 
instruction as part of the amendments to clarify this.
---------------------------------------------------------------------------

     Any disciplinary sanctions or orders imposed by a stock, 
commodities or derivatives exchange or other self-regulatory 
organization.

We believe this amendment will provide investors with information that 
is important to an evaluation of an individual's competence and 
character to serve as a public company official.\115\
---------------------------------------------------------------------------

    \115\ Consistent with the current disclosure requirement 
regarding legal proceedings, the additional legal proceedings 
included in the new requirements will not need to be disclosed if 
they are not material to an evaluation of the ability or integrity 
of the director or director nominee. See 17 CFR 229.401(f).
---------------------------------------------------------------------------

    In the Proposing Release, we also requested comment on whether we 
should amend our rules to require disclosure of additional factors 
considered by a nominating committee when selecting someone for a board 
position, such as board diversity. A significant number of commenters 
responded that disclosure about board diversity was important 
information to investors.\116\ Many of these commenters believed that 
requiring this disclosure would provide investors with information on 
corporate culture and governance practices that would enable investors 
to make more informed voting and investment decisions.\117\ Commenters 
also noted that there appears to be a meaningful relationship between 
diverse boards and improved corporate financial performance, and that 
diverse boards can help companies more effectively recruit talent and 
retain staff.\118\ We agree that it is useful for investors to 
understand how the board considers and addresses diversity, as well as 
the board's assessment of the implementation of its diversity policy, 
if any. Consequently, we are adopting amendments to Item 407(c) of 
Regulation S-K to require disclosure of whether, and if so how, a 
nominating committee considers diversity in identifying nominees for 
director.\119\ In addition, if the nominating committee (or the board) 
has a policy with regard to the consideration of diversity in

[[Page 68344]]

identifying director nominees, disclosure would be required of how this 
policy is implemented, as well as how the nominating committee (or the 
board) assesses the effectiveness of its policy. We recognize that 
companies may define diversity in various ways, reflecting different 
perspectives. For instance, some companies may conceptualize diversity 
expansively to include differences of viewpoint, professional 
experience, education, skill and other individual qualities and 
attributes that contribute to board heterogeneity, while others may 
focus on diversity concepts such as race, gender and national origin. 
We believe that for purposes of this disclosure requirement, companies 
should be allowed to define diversity in ways that they consider 
appropriate. As a result we have not defined diversity in the 
amendments.
---------------------------------------------------------------------------

    \116\ See, e.g., letters from Board of Directors Network, Boston 
Common Asset Management, CalPERS, CalSTRS, Calvert, Council of Urban 
Professionals, Ernst & Young LLP (``E&Y''), Greenlining Institute, 
Hispanic Association on Corporate Responsibility, Interfaith Center 
on Corporate Responsibility, InterOrganization Network, Latino 
Business Chamber of Greater Los Angeles, Pax World Management 
Corporation, Prout Group, Inc., RiskMetrics, Sisters of Charity BVM, 
Sisters of St. Joseph Carondelet, and Trillium Asset Management 
Corporation.
    \117\ See, e.g., letters from the Boston Club, Boston Common 
Asset Management, CalPERS, Pax World Management Corporation, 
Trillium Asset Management Corporation, and Social Investment Forum.
    \118\ See, e.g., letters from Catalyst and the Social Investment 
Forum.
    \119\ See Item 407(c)(2)(vi) of Regulation S-K. Funds will be 
subject to the diversity disclosure requirement of Item 
407(c)(2)(vi) of Regulation S-K under Item 22(b)(15)(ii)(A) of 
Schedule 14A. See 17 CFR 240.14a-101, Item 22(b)(15)(ii)(A).
---------------------------------------------------------------------------

C. New Disclosure About Board Leadership Structure and the Board's Role 
in Risk Oversight

    We proposed a new disclosure requirement to Item 407 of Regulation 
S-K and a corresponding amendment to Item 7 of Schedule 14A to require 
disclosure of the company's leadership structure and why the company 
believes it is the most appropriate structure for it at the time of the 
filing. The proposal also required disclosure about the board's role in 
the company's risk management process. We are adopting the proposals 
with some changes.
1. Proposed Amendments
    Under the proposed amendments, companies would be required to 
disclose their leadership structure and the reasons why they believe 
that it is an appropriate structure for the company. As part of this 
proposed disclosure, companies would be required to disclose whether 
and why they have chosen to combine or separate the principal executive 
officer and board chair positions. In addition, in some companies the 
role of principal executive officer and board chairman are combined, 
and a lead independent director is designated to chair meetings of the 
independent directors. For these companies, the proposed amendments 
would require disclosure of whether and why the company has a lead 
independent director, as well as the specific role the lead independent 
director plays in the leadership of the company. In proposing this 
requirement, we noted that different leadership structures may be 
suitable for different companies depending on factors such as the size 
of a company, the nature of a company's business, or internal control 
considerations, among other things. Irrespective of the type of 
leadership structure selected by a company, the proposed requirements 
were intended to provide investors with insights about why the company 
has chosen that particular leadership structure.
    We also proposed to require additional disclosure in proxy and 
information statements about the board's role in the company's risk 
management process. Disclosure about the board's approach to risk 
oversight might address questions such as whether the persons who 
oversee risk management report directly to the board as whole, to a 
committee, such as the audit committee, or to one of the other standing 
committees of the board; and whether and how the board, or board 
committee, monitors risk.
    We also proposed that funds provide the new Item 407 disclosure 
about leadership structure and the board's role in the risk management 
process in proxy and information statements and similar disclosure as 
part of registration statements on Forms N-1A, N-2 and N-3. The 
proposed amendments were tailored to require that a fund disclose 
whether the board chair is an ``interested person'' of the fund, as 
defined in Section 2(a)(19) of the Investment Company Act. We proposed 
that if the board chair is an interested person, a fund would be 
required to disclose whether it has a lead independent director and 
what specific role the lead independent director plays in the 
leadership of the fund.
2. Comments on the Proposed Amendments
    Comments were mostly supportive of the proposals.\120\ Commenters 
believed the disclosure regarding a company's leadership structure and 
the board's role in risk management process would provide useful 
information to investors and improve investor understanding of the role 
of the board in a company's risk management practices.\121\ Some 
commenters opposed the disclosures. Many of these commenters believed 
that the proposed amendments were too vague and would likely elicit 
boilerplate descriptions of a company's management hierarchy and risk 
management that would not provide significant insight or meaning to 
investors.\122\
---------------------------------------------------------------------------

    \120\ See, e.g., letters from AFL-CIO, Chairmen's Forum, 
Calvert, CII, CalSTRS, the General Board of Pension and Health 
Benefits of the United Methodist Church, Hermes, Norges Bank, 
Pfizer, RiskMetrics, and SEIU.
    \121\ See, e.g., letters from CII, the General Board of Pension 
and Health Benefits of the United Methodist Church, IGS, and RIMS.
    \122\ See, e.g., letters from Cleary Gottlieb, S&C and 
Theragenics.
---------------------------------------------------------------------------

    Many commenters suggested revisions to the proposed disclosure 
requirements. For instance, several commenters recommended that we use 
the phrase ``board leadership structure'' rather than ``company 
leadership structure'' and noted that the discussion of the board 
leadership structure and the board's role in risk management are two 
separate disclosure items.\123\ These commenters believed that the use 
of the phrase ``company leadership structure'' could be misinterpreted 
to require a discussion of a company's management leadership 
structures. Other commenters suggested that we replace the phrase 
``risk management'' with ``risk oversight'' because the board's role is 
to oversee management, which is responsible for the day-to-day issues 
of risk management.\124\
---------------------------------------------------------------------------

    \123\ See, e.g., letters from Business Roundtable and Honeywell.
    \124\ See, e.g., letters from GovernanceMetrics and PLC.
---------------------------------------------------------------------------

    Several commenters believed disclosure of the board's role in risk 
management would be more effective as part of a comprehensive 
discussion of a company's risk management processes, rather than as 
stand-alone disclosure.\125\ They suggested that companies be allowed 
to provide the required disclosure in the MD&A discussion included in 
the Form l0-K, and to incorporate by reference this information in the 
proxy statement rather than repeat the information.
---------------------------------------------------------------------------

    \125\ See, e.g., letters from ABA and JPMorgan.
---------------------------------------------------------------------------

    With respect to funds, commenters addressing the issue generally 
supported the proposal that funds disclose whether the board chair is 
an ``interested person'' as defined under the Investment Company 
Act.\126\ In addition, commenters noted the importance of fund board 
oversight of risk management,\127\ but commenters were split regarding 
whether we should require disclosure about fund board oversight of risk 
management.\128\
---------------------------------------------------------------------------

    \126\ See, e.g., letters from Independent Directors Council 
(``IDC'') and Mutual Fund Directors Forum (``MFDF'').
    \127\ See, e.g., letters from IDC and MFDF.
    \128\ See letters from Calvert and MFDF (supporting disclosure). 
But see letters from the Investment Company Institute and IDC 
(opposing disclosure).
---------------------------------------------------------------------------

3. Final Rule
    After consideration of the comments, we are adopting the proposals 
substantially as proposed with a few technical revisions in response to 
comments. We believe that, in making voting and investment decisions,

[[Page 68345]]

investors should be provided with meaningful information about the 
corporate governance practices of companies.\129\ As we noted in the 
Proposing Release, one important aspect of a company's corporate 
governance practices is its board's leadership structure. Disclosure of 
a company's board leadership structure and the reasons the company 
believes that its board leadership structure is appropriate will 
increase the transparency for investors as to how the board functions.
---------------------------------------------------------------------------

    \129\ See, e.g., National Association of Corporate Directors, 
Key Agreed Principles to Strengthen Corporate Governance for U.S. 
Publicly Traded Companies, (Mar. 2009) (``Every board should 
explain, in proxy materials and other communications with 
shareholders, why the governance structures and practices it has 
developed are best suited to the company.'').
---------------------------------------------------------------------------

    As stated above, the amendments were designed to provide 
shareholders with disclosure of, and the reasons for, the leadership 
structure of a company's board concerning the principal executive 
officer, the board chairman position and, where applicable, the lead 
independent director position. We agree with commenters that the phrase 
``board leadership structure'' instead of ``company leadership 
structure'' would avoid potential misunderstanding that the amendments 
require a discussion of the structure of a company's management 
leadership.\130\ We also agree with commenters that the phrase ``risk 
oversight'' instead of ``risk management'' would be more appropriate in 
describing the board's responsibilities in this area.\131\
---------------------------------------------------------------------------

    \130\ See letter from Honeywell.
    \131\ See, e.g., letters from Ameriprise Financial and 
Protective Life Corporation.
---------------------------------------------------------------------------

    Under the amendments, a company is required to disclose whether and 
why it has chosen to combine or separate the principal executive 
officer and board chairman positions, and the reasons why the company 
believes that this board leadership structure is the most appropriate 
structure for the company at the time of the filing. In addition, in 
some companies the role of principal executive officer and board 
chairman are combined, and a lead independent director is designated to 
chair meetings of the independent directors. In these circumstances, 
the amendments will require disclosure of whether and why the company 
has a lead independent director, as well as the specific role the lead 
independent director plays in the leadership of the company. As we 
previously stated in the Proposing Release, these amendments are 
intended to provide investors with more transparency about the 
company's corporate governance, but are not intended to influence a 
company's decision regarding its board leadership structure.
    The final rules also require companies to describe the board's role 
in the oversight of risk. We were persuaded by commenters who noted 
that risk oversight is a key competence of the board, and that 
additional disclosures would improve investor and shareholder 
understanding of the role of the board in the organization's risk 
management practices.\132\ Companies face a variety of risks, including 
credit risk, liquidity risk, and operational risk. As we noted in the 
Proposing Release, similar to disclosure about the leadership structure 
of a board, disclosure about the board's involvement in the oversight 
of the risk management process should provide important information to 
investors about how a company perceives the role of its board and the 
relationship between the board and senior management in managing the 
material risks facing the company. This disclosure requirement gives 
companies the flexibility to describe how the board administers its 
risk oversight function, such as through the whole board, or through a 
separate risk committee or the audit committee, for example. Where 
relevant, companies may want to address whether the individuals who 
supervise the day-to-day risk management responsibilities report 
directly to the board as a whole or to a board committee or how the 
board or committee otherwise receives information from such 
individuals.
---------------------------------------------------------------------------

    \132\ See, e.g., letters from Norges Bank and RIMS.
---------------------------------------------------------------------------

    The final rules also require funds to provide disclosure about the 
board's role in risk oversight. Funds face a number of risks, including 
investment risk, compliance, and valuation; and we agree with 
commenters who favored disclosure of board risk oversight by 
funds.\133\ As with corporate issuers, we believe that additional 
disclosures would improve investor understanding of the role of the 
board in the fund's risk management practices. Furthermore, the 
disclosure should provide important information to investors about how 
a fund perceives the role of its board and the relationship between the 
board and its advisor in managing material risks facing the fund.
---------------------------------------------------------------------------

    \133\ See letters from Calvert and MFDF.
---------------------------------------------------------------------------

D. New Disclosure Regarding Compensation Consultants

    We proposed amendments to Item 407 of Regulation S-K to require, 
for the first time, disclosure about the fees paid to compensation 
consultants and their affiliates when they played a role in determining 
or recommending the amount or form of executive and director 
compensation, and they also provided additional services to the 
company. The proposed amendments also would have required a description 
of the additional services provided to the company by the compensation 
consultants and any affiliates of the consultants. We are adopting the 
amendments with changes in response to comments.
1. Proposed Amendments
    Under the proposed amendments to Item 407, if a compensation 
consultant or its affiliates played a role in determining or 
recommending the amount or form of executive and director compensation, 
and also provided additional services, then the company would be 
required to disclose the following:
     The nature and extent of all additional services provided 
to the company or its affiliates during the last fiscal year by the 
compensation consultant and any affiliates of the consultant;
     The aggregate fees paid for all additional services, and 
the aggregate fees paid for work related to determining or recommending 
the amount or form of executive and director compensation;
     Whether the decision to engage the compensation consultant 
or its affiliates for non-executive compensation services was made, 
recommended, subject to screening or reviewed by management; and
     Whether the board of directors or the compensation 
committee has approved the other services provided by the compensation 
consultant in addition to executive compensation services.
    The proposed disclosure requirements would have applied to all 
services provided by a compensation consultant and its affiliates if 
the compensation consultant played any role in determining or 
recommending the amount or form of executive and director compensation. 
The proposed amendments did not distinguish between consultants engaged 
by the board and consultants engaged by management. We provided an 
exception from the proposed disclosure requirements for those 
situations in which the compensation consultant's role in recommending 
the amount or form of executive and director compensation was limited 
to consulting on broad-based plans that did not discriminate in favor 
of executive officers or directors of the company, such as 401(k) plans 
or health insurance

[[Page 68346]]

plans. We believed that when a compensation consultant's services were 
limited to consulting on broad-based, non-discriminatory plans, these 
services did not give rise to the type of potential conflict of 
interest intended to be addressed by our proposed amendments.\134\
---------------------------------------------------------------------------

    \134\ We also proposed to amend Item 407 along the same lines to 
clarify that the current disclosure requirements under the item were 
not triggered for a compensation consultant whose only services with 
regard to executive or director compensation were limited to these 
types of broad-based, non-discriminatory plans. Many commenters 
supported this amendment and we are adopting it as proposed.
---------------------------------------------------------------------------

2. Comments on the Proposed Amendments
    A significant number of commenters generally supported the proposed 
amendments to Item 407 of Regulation S-K to require disclosure of the 
fees paid to compensation consultants as well as a description of other 
services provided by compensation consultants.\135\ Many of these 
commenters believed investors would benefit from disclosure regarding 
the potential conflicts of interests of compensation consultants when 
they advise on the amount or form of executive and director 
compensation and also provide additional services to the company.\136\ 
These commenters believed that disclosure of the fees paid to 
compensation consultants would go a long way towards minimizing 
potential conflicts of interests and would allow shareholders to assess 
the potential conflicts of interest in regard to the compensation 
advice given to companies.
---------------------------------------------------------------------------

    \135\ See, e.g., letters from AFL-CIO, AFSCME, Business 
Roundtable, CalSTRS, CII, COPERA, Evolution Petroleum, Glass Lewis, 
Grahall, Hermes Equity Ownership Services, NACD, Oppenheimer Funds, 
Pax World Management Corporation, State of Connecticut Treasurer's 
Office, TIAA-CREF, Trillium Asset Management Corporation, and Walden 
Asset Management.
    \136\ See, e.g., letters from AFL-CIO, Frank Inman, Hermes 
Equity Ownership Services Ltd., TIAA-CREF, and Trillium Asset 
Management.
---------------------------------------------------------------------------

    However, several commenters, primarily multi-service compensation 
consulting firms, opposed the proposed amendments.\137\ These 
commenters believed the proposed amendments were too narrowly focused 
on fees paid to multi-service consulting firms and ignored important 
considerations relating to the consultant's qualifications, selection, 
and role.\138\ They also asserted that the proposed disclosure could 
give investors a distorted view of how companies use and select 
compensation consultants. Because the role of consultants is not 
uniform and varies considerably from company to company, these 
commenters asserted that investors should be given an understanding not 
only of the role consultants serve for each company, but also of the 
board's or compensation committee's selection process. This would 
include how it assessed the consultant's qualifications and how any 
potential conflicts of interest that may have been identified are 
mitigated by formal processes, or by the internal controls and 
processes maintained by the consulting firm.\139\
---------------------------------------------------------------------------

    \137\ See letters from ABA, Hewitt, Mercer, Pfizer, Protective 
Life Corporation, Radford, Towers Perrin, Value Alliance, and Watson 
Wyatt.
    \138\ See, e.g., letters from Hewitt, Mercer and Towers Perrin.
    \139\ See, e.g., letter from Hewitt.
---------------------------------------------------------------------------

    Several commenters opposed to the proposed amendments asserted that 
the amendments would decrease the compensation consulting resources 
available to companies.\140\ Other commenters asserted that the 
proposed amendments would cause competitive harm to multi-service 
consulting firms who provide services other than executive compensation 
consulting, as companies would be discouraged from using multi-service 
compensation consulting firms in more than one capacity.\141\ These 
commenters also claimed that the proposed amendments would cause 
competitive harm because disclosure of the nature and extent of all 
additional services provided by the consultant would reveal 
confidential and competitively sensitive pricing information that could 
allow competitors to determine the fee structure for these additional 
services.\142\
---------------------------------------------------------------------------

    \140\ See, e.g., letters from Hewitt and Mercer.
    \141\ See, e.g., letters from Mercer, Towers Perrin and Watson 
Wyatt.
    \142\ See, e.g., letter from Mercer.
---------------------------------------------------------------------------

    These commenters also expressed concern that the proposed 
amendments did not address potential conflicts of interest that may 
occur when a compensation consultant that only provides executive-
compensation related services to the board is overly reliant on the 
fees it receives from a particular client. They suggested an 
alternative rule that would require disclosure of fees paid to a 
compensation consultant when a significant portion of the annual 
revenues of the compensation consultant were generated from any one 
client.\143\
---------------------------------------------------------------------------

    \143\ See, e.g., letters from Hewitt, Mercer, Towers Perrin and 
Watson Wyatt.
---------------------------------------------------------------------------

    Several commenters expressed concern that the scope of the proposed 
amendments was too broad. These commenters believed that when a 
compensation committee engages its own compensation consultant, it 
mitigates any concerns about potential conflicts of interest involving 
consultants engaged by management.\144\ According to these commenters, 
from that perspective, a compensation consulting firm that provides 
executive compensation consulting services to the company, and also 
provides other services to the company, would not present a conflict of 
interest issue when the compensation committee retains a different 
consultant.\145\ Noting that management should have broad access to 
compensation experts and other third parties when developing executive 
pay proposals for board consideration, and that it is the board's 
responsibility to evaluate management's compensation proposals when 
determining whether or not to approve them, some commenters expressed 
concerns about the potential effect of the proposed disclosure on the 
board's discharge of its oversight responsibility.\146\
---------------------------------------------------------------------------

    \144\ See, e.g., letters from E&Y and Deloitte.
    \145\ Id.
    \146\ See letters from Hewitt and E&Y.
---------------------------------------------------------------------------

    In the Proposing Release, we requested comment on whether there 
were other consulting services that do not give rise to potential 
conflicts of interest that should be excluded from the proposed 
disclosure requirements similar to the proposed exemption for 
consulting services that are limited to broad-based, non-discriminatory 
plans. Several commenters responded by suggesting that we exclude 
consulting services where the compensation consultant only provides the 
board with peer surveys that provide general information regarding the 
forms and amounts of compensation typically paid to executive officers 
and directors within a particular industry.\147\ Another commenter 
suggested that surveys that are either not customized for a particular 
company, or that are customized based on parameters that are not 
developed by the compensation consultant, should be excluded from the 
amendments.\148\ These commenters believed that in situations where the 
compensation consultant's services provided to a company were limited 
to providing those types of surveys, such services did not raise the 
potential conflicts of interest that the proposed amendments were 
intended to address.\149\
---------------------------------------------------------------------------

    \147\ See, e.g., letters from BorgWarner, Davis Polk, Honeywell, 
JPMorgan and Wisconsin Energy.
    \148\ See letter from ABA.
    \149\ See, e.g., letters from BorgWarner, Davis Polk and 
Honeywell.
---------------------------------------------------------------------------

    We also requested comment on whether we should establish a 
disclosure threshold based on the

[[Page 68347]]

amount of the fees for the non-executive compensation related services, 
such as above a certain dollar amount or a percentage of income or 
revenues. Several commenters recommended that the proposed amendments 
should include a disclosure threshold, including many who suggested 
that we should require disclosure only if the aggregate fees for all 
additional services provided by the consultant and its affiliates 
exceeded $120,000.\150\
---------------------------------------------------------------------------

    \150\ See, e.g., letters from ACC, Business Roundtable, Davis 
Polk, and SCSGP. Some commenters also suggested a disclosure 
threshold based on tests in effect under rules with a similar focus 
in self-regulatory organizations, such as the 2% (for New York Stock 
Exchange-listed companies) or 5% (for NASDAQ-listed companies) of 
gross revenues test for disclosure of business relationships between 
a company and a director-affiliated entity. See, e.g., letter from 
Cleary Gottlieb. See also, letter from ABA (suggesting a percentage 
threshold set at a level where the effect of such fees diminishes 
the possible appearance of a conflict of interest).
---------------------------------------------------------------------------

3. Final Rule
    After considering the comments received, we are adopting a modified 
version of the proposed amendments. We believe the new disclosure 
requirements will provide investors with information that will enable 
them to better assess the potential conflicts a compensation consultant 
may have in recommending executive compensation, and the compensation 
decisions made by the board. As we noted in the Proposing Release, many 
companies engage compensation consultants to make recommendations on 
appropriate executive and director compensation levels, to design and 
implement incentive plans, and to provide information on industry and 
peer group pay practices. The services offered by compensation 
consultants, however, are often not limited to recommending executive 
and director compensation plans or policies. Many compensation 
consultants, or their affiliates, are retained by management to provide 
a broad range of additional services, such as benefits administration, 
human resources consulting and actuarial services. The fees generated 
by these additional services may be more significant than the fees 
earned by the consultants for their executive and director compensation 
services. The extent of the fees and provision of additional services 
by a compensation consultant or its affiliate may create the risk of a 
conflict of interest that may call into question the objectivity of the 
consultant's advice and recommendations on executive compensation.
    At the same time, we are persuaded that there are circumstances 
where this disclosure should not be required either because of the 
limited nature of the additional services or because of other factors 
that mitigate the concern that the board may be receiving advice 
potentially influenced by a conflict of interest.
a. Summary of the Final Rule
    As more fully described below, under our final rule, in addition to 
the requirement under the current rule to describe the role of the 
compensation consultant in determining or recommending the amount or 
form of executive and director compensation, fee disclosure related to 
the retention of a compensation consultant will be required in certain 
circumstances. The final rules can be summarized generally as follows:
     If the board, compensation committee or other persons 
performing the equivalent functions (collectively, ``board'') has 
engaged its own consultant to provide advice or recommendations on the 
amount or form of executive and director compensation and the board's 
consultant or its affiliates provide other non-executive compensation 
consulting services to the company, fee and related disclosure is 
required, provided the fees for the non-executive compensation 
consulting services exceed $120,000 during the company's fiscal year. 
Disclosure is also required of whether the decision to engage the 
compensation consultant or its affiliates for non-executive 
compensation consulting services was made or recommended by management, 
and whether the board has approved these non-executive compensation 
consulting services provided by the compensation consultant or its 
affiliate;
     If the board has not engaged its own consultant, fee 
disclosures are required if there is a consultant (including its 
affiliates) providing executive compensation consulting services and 
non-executive compensation consulting services to the company, provided 
the fees for the non-executive compensation consulting services exceed 
$120,000 during the company's fiscal year;
     Fee and related disclosure for consultants that work with 
management (whether for only executive compensation consulting 
services, or for both executive compensation consulting and other non-
executive compensation consulting services) is not required if the 
board has its own consultant; and
     Services involving only broad-based non-discriminatory 
plans or the provision of information, such as surveys, that are not 
customized for the company, or are customized based on parameters that 
are not developed by the consultant, are not treated as executive 
compensation consulting services for purposes of the compensation 
consultant disclosure rules.
b. Disclosure Required if the Board's Compensation Consultant Provides 
Additional Services to the Company
    If the board has engaged a compensation consultant to advise the 
board as to executive and director compensation, and such consultant or 
its affiliates provides other non-executive compensation consulting 
services to the company, the disclosures specified by the new rules are 
required. We believe that in that situation, the receipt of fees for 
non-executive compensation consulting services by the board's 
consultant presents the potential conflict of interest intended to be 
highlighted for investors by our new rules. Subject to the disclosure 
threshold discussed below, the final rule requires disclosure of the 
aggregate fees paid for services provided to either the board or the 
company with regard to determining or recommending the amount or form 
of executive and director compensation, and the aggregate fees paid for 
any non-executive compensation consulting services provided by the 
compensation consultant or its affiliates.
    In addition, the new rules require disclosure of whether the 
decision to engage the compensation consultant or its affiliates for 
the non-executive compensation consulting services was made, or 
recommended by, management, and whether the board approved such other 
services.\151\
---------------------------------------------------------------------------

    \151\ Item 407(e)(3)(iii)(A) of Regulation S-K.
---------------------------------------------------------------------------

c. Disclosure Required if the Board Does Not Have a Compensation 
Consultant, but the Company Receives Executive Compensation and Non-
Executive Compensation Services From Its Consultant
    The new rule also requires disclosure of fees in situations where 
the board has not engaged a compensation consultant, but management or 
the company received executive compensation consulting services and 
other non-executive compensation consulting services from a consultant 
or its affiliates, and the fees from the non-executive compensation 
consulting services provided by that consultant or its affiliates 
exceed $120,000 for the company's fiscal year.\152\ We recognize that 
in that situation the board, which generally is primarily responsible 
for determining the compensation paid to

[[Page 68348]]

senior executives, may not be relying on the consultant used by 
management, and, therefore, conflicts of interest may be less of a 
concern. However, we believe that when management has a compensation 
consultant and the board does not have its own compensation consultant 
to help filter any advice provided by management's compensation 
consultant, the concerns about board reliance on consultants that may 
have a conflict are sufficiently present to require this approach. 
Consequently, the final rule provides that in this fact pattern, fee 
disclosure is required if the fees from the non-executive compensation 
consulting services provided by the compensation consultant exceed the 
disclosure threshold described below.
---------------------------------------------------------------------------

    \152\ Item 407(e)(3)(iii)(B).
---------------------------------------------------------------------------

d. Disclosure Not Required if the Board and Management Have Different 
Compensation Consultants, Even if Management's Consultant Provides 
Additional Services to the Company
    In some instances, the board may engage a compensation consultant 
to advise it on executive or director compensation, and management may 
engage a separate consultant to provide executive compensation 
consulting services and one or more additional non-executive 
compensation consulting services. We believe there is less potential 
for a conflict of interest to arise when the board has retained its own 
compensation consultant, and the company or management has a different 
consultant to provide executive compensation consulting and other non-
executive compensation consulting services.\153\ When the board engages 
its own compensation consultant, it mitigates concerns about potential 
conflicts of interest involving compensation consultants engaged by 
management.\154\ Accordingly, the final rules provide a limited 
exception to the disclosure requirements for fees paid to other 
compensation consultants retained by the company if the board has 
retained its own consultant that reports to the board. In addition to 
limiting disclosure to circumstances that are more likely to present 
potential conflicts of interests, we believe this approach should 
address some concerns about competitive harm that were raised by 
commenters. The exception would be available without regard to whether 
management's consultant participates in board meetings. Where the 
board's compensation consultant provides additional non-executive 
compensation consulting services to the company, the rule would, as 
described above, require fee and other related disclosures, which 
should address concerns about conflicts of interest by that consultant. 
Fee disclosure for services provided by management's compensation 
consultant would be less relevant in this situation because the board 
is able to rely on its own compensation consultant's advice, rather 
than the advice provided by management's compensation consultant, when 
making its executive compensation decisions.
---------------------------------------------------------------------------

    \153\ See, e.g., letters from Hewitt and E&Y.
    \154\ See letter from E&Y.
---------------------------------------------------------------------------

e. Disclosure Required Only if Fees for Additional Services Exceed 
$120,000 During the Company's Last Completed Fiscal Year
    As noted previously, we agree with commenters that the final rule 
should have a disclosure threshold.\155\ We believe that when aggregate 
fees paid for the non-executive compensation consulting services are 
limited, the potential conflict of interest is likely to be 
commensurately reduced. A disclosure threshold would also reduce the 
compliance burdens on companies when the potential conflict of interest 
is minimal. Under the rule as adopted, if the board has engaged a 
compensation consultant to provide executive and director compensation 
consulting services to the board or if the board has not retained a 
consultant but there is a firm providing executive compensation 
consulting services, fee disclosure is required if the consultant or 
its affiliates also provides other non-executive compensation 
consulting services to the company, and the fees paid for the other 
services exceed $120,000 for the company's fiscal year. We believe fees 
for other non-executive compensation consulting services below that 
threshold are less likely to raise potential conflicts of interest 
concerns, and note this disclosure threshold should reduce the 
recordkeeping burden on companies. This threshold is similar to the 
disclosure threshold for transactions with related persons in Item 404 
of Regulation S-K, which also deals with potential conflicts of 
interest on the part of related persons who have financial transactions 
or arrangements with the company, and therefore provides some 
regulatory consistency.\156\
---------------------------------------------------------------------------

    \155\ See, e.g., letters from ACC, Davis Polk and SCSGP. This 
threshold requirement should also help address some of the 
competitive concerns expressed by some commenters. See, e.g., note 
150 above and accompanying text.
    \156\ See 17 CFR 229.404.
---------------------------------------------------------------------------

f. Disclosure of Nature and Extent of Additional Services Not Required
    The rule, as adopted, does not require disclosure of the nature and 
extent of additional services provided by the compensation consultant 
and its affiliates to the company, as we proposed. We made this change 
from the proposal because we are persuaded by commenters who noted that 
requiring this disclosure could cause competitive harm by revealing 
confidential and sensitive pricing information, and we believe that the 
critical information about the potential conflict is adequately 
conveyed through the fee disclosure requirement. Although we are not 
adopting this requirement, companies may at their discretion include a 
description of any additional non-executive compensation consulting 
services provided by the compensation consultant and its affiliates 
where such information would facilitate investor understanding of the 
existence or nature of any potential conflict of interest.
g. Exceptions to the Disclosure Requirement for Consulting on Broad-
Based Plans and Provision of Survey Information
    We are adopting substantially as proposed the exception from the 
disclosure requirements for situations in which the compensation 
consultant's only role in recommending the amount or form of executive 
or director compensation is in connection with consulting on broad-
based plans that do not discriminate in favor of executive officers or 
directors of the company. In addition, in response to comments 
received, we are expanding the exception to include situations where 
the compensation consultant's services are limited to providing 
information, such as surveys, that either is not customized for a 
particular company, or that is customized based on parameters that are 
not developed by the compensation consultant.\157\ We are persuaded by 
commenters who noted that surveys that provide general information 
regarding the form and amount of compensation typically paid to 
executive officers and directors within a particular industry generally 
do not raise the potential conflicts of interest that the amendments 
are intended to address.\158\ However, the exception would not be 
available if the compensation consultant provides advice or 
recommendations in connection with the information provided in the 
survey.
---------------------------------------------------------------------------

    \157\ See, e.g., letters from ABA, Mercer and Towers Perrin.
    \158\ See letters from Davis Polk and Mercer.

---------------------------------------------------------------------------

[[Page 68349]]

h. Other Concerns
    We did not propose, and do not at this time adopt, disclosure of 
consulting fees based on a percentage of revenues received from a 
company. We have considered the concern expressed by some commenters 
that compensation consultants, even if they are only retained by the 
board for executive compensation related services and do not provide 
any additional services to the company, may become overly reliant on a 
single client for revenues, which could affect the advice the 
consultant provides to the board.\159\ However, we are not currently 
persuaded that such reliance would cause a consultant to provide advice 
to the board that inappropriately reflects management's influence as a 
result of fees for additional services, which is the primary concern 
addressed by the final rule.
---------------------------------------------------------------------------

    \159\ See letters from Hewitt, Mercer, Pearl Meyer, and Towers 
Perrin.
---------------------------------------------------------------------------

    We also considered the suggestion provided by these commenters that 
companies be required to disclose various matters about the 
consideration of potential conflicts of interest.\160\ We are not 
persuaded that we need to address this issue at this time and believe 
our final rule addresses our concerns without adding significant length 
to the disclosure or burdens on companies.
---------------------------------------------------------------------------

    \160\ In their comment letters, several multi-service 
compensation consulting firms proposed an alternative disclosure 
requirement. Under their proposal, if the total fees paid to the 
consultant for all services provided to the company and its 
affiliates during the preceding fiscal year exceeded one-half of one 
percent of the total revenues of the consultant for that fiscal 
year, the company would be required to disclose, among other things, 
the protocols established by the compensation committee to ensure 
that the consultant is able to provide unbiased advice and is not 
inappropriately influenced by the company's management. See letters 
from Hewitt, Mercer, Watson Wyatt, and Towers Perrin.
---------------------------------------------------------------------------

    Our amendments as adopted are intended to facilitate investors' 
consideration of whether, in providing advice, a compensation 
consultant may have been influenced by a desire to retain other 
engagements from the company. This does not reflect a conclusion that 
we believe that a conflict of interest is present when disclosure is 
required under our new rule, or that a compensation committee or a 
company could not reasonably conclude that it is appropriate to engage 
a consultant that provides other services to the company requiring 
disclosure under our new rule. It also does not mean that we have 
concluded that there are no other circumstances that might present a 
conflict of interest for a compensation consultant retained by a 
compensation committee or company. Rather, the amendments are designed 
to provide context to investors in considering the compensation 
disclosures required to be provided under our rules, and, as explained 
above, are based on our understanding of the situations that are more 
likely to raise potential conflicts of interest concerns.

E. Reporting of Voting Results on Form 8-K

    We proposed to transfer the requirement to disclose shareholder 
vote results from Forms 10-Q and 10-K to Form 8-K, and to have that 
information filed within four business days after the end of the 
meeting at which the vote was held. We are adopting the proposal with 
some modifications in response to comments.
1. Proposed Amendments
    Currently, Item 4 in Part II of Form 10-Q and Item 4 in Form 10-K 
require the disclosure of the results of any matter that was submitted 
to a vote of shareholders during the fiscal quarter covered by either 
the Form 10-Q or Form 10-K with respect to the fourth fiscal quarter. 
The proposed amendments would delete this requirement from Forms 10-Q 
and 10-K and move it to Form 8-K. As a result, voting results would be 
required to be filed on Form 8-K within four business days after the 
end of the meeting at which the vote was held. To accommodate timing 
difficulties in contested elections, we proposed a new instruction to 
the form that stated that if the matter voted upon at the shareholders' 
meeting related to a contested election of directors and the voting 
results were not definitively determined at the end of the meeting, 
companies would be required to file the preliminary voting results 
within four business days after the preliminary voting results were 
determined, and then file an amended report on Form 8-K within four 
business days after the final voting results were certified.
2. Comments on the Proposed Amendments
    The majority of comments we received on the proposed amendments 
supported requiring the filing of voting results on Form 8-K. Many 
commenters believed that more timely disclosure of the voting result 
would benefit shareholders and investors.\161\ Some noted that matters 
submitted for shareholder vote involve issues that directly impact 
shareholder interests--for example investment or divestments, changes 
in shareholder rights and capital changes--and that timely disclosure 
of voting results can be crucial.\162\ One commenter believed that 
majority vote requirements for director elections have introduced 
greater accountability and uncertainty into uncontested director 
elections, making it increasingly important that these election 
outcomes be reported in a timely manner to shareholders.\163\
---------------------------------------------------------------------------

    \161\ See, e.g., letters from CalSTRS, CII, Hermes, IIA, Norges 
Bank, United Brotherhood of Carpenters and Walden.
    \162\ See, e.g., letters from CalSTRS and Norges Bank.
    \163\ See letter from United Brotherhood of Carpenters.
---------------------------------------------------------------------------

    Several commenters recommended modifications to the proposed 
amendments. Specifically, some commenters expressed concern that 
preliminary voting results should not be required to be disclosed 
because disclosure of preliminary results could mislead investors if 
the definitive results reflect a different outcome than what was 
disclosed initially.\164\ Concerns were also expressed that the 
reporting of preliminary voting results could inadvertently influence 
voting if the disclosure is made at a time when the opportunity remains 
open for additional votes to be cast.\165\ Commenters also believed 
that the four business day reporting requirement should not be tied to 
the end of the shareholders' meeting, but rather to the issuance of a 
certified report of an inspector of election.\166\ In addition, 
commenters suggested that the proposed instruction excepting the filing 
of voting results in contested elections of directors within four 
business days after the end of the shareholders' meeting should be 
expanded to cover any matter for which final voting results are not 
available or ``too close to call'' within four business days following 
the end of the shareholders' meeting.\167\
---------------------------------------------------------------------------

    \164\ See e.g., letter from Chadbourne.
    \165\ See letter from ABA.
    \166\ See letter from Allen Goolsby, et al.
    \167\ See, e.g., letters from BorgWarner, Business Roundtable, 
SCSG, S&C and Southern.
---------------------------------------------------------------------------

    A few commenters opposed the proposed amendments.\168\ Commenters 
opposed to amendments expressed concern that it would be very difficult 
to meet the four business day filing requirement. One of these 
commenters noted that problems that stem from share lending and other 
practices can

[[Page 68350]]

significantly delay the time that votes can be tabulated.\169\
---------------------------------------------------------------------------

    \168\ See, e.g., letters from Keith Bishop, NACD, RILA and SCC.
    \169\ See letter from NACD.
---------------------------------------------------------------------------

    Several commenters believed that the disclosure of the results of 
shareholder votes should be added to the list of items on Form 8-K that 
are currently excluded from liability under Section 10(b) of the 
Exchange Act and Exchange Act Rule 10b-5, and that do not result in a 
loss of Form S-3 eligibility under General Instruction I.A.3(b).\170\ 
One commenter, however, believed that an amendment to General 
Instruction I.A.3(b) of Form S-3 to add an exception to the Form S-3 
eligibility requirements for the reporting of voting results would not 
be necessary if we allowed preliminary voting results for contested 
elections and on proposals that are ``too close to call'' to be 
reported within four business days of the meeting and final voting 
results within four business days after the voting results become 
final.\171\
---------------------------------------------------------------------------

    \170\ See letters from ABA, Business Roundtable, Honeywell and 
S&C.
    \171\ See letter from SCSGP.
---------------------------------------------------------------------------

3. Final Rule
    After evaluating the comments received, we are adopting the 
proposed amendments to Form 8-K, and are eliminating the requirement to 
disclose shareholder voting results on Forms 10-Q and 10-K. 
Accordingly, new Item 5.07 to Form 8-K requires companies to disclose 
on the form the results of a shareholder vote and to have that 
information filed within four business days after the end of the 
meeting at which the vote was held. Tying the filing requirement to the 
end of the meeting will provide shareholders, investors and other users 
of this information with a readily identifiable and certain date upon 
which a company would be required to disclose information on the 
results of the vote. We believe more timely disclosure of the voting 
results from an annual or special meeting would benefit investors and 
the markets. Under our prior disclosure requirements, it could be a few 
months before voting results are disclosed in a Form 10-Q or 10-K. 
Often, matters submitted for a shareholder vote at an annual or special 
meeting involve issues that directly impact shareholder interests, such 
as the election of directors, changes in shareholder rights, 
investments or divestments, and capital changes. The delay between the 
end of an annual or special meeting of shareholders and when the voting 
results of the meeting are disclosed in a Form 10-Q or 10-K can make 
the information less useful to investors and the markets. We also 
understand that technological advances in shareholder communications 
and the growing use of third-party proxy services have increased the 
ability of companies to tabulate vote results and disseminate this 
information on a more expedited basis.
    We agree with the suggestions of commenters that there may be 
situations other than contested elections where it may take a longer 
period of time to determine definitive voting results.\172\ As a 
result, we are expanding the instruction to Form 8-K as adopted to 
state that companies are required to file the preliminary voting 
results within four business days after the end of the shareholders' 
meeting, and then file an amended report on Form 8-K within four 
business days after the final voting results are known.\173\ However, 
if a company obtains the definitive voting results before the 
preliminary voting results must be reported and decides to report its 
definitive results on Form 8-K, it will not be required to file the 
preliminary voting results. For example, if a company obtains the 
definitive voting results two days after the end of the shareholders' 
meeting, it could report its definitive voting results on Form 8-K 
within four business days after the meeting and would not be required 
to file its preliminary voting results. To the extent that companies 
are concerned that the disclosure of preliminary voting results could 
be confusing to investors, they may include additional disclosure that 
helps to put the preliminary voting disclosure in a proper context.
---------------------------------------------------------------------------

    \172\ See, e.g., letters from Business Roundtable, S&C and 
Southern.
    \173\ See Instruction 1 to Item 5.07 of Form 8-K. We note that 
our amendments to Form 8-K are not intended to preclude a company 
from announcing preliminary voting results during the meeting of 
shareholders at which the vote was taken and before filing the Form 
8-K, without regard to whether the company webcast the meeting.
---------------------------------------------------------------------------

    In the Proposing Release, we requested comment on whether we should 
consider additional revisions to the requirement to report voting 
results, such as eliminating a portion of prior Instruction 4 to the 
disclosure item. One commenter responded by suggesting that we could 
consolidate and simplify some of the disclosure requirements and 
instructions to the item.\174\ We agree with the suggestions that were 
submitted, and believe that certain requirements and instructions to 
the Item can be simplified, without changing the substance of what is 
required to be reported. Accordingly, we are adopting the following 
revisions to new Item 5.07:
---------------------------------------------------------------------------

    \174\ See letter of ABA.
---------------------------------------------------------------------------

     Adding to paragraph (a) of the item a statement that the 
information required by the item need be provided only when a meeting 
of shareholders is involved; \175\
---------------------------------------------------------------------------

    \175\ But see current Instruction 1 to Item 4 of Form 10-Q with 
respect to matters that have been submitted to a vote otherwise than 
at a meeting of shareholders, which we are not amending and which 
will be retained as Instruction 2 to new Item 5.07 of Form 8-K.
---------------------------------------------------------------------------

     Combining paragraphs (b) and (c) to the item into a single 
paragraph that requires disclosure of the quantitative results of each 
matter voted on at the meeting, and a brief description of each matter; 
and
     Eliminating Instruction 3, Instruction 5 and Instruction 7 
to the item, as well as deleting the first sentence of Instruction 4.

III. Paperwork Reduction Act

A. Background

    Certain provisions of the final amendments contain ``collection of 
information'' requirements within the meaning of the Paperwork 
Reduction Act of 1995 (``PRA'').\176\ We published a notice requesting 
comment on the collection of information requirements in the proposing 
release for the rule amendments, and we submitted these requirements to 
the Office of Management and Budget (``OMB'') for review in accordance 
with the PRA.\177\ The titles for the collection of information are:
---------------------------------------------------------------------------

    \176\ 44 U.S.C. 3501 et seq.
    \177\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------

    (1) ``Regulation 14A and Schedule 14A'' (OMB Control No. 3235-
0059);
    (2) ``Regulation 14C and Schedule 14C'' (OMB Control No. 3235-
0057);
    (3) ``Form 10-K'' (OMB Control No. 3235-0063);
    (4) ``Form 10-Q'' (OMB Control No. 3235-0070);
    (5) ``Form 10'' (OMB Control No. 3235-0064);
    (6) ``Form S-1'' (OMB Control No. 3235-0065);
    (7) ``Form S-4'' (OMB Control No. 3235-0324);
    (8) ``Form S-11'' (OMB Control No. 3235-0067);
    (9) ``Form 8-K'' (OMB Control No. 3235-0060);
    (10) ``Rule 20a-1 under the Investment Company Act of 1940, 
Solicitations of Proxies, Consents, and Authorizations'' (OMB Control 
No. 3235-0158);
    (11) ``Form N-1A'' (OMB Control No. 3235-0307);
    (12) ``Form N-2'' (OMB Control No. 3235-0026);

[[Page 68351]]

    (13) ``Form N-3'' (OMB Control No. 3235-0316); and
    (14) ``Regulation S-K'' (OMB Control No. 3235-0071).
    The regulations, schedules and forms were adopted under the 
Securities Act and the Exchange Act, except for Forms N-1A, N-2, and N-
3, which we adopted pursuant to the Securities Act and the Investment 
Company Act, and Rule 20a-1, which we adopted pursuant to the 
Investment Company Act. The regulations, forms and schedules set forth 
the disclosure requirements for periodic reports, registration 
statements, and proxy and information statements filed by companies to 
help investors make informed investment and voting decisions. The hours 
and costs associated with preparing, filing and sending the form or 
schedule constitute reporting and cost burdens imposed by each 
collection of information. An agency may not conduct or sponsor, and a 
person is not required to respond to, a collection of information 
unless it displays a currently valid OMB control number. Compliance 
with the amendments is mandatory. Responses to the information 
collections will not be kept confidential and there is no mandatory 
retention period for the information disclosed.

B. Summary of the Final Rules

    As discussed in more detail above, the amendments that we are 
adopting will require:
     To the extent that risks arising from a company's 
compensation policies and practices for employees are reasonably likely 
to have a material adverse effect on the company, discussion of the 
company's compensation policies or practices as they relate to risk 
management and risk-taking incentives that can affect the company's 
risk and management of that risk;
     Reporting of the aggregate grant date fair value of stock 
awards and option awards granted in the fiscal year in the Summary 
Compensation Table and Director Compensation Table, computed in 
accordance with FASB ASC Topic 718, rather than the dollar amount 
recognized for financial statement purposes for the fiscal year, with a 
special instruction for awards subject to performance conditions;
     New disclosure of the qualifications of directors and 
nominees for director, and the reasons why that person should serve as 
a director of the company at the time at which the relevant filing is 
made with the Commission;
     Additional disclosure of any directorships held by each 
director and nominee at any time during the past five years at any 
public company or registered management investment company;
     Additional disclosure of other legal actions involving a 
company's executive officers, directors, and nominees for director, and 
lengthening the time during which such disclosure is required from five 
to ten years;
     New disclosure regarding the consideration of diversity in 
the process by which candidates for director are considered for 
nomination by a company's nominating committee;
     New disclosure about a company's board leadership 
structure and the board's role in the oversight of risk;
     New disclosure about the fees paid to compensation 
consultants and their affiliates under certain circumstances; and
     Disclosure of the vote results from a meeting of 
shareholders on Form 8-K generally within four business days of the 
meeting.
    The disclosure enhancements we are adopting will significantly 
improve the information companies provide to investors with regard to 
risk, governance and director qualifications and compensation. We 
believe that providing a more transparent view of these matters will 
help investors make more informed voting and investment decisions.

C. Summary of Comment Letters and Revisions to Proposals

    In the Proposing Release, we requested comment on the PRA analysis. 
We received a response from one commenter that addressed our overall 
burden estimates for the proposed amendments. This commenter asserted 
that our PRA estimates underestimated the time and costs that companies 
would need to expend in complying with the proposed amendments.\178\ 
This commenter asserted that companies would need to expend many 
additional hours to update their director and officer questionnaires to 
obtain more detailed information; director nominees would need to spend 
additional time responding to these questionnaires and providing 
companies with information about their backgrounds and qualifications; 
and companies would need to spend time analyzing the responses, 
deciding what information to disclose, and preparing the disclosures. 
This commenter, however, did not provide alternative cost estimates or 
cost estimates that could be applied generally to all companies. In 
response to comments and modifications to the amendments as proposed, 
we have revised our estimates as discussed more fully in Section D.
---------------------------------------------------------------------------

    \178\ See letter from Business Roundtable.
---------------------------------------------------------------------------

    We have made several substantive modifications to the proposed 
amendments. First, new Item 402(s) of Regulation S-K requires a company 
to discuss its compensation policies and practices for employees if 
such policies and practices are reasonably likely to have a material 
adverse effect on the company. This change from the ``may have a 
material effect'' disclosure standard that was proposed should 
substantially mitigate some of the costs and burdens associated with 
the proposed amendments. By focusing on risks that are ``reasonably 
likely to have a material adverse effect'' on the company, the 
amendments are designed to elicit disclosure on the company's 
compensation policies and practices that would be most relevant to 
investors. Second, we have adopted amendments to expand the list of 
legal proceedings involving directors, executive officers, and nominees 
covered under Item 401(f) of Regulation S-K. Third, disclosure will be 
required of whether (and if so, how) the nominating committee considers 
diversity in identifying nominees for director. Fourth, we have adopted 
a disclosure threshold under the compensation consultant disclosure 
amendments that excludes fee and related disclosure where the fees for 
non-executive compensation consulting services do not exceed $120,000 
for a company's fiscal year. In addition, disclosure of fees for 
consultants engaged by management would not be required if the 
compensation committee or board has its own compensation consultant.

D. Revisions to PRA Reporting and Cost Burden Estimates

    For purposes of the PRA, in the Proposing Release we estimated that 
the total annual increase in the paperwork burden for all companies 
(other than registered management investment companies) to prepare the 
disclosure that would be required under the proposed amendments would 
be approximately 247,773 hours of company personnel time and a cost of 
approximately $47,413,161 for the services of outside professionals. We 
further estimated the total annual increase in paperwork burden for 
registered management investment companies under the proposed 
amendments to be approximately 14,041 hours of company personnel time 
and a cost of approximately $7,048,900 for the services of outside 
professionals. As discussed above, we are revising the PRA burden and 
cost estimates that we

[[Page 68352]]

originally submitted to the OMB in connection with the proposed 
amendments.
    We derived our new burden hour and cost estimates by estimating the 
total amount of time it would take a company to prepare and review the 
disclosure requirements contained in the final rules. This estimate 
represents the average burden for all companies, both large and small. 
Our estimates have been adjusted to reflect the fact that some of the 
amendments would be required in some but not all of the documents 
listed above in Section A, and would not apply to all companies. In 
deriving our estimates, we recognize that the burdens will likely vary 
among individual companies based on a number of factors, including the 
size and complexity of their organizations, and the nature of their 
operations. We believe that some companies will experience costs in 
excess of this average in the first year of compliance with the 
amendments and some companies may experience less than the average 
costs. We estimate the annual incremental paperwork burden for all 
companies (other than registered management investment companies) to be 
approximately 223,426 hours of company personnel time and a cost of 
approximately $49,964,730 for the services of outside professionals. 
For registered management investment companies, we estimate the annual 
paperwork burden to be approximately 19,334 hours of company personnel 
time and a cost of approximately $9,480,200 for the services of outside 
professionals. These estimates include the time and the cost of 
preparing and reviewing disclosure, filing documents and retaining 
records.
    With respect to reporting companies (other than registered 
management investment companies), the new rules and amendments will 
increase the existing disclosure burdens associated with proxy and 
information statements, Forms 10, 10-K, 8-K, S-1, S-4 and S-11. 
However, the disclosure requirements under new Item 402(s) of 
Regulation S-K are not applicable to smaller reporting companies.\179\ 
With respect to registered management investment companies, the 
revisions will be reflected in certain Regulation S-K items, Schedule 
14A, and Forms N-1A, N-2 and N-3.
---------------------------------------------------------------------------

    \179\ Based on the number of proxy filings we received in the 
2008 fiscal year, we estimate that approximately 3,922 domestic 
companies are smaller reporting companies that have a public float 
of less than $75 million.
---------------------------------------------------------------------------

    In the Proposing Release, we assumed that the burden hours of the 
amendments would be comparable to the burden hours related to similar 
disclosure requirements under existing reporting requirements, such as 
the disclosure of audit fees and non-audit services,\180\ CD&A and 
executive compensation reporting,\181\ and the disclosure of the 
activities of nominating committees.\182\ We have made several 
adjustments to these estimates to reflect the revisions we made to the 
amendments and the responses of commenters. We increased the burden 
estimate for the enhanced director and nominee disclosure by four hours 
to reflect the additional disclosures that will be required, such as 
the new legal proceedings and diversity policy, and to address concerns 
that our initial estimate may have been understated. At the same time, 
we have decreased the burden estimate related to new Item 402(s) of 
Regulation S-K from sixteen to eight hours, as well as the burden 
estimate related to the new compensation consultant disclosure from 
four to three hours to reflect the revisions to the proposed 
amendments. However, we made no change in our assumption that 
substantially all of the burdens associated with the amendments to 
Items 401 and 402 of Regulation S-K would be associated with Schedules 
14A and 14C, as these would be the primary disclosure documents where 
the new disclosures would be prepared and presented.\183\
---------------------------------------------------------------------------

    \180\ Release No. 33-8183 (Jan. 28, 2003) [68 FR 6006] (which we 
estimated to be two hours).
    \181\ Release No. 33-8732A (Aug. 29, 2006) [71 FR 53518] (which 
we estimated to be 95 hours).
    \182\ Release No. 33-8340 (Nov. 24, 2003) [68 FR 69204] (which 
we estimated to be three hours).
    \183\ The burden estimates for Form 10-K assume that the 
amendments to Items 401 and 402 of Regulation S-K would be satisfied 
by either including the information directly in an annual report or 
incorporating the information by reference from the proxy statement 
or information statement on Schedule 14A or Schedule 14C. Our PRA 
estimates include an estimated 1 hour burden in the Form 10-K and 
schedules to account for the incorporation of the information that 
would be required under proposed amendments to Items 401 and 402 of 
Regulation S-K.
---------------------------------------------------------------------------

    We made no change in our estimate that there would be no annual 
incremental increase in the paperwork burden for companies to comply 
with the amendments to the Summary Compensation Table, Director 
Compensation Table, and Grants of Plan-Based Awards Table. We believe 
that the amendments to the Summary Compensation Table, Grants of Plan-
Based Awards Table and Director Compensation Table will simplify 
executive compensation disclosure because companies no longer will need 
to report two separate measures of equity compensation in their 
compensation disclosure. For purposes of Item 402 disclosure, companies 
no longer will need to explain or analyze a second, separate measure of 
equity compensation that is based on financial statement recognition 
rather than compensation decisions. In addition, we believe it is 
likely that these amendments will make companies' identification of 
named executive officers more consistent from year-to-year, providing 
investors more meaningful disclosure and reducing executive 
compensation tracking burdens in determining which executive officers 
are the most highly compensated.
    We have added a special instruction for equity awards subject to 
performance conditions calling for tabular disclosure of the value 
computed based upon the probable outcome of the performance conditions 
as of the grant date. Because this value is already required to be 
computed under the accounting literature,\184\ it will not impose an 
incremental increase in paperwork burden. This instruction also 
requires footnote disclosure of the maximum value assuming the highest 
level of performance conditions is probable. We believe that any 
incremental burden associated with providing this footnote disclosure 
would be minimal.
---------------------------------------------------------------------------

    \184\ FASB ASC Topic 718.
---------------------------------------------------------------------------

    For each reporting company (other than registered management 
investment companies), we estimate that the amendments would impose on 
average the following incremental burden hours:
     Eight hours related to the amendments to discuss 
compensation policies and practices as they relate to risk management;
     Eight hours for the enhanced director and nominee 
disclosure;
     Six hours for the disclosures about board leadership 
structure and the board's role in risk oversight;
     Three hours for the disclosures regarding compensation 
consultants; and
     One hour for the reporting of voting results on Form 8-K 
rather than on Forms 10-Q and 10-K.
    With respect to registered management investment companies, the 
amendments to Forms N-1A, N-2, and N-3 will increase existing 
disclosure burdens for such forms by requiring:
     New disclosure of the qualifications of directors and 
nominees for director, and the reasons why that person should serve as 
a director of the company at the time at which the relevant filing is 
made with the Commission;

[[Page 68353]]

     Additional disclosure of any directorships held by each 
director and nominee at any time during the past five years at public 
companies or registered management investment companies; and
     New disclosure about a fund's board leadership structure 
and the board's role in the oversight of risk.
    We estimate that the amendments would impose on average the 
following incremental burden hours with respect to registered 
management investment companies:
     Eight hours for the enhanced director and nominee 
disclosure in proxy statements and six hours for such disclosure in 
registration statements; \185\ and
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    \185\ We estimate that the disclosure burden for registration 
statements on Forms N-1A, N-2, and N-3 is less than for proxy 
statements because the disclosures relating to involvement in legal 
proceedings for the past ten years applies only to proxy statements 
and not to registration statements.
---------------------------------------------------------------------------

     Six hours for the disclosures about company leadership 
structure and the board's role in risk management.
1. Proxy and Information Statements
    For purposes of the PRA, in the case of reporting companies (other 
than registered management investment companies) we estimate the annual 
incremental paperwork burden for proxy and information statements under 
the amendments would be approximately seventeen hours per form for 
companies that are smaller reporting companies, and twenty-five hours 
per form for companies that are either accelerated or large accelerated 
filers. In the case of registered management investment companies, we 
estimate the annual incremental paperwork burden for proxy and 
information statements under the amendments would be approximately 
fourteen hours per form. These estimates include the time and the cost 
of preparing disclosure that has been appropriately reviewed by 
management, in-house counsel, outside counsel, and members of the board 
of directors.
2. Exchange Act Periodic Reports
    For purposes of the PRA, we estimate the annual incremental 
paperwork burden for Form 10-K under the amendments would be 
approximately one hour per form. This estimate includes the time and 
the cost of preparing disclosure that has been appropriately reviewed 
by management, in-house counsel, outside counsel, and members of the 
board of directors.
3. Securities Act Registration Statements and Exchange Act Registration 
Statements
    For purposes of the PRA, in the case of reporting companies (other 
than registered management investment companies) we estimate the annual 
incremental paperwork burden for Securities Act registration statements 
under the amendments would be approximately sixteen hours per 
form.\186\ For registered management investment companies, we estimate 
that the annual incremental paperwork burden under the amendments to 
Forms N-1A, N-2, and N-3 would be approximately twelve hours per form. 
These estimates include the time and the cost of preparing disclosure 
that has been appropriately reviewed by management, in-house counsel, 
outside counsel, and members of the board of directors.
---------------------------------------------------------------------------

    \186\ We calculated the sixteen hours by adding eight hours for 
the requirements under Item 402(s) of Regulation S-K to eight hours 
for the enhanced director and nominee disclosure.
---------------------------------------------------------------------------

    The tables below illustrate the total annual compliance burden of 
the collection of information in hours and in cost under the amendments 
for annual reports; quarterly reports; current reports; proxy and 
information statements; Form 10; Forms S-1, S-4, S-11, N-1A, N-2, and 
N-3; and Regulation S-K.\187\ The burden estimates were calculated by 
multiplying the estimated number of responses by the estimated average 
amount of time it would take a company to prepare and review the 
disclosure requirements. For the Exchange Act reports on Forms 10-K, 
10-Q, and 8-K, and the proxy and information statements we estimate 
that 75% of the burden of preparation is carried by the company 
internally and that 25% of the burden of preparation is carried by 
outside professionals retained by the company at an average cost of 
$400 per hour. For the registration statements on Forms 10, S-1, S-4, 
S-11, N-1A, N-2, and N-3, we estimate that 25% of the burden of 
preparation is carried by the company internally and that 75% of the 
burden of preparation is carried by outside professionals retained by 
the company at an average cost of $400 per hour. The portion of the 
burden carried by outside professionals is reflected as a cost, while 
the portion of the burden carried by the company internally is 
reflected in hours. There is no change to the estimated burden of the 
collections of information under Regulation S-K because the burdens 
that this regulation imposes are reflected in our revised estimates for 
the forms.
---------------------------------------------------------------------------

    \187\ Figures in both tables have been rounded to the nearest 
whole number.

           Table 1--Incremental Paperwork Burden Under the Amendments for Annual Reports; Quarterly Reports; Proxy and Information Statements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Total
                                                        Number of      Incremental      Incremental      75% Company          25%          Professional
                                                        responses     burden hours/     burden hours     (D)=(C)*0.75     professional        costs
                                                        \188\ (A)        form (B)       (C)=(A)*(B)                       (E)=(C)*0.25     (F)=(E)*$400
--------------------------------------------------------------------------------------------------------------------------------------------------------
10-K...............................................          13,545               1           13,545           10,159            3,386       $1,354,500
10-Q \189\.........................................          32,462              (1)          (7,300)          (5,475)          (1,825)        (730,000)
8-K \190\..........................................         117,255               1          117,255           87,941           29,314       11,725,500
Sch. 14A \191\.....................................           7,300  ...............  ...............  ...............  ...............  ...............
    Accel. Filers..................................           3,378              25           84,450           63,338           21,113        8,445,000
    SRC Filers.....................................           3,922              17           66,674           50,006           16,669        6,667,400
Sch. 14C...........................................             680  ...............  ...............  ...............  ...............  ...............
    Accel. Filers..................................             315              25            7,867            5,900            1,967          786,658
    SRC Filers.....................................             365              17            6,211            4,658            1,553          621,073
Rule 20a-1.........................................           1,225              14           17,150           12,863            4,288        1,715,000
Reg. S-K...........................................             N/A             N/A              N/A              N/A              N/A              N/A
                                                    ----------------------------------------------------------------------------------------------------
    Total..........................................  ..............  ...............         305,851   ...............  ...............      30,585,130
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 68354]]


                                 Table 2--Incremental Paperwork Burden Under the Amendments for Registration Statements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               Total
                                                             Number of      Incremental     incremental     25% company         75%        Professional
                                                             responses     burden hours/   burden hours    (D)=(C)*0.25    professional        costs
                                                             \192\ (A)       form (B)       (C)=(A)*(B)                    (E)=(C)*0.75    (F)=(E)*$400
--------------------------------------------------------------------------------------------------------------------------------------------------------
Form 10.................................................             238              16           3,809             952           2,856      $1,142,500
Form S-1................................................             768              16          12,288           3,072           9,216      11,579,500
Form S-4................................................             619              16           9,904           2,476           7,428       3,686,400
Form S-11...............................................             100              16           1,600             400           1,200       2,971,200
Form N-1A...............................................           1,935              12          23,220           5,805          17,415       6,966,000
Form N-2................................................             205              12           2,460             615           1,845         738,000
Form N-3................................................              17              12             204              51             153          61,200
Reg. S-K................................................             N/A             N/A             N/A             N/A             N/A             N/A
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................  ..............  ..............          53,485  ..............  ..............      27,144,800
--------------------------------------------------------------------------------------------------------------------------------------------------------

IV. Cost-Benefit Analysis

A. Introduction

    We are adopting amendments to enhance the disclosures with respect 
to a company's overall compensation policy and its impact on risk 
taking, director and nominee qualifications and legal proceedings, 
board leadership structure and the board's role in risk oversight, and 
the interests of compensation consultants. In addition, we are adopting 
amendments to transfer the requirement to disclose voting results from 
Forms 10-Q and 10-K to Form 8-K.
    We also are adopting amendments to the disclosure requirements for 
executive and director compensation to require stock awards and option 
awards reporting based on a measure that will represent the aggregate 
grant date fair value of the compensation decision in the grant year, 
rather than the current rule, which allocates the grant date fair value 
over time commensurate with financial statement recognition of 
compensation costs.
---------------------------------------------------------------------------

    \188\ The number of responses reflected in the table equals the 
actual number of forms and schedules filed with the Commission 
during the 2008 fiscal year, except for Form 8-K. The number of 
responses for Form 8-K reflects the number of Form 8-Ks filed during 
the 2008 fiscal year plus an additional 8,831 filings. See footnote 
190 below.
    \189\ We calculated the reduction in the burden hours for Form 
10-Q based on the number of proxy statements filed with the 
Commission during the 2008 fiscal year. We assumed that there would 
be, at a minimum, an equal number of Form 10-Qs filed to report the 
voting results from a meeting of shareholders. The reduction 
reflects the deletion of the disclosure of voting results from the 
form.
    \190\ We have included an additional 7,300 responses to Form 8-K 
to reflect the additional Form 8-Ks that would be filed to report 
final voting results. As explained in footnote 188 above, this 
number is based on the actual number of proxy statements filed in 
2008. We adjusted this number upward by 20% to reflect our estimate 
of the additional Form 8-Ks that may be filed to report preliminary 
votes, and we have also included an additional 71 Form 8-Ks to 
reflect the number of Form 8-Ks that would be filed to report 
preliminary voting results because of a contested election, which we 
based on the actual number of proxy statements involving contested 
elections that were filed with the Commission during the 2008 fiscal 
year.
    \191\ The estimates for Schedule 14A and Schedule 14C are 
separated to reflect our estimate of the burden hours and costs 
related to new Item 402(s) of Regulation S-K which is applicable to 
companies that are either accelerated or large accelerated filers, 
but not applicable to companies that are non-accelerated filers, 
including smaller reporting companies. We estimate that 3,378 
Schedule 14A responses were filed by accelerated or large 
accelerated filers, and 315 Schedule 14C responses were filed by 
accelerated or large accelerated filers.
    \192\ The number of responses reflected in the table equals the 
actual number of forms filed with the Commission during the 2008 
fiscal year, except for Forms N-1A and N-3. The number of responses 
for Forms N-1A and N-3 reflect the number of open-ended management 
investment companies registered with the Commission as of the end of 
the 2008 fiscal year.
---------------------------------------------------------------------------

B. Benefits

    The amendments are intended to enhance transparency of a company's 
compensation policies and its impact on risk taking; director and 
nominee qualifications; board leadership structure and the role of the 
board in risk oversight; potential conflicts of interest of 
compensation consultants; and voting results at annual and special 
meetings.
1. Benefits Related to the New Narrative Disclosure of the Company's 
Compensation Policies and Practices as They Relate to the Company's 
Risk Management
    Incentive arrangements and other compensation for employees may 
affect risk-taking behavior in the company's operations. To the extent 
that the risks arising from a company's compensation policies and 
practices for employees are reasonably likely to have a material 
adverse effect on the company, investors will benefit through an 
enhanced ability to monitor it. They would also potentially benefit 
from the ability to use this additional information in allocating 
capital across companies, toward companies where employee incentives 
appear better aligned with operational success and investors' appetite 
for risk. The new disclosure may also encourage the board and senior 
management to examine and improve incentive structures for management 
and employees of the company. These benefits may also lead to increased 
value to investors.
2. Benefits Related to Revisions to Summary Compensation Table 
Disclosure
    As a result of the Summary Compensation Table and Director 
Compensation Table amendments, companies will no longer need to prepare 
and report the allocation of equity awards' grant date fair value over 
time commensurate with financial statement recognition of compensation 
costs for executive and director compensation tabular reporting. 
Further, in preparing stock awards and option awards disclosure in the 
Summary Compensation Table and Director Compensation Table, companies 
no longer will need to incur additional costs to exclude the estimate 
for forfeitures related to service-based vesting used for financial 
statement reporting purposes. The elimination of costs of preparing and 
reporting this information is a benefit of the amendments.
    The effects of the amendments in making information more readily 
available to investors may be useful to their voting and investment 
decisions. Reporting stock awards and option awards in the Summary 
Compensation Table based on aggregate grant date fair value is designed 
to make it easier for investors to assess compensation decisions and 
evaluate the decisions of the compensation committee. For example, 
under the amendments the Summary Compensation Table values will 
correspond to awards granted in the fiscal year, potentially allowing 
companies to better explain in CD&A

[[Page 68355]]

how decisions with respect to awards granted for the year relate to 
other compensation decisions in the context of total compensation for 
the year. For awards subject to performance conditions, tabular 
disclosure will be based upon the probable outcome of the performance 
conditions as of the grant date. A special instruction for awards 
subject to performance conditions that requires footnote disclosure of 
the grant date fair value, assuming that the highest level of 
performance conditions will be achieved, will provide investors with 
further information as to the maximum potential payout of a particular 
grant. Further, the effect on total compensation of decisions to 
reprice options will be more evident because aggregate grant date fair 
value will be a component of total compensation reported in the Summary 
Compensation Table.
    Under the amendments, the identification of named executive 
officers based on total compensation for the last completed fiscal year 
will reflect the aggregate grant date fair value of equity awards 
granted in that year. As a result, the named executive officers other 
than the principal executive officer and principal financial officer 
may change. Investors may benefit from receiving compensation 
disclosure with respect to executives who would not have been named 
executive officers under the former rules. To the extent that this 
change better aligns the identification of named executive officers 
with compensation decisions for the year, it should make it easier for 
companies to track executive compensation for reporting purposes.
    Although the amendments are not intended to steer behavior, changes 
in the way that executive compensation is represented in the Summary 
Compensation Table and other new, compensation-related disclosures may 
indirectly lead boards to reconsider pay structure, potentially 
changing the amount of pay in some cases.
    Smaller reporting companies are not required to provide a Grants of 
Plan-Based Awards Table or a CD&A, but are required to provide a 
Summary Compensation Table and Director Compensation Table. Investors 
in these companies should benefit from reporting stock awards and 
option awards based on aggregate grant date fair value in the grant 
year, as opposed to the current reporting approach based on financial 
statement recognition of the awards.
3. Benefits Related to Enhanced Director and Nominee Disclosure
    The amendments to Item 401 of Regulation S-K, Schedule 14A and 
Forms N-1A, N-2 and N-3 will potentially benefit investors by 
increasing the amount and quality of information that they receive 
concerning the background and skills of directors and nominees for 
director, enabling investors to make better-informed voting and 
investment decisions. Disclosure of board's or other proponents' 
rationale for their nominees' membership on the board may benefit 
investors by enabling them to better assess whether and why a 
particular nominee is an appropriate choice for a particular company. 
Investors would be able to make more informed voting decisions in 
electing directors. Investors would also be able to adjust their 
holdings, allocating more capital to companies in which they believe 
board members are most likely to be able to effectively fulfill their 
duties to shareholders. In particular, in cases that do not meet 
investors' expectations, investors may respond by attempting to exert 
more influence on management or the board than would occur otherwise, 
thereby enhancing shareholder value.
    Required disclosure of whether, and if so, how, a nominating 
committee (or the board) considers diversity in connection with 
identifying and evaluating persons for consideration as nominees for a 
position on the board of directors may also benefit investors. Board 
diversity policy is an important factor in the voting decisions of some 
investors.\193\ Such investors will directly benefit from diversity 
policy disclosure to the extent the policy and the manner in which it 
is implemented is not otherwise clear from observing past and current 
board selections. Although the amendments are not intended to steer 
behavior, diversity policy disclosure may also induce beneficial 
changes in board composition. A board may determine, in connection with 
preparing its disclosure, that it is beneficial to disclose and follow 
a policy of seeking diversity. Such a policy may encourage boards to 
conduct broader director searches, evaluating a wider range of 
candidates and potentially improving board quality. To the extent that 
boards branch out from the set of candidates they would ordinarily 
consider, they may nominate directors who have fewer existing ties to 
the board or management and are, consequently, more independent. To the 
extent that a more independent board is desirable at a particular 
company, the resulting increase in board independence could potentially 
improve governance. In addition, in some companies a policy of 
increasing board diversity may also improve the board's decision-making 
process by encouraging consideration of a broader range of views.
---------------------------------------------------------------------------

    \193\ See, e.g., letters from Calvert, Trillium, Boston Common 
Asset Management, CII, Florida State Board of Administration, and 
Sisters of Charity BVM. See also letter from Lissa Lamkin Broome and 
Thomas Lee Hazen.
---------------------------------------------------------------------------

    Expanded disclosure of membership on previous corporate boards may 
also benefit investors by making it easier for them to evaluate whether 
nominees' past board memberships present potential conflicts of 
interest (such as membership on boards of major suppliers, customers, 
or competitors). Investors may also be able to more easily evaluate the 
performance, in both operations and governance, of the other companies 
on whose boards the nominees serve or have served. The public may also 
benefit from better understanding any potential positive or negative 
effects on corporate performance resulting from directors serving on 
other boards.
    The expanded list of legal proceedings involving directors, 
nominees and executive officers that must be disclosed, as well as the 
expanded disclosure of these legal proceedings from the current five-
year requirement to ten years, would benefit investors by providing 
more information by which they could determine the suitability of a 
director or nominee.
4. Benefits Related to New Disclosure About Board Leadership Structure 
and the Board's Role in Risk Oversight
    Investors may benefit from new disclosure about board leadership 
structure. In particular, they may benefit from understanding 
management's explanation regarding whether or not the principal 
executive officer serves as chairman of the board and, in the case of a 
registered management investment company, whether the chairman is an 
``interested person'' of the fund. In deciding whether to separate 
principal executive officer and chairman positions, companies may 
consider several factors, including the effectiveness of communication 
with the board and the degree to which the board can exercise 
independent judgment about management performance, and shareholders 
may, in different cases, be best served by different decisions. 
Although the amendments are not intended to drive behavior, there may 
be possible benefits if a company re-evaluates its leadership structure 
or the

[[Page 68356]]

board's role in risk oversight and decides to make changes as a result.
    Disclosures of the board's role in risk oversight may also benefit 
investors. Expanded disclosure of the board's role in risk oversight 
may enable investors to better evaluate whether the board is exercising 
appropriate oversight of risk. Investors would be able to adjust their 
holdings, allocating more capital to companies in which they believe 
the board is adequately focused on risks. Improved capital allocation 
will also benefit the financial markets by increasing market 
efficiency.
5. Benefits Related to New Disclosure Regarding Compensation 
Consultants
    New disclosure regarding compensation consultants may benefit 
investors by illuminating potential conflicts of interest. Providing 
better, more complete information in cases where the value of non-
executive compensation services is over $120,000 for the last fiscal 
year will allow investors to determine for themselves whether there are 
concerns related to the compensation consultants' financial interests 
and objectivity. Compensation consultants may earn fees from other 
services to the company, including benefits administration, human 
resources consulting, and actuarial services. With an incentive to 
retain these significant additional revenue streams, they may face 
incentives to cater, to some degree, to management preferences in 
recommending executive compensation packages.\194\ The House Committee 
on Oversight and Government Reform's Study on Executive Pay documented 
that 113 of 250 of the largest publicly traded companies hired 
compensation consultants that earned fees from other services, and that 
this practice was positively correlated with higher CEO pay.\195\ 
However, Cadman, Carter and Hilligeist (2009) studied a larger set of 
companies, but did not find statistically significant relations between 
certain factors thought to indicate conflicts of interest and the level 
of CEO pay.\196\ To the degree that these potential conflicts may be 
more transparent under the amendments, investors benefit through their 
ability to better monitor the process of setting executive pay. This 
potential conflict is substantially reduced when the compensation 
committee hires a compensation consultant that does not provide other 
services to the company. Benefits of the amendment may be limited to 
the degree that compensation consultants have other potential conflicts 
of interest not specifically enumerated in the amendments.
---------------------------------------------------------------------------

    \194\ See letter from Mary Ellen Carter.
    \195\ In December 2007, the U.S. House of Representatives 
Committee on Oversight and Government Reform issued a report on the 
role played by compensation consultants at large, publicly traded 
companies (the ``Waxman Report''). The Waxman Report found that the 
fees earned by compensation consultants for providing other services 
often far exceed those earned for advising on executive 
compensation, and that on average companies paid compensation 
consultants over $2.3 million for other services and less than 
$220,000 for executive compensation advice. See Staff of House Comm. 
on Oversight and Government Reform, 110th Cong., Report on Executive 
Pay: Conflicts of Interest Among Compensation Consultants (Comm. 
Print 2007).
    \196\ Cadman, Carter and Hilligeist, 2009, The Incentives of 
Compensation Consultants and CEO Pay, Journal of Accounting and 
Economics (forthcoming) and provided with the letter submitted by 
Mary Ellen Carter.
---------------------------------------------------------------------------

    Disclosures about compensation consultants may have effects on 
competition in the compensation consulting industry, introducing 
potential relative costs and benefits to both multi-service consulting 
firms and consulting firms exclusively specializing in executive 
compensation. Specific potential effects on competition are discussed 
in Section V below. Broadly, the disclosures may affect the level of 
competition in the compensation consulting industry. Any increase in 
competition could reduce prices of consulting services, benefiting 
client companies. Changes in competition may also affect the content of 
advice provided to companies. As discussed more fully in Section C 
below, it is possible that, if the level of competition in the industry 
decreases, compensation consultants may be less inclined to make 
recommendations favorable to management. This could potentially benefit 
shareholders.
6. Benefits Related to Reporting of Voting Results on Form 8-K
    The amendments to Form 8-K will facilitate security holder access 
to faster disclosure of the vote results of a company's annual or 
special meeting. To find this information, investors no longer would 
need to wait for this information to be disclosed in a Form 10-Q or 10-
K, which could be filed months after the end of the meeting.

C. Costs

    The amendments will impose new disclosure requirements on 
companies. Some of the disclosures are designed to build upon existing 
requirements to elicit a more detailed discussion of director and 
nominee qualifications, legal proceedings, and the interests of 
compensation consultants. To the degree that the amendments require 
collecting information currently available, costs related to 
information collection will be limited.
1. Costs Related to the New Narrative Disclosure of the Company's 
Compensation Policies and Practices as They Relate to the Company's 
Risk Management
    We believe that there may be information gathering costs associated 
with the new disclosure of the company's compensation policies and 
practices as they relate to the company's risk management, even though 
the information required may be readily available, because this 
information may need to be reported up from business units and 
analyzed. Some commenters noted that the amendments would require 
companies to incur additional costs, such as costs related to 
conducting a risk analysis of compensation policies for all 
employees.\197\ This could also include the cost of hiring additional 
advisors to assist in the analysis, as well as additional costs in 
drafting the new disclosure. Using our PRA burden estimates, we 
estimate the aggregate annual cost of the amendments to be 
approximately $12,215,326.\198\ As previously discussed, the proposed 
amendments would have required discussion and analysis of compensation 
policies if risks arising from those compensation policies ``may have a 
material effect on the company.'' We have revised the amendment to 
require a company to discuss its compensation policies and practices 
for employees if such policies and practices are ``reasonably likely to 
have a material adverse effect'' on the company. By focusing on risks 
that are ``reasonably likely to have a material adverse effect'' on the 
company, we believe the amendments will result in a smaller number of 
companies making this risk disclosure. This change from the ``may have 
a material effect'' disclosure should mitigate some of the costs and 
burdens associated with the amendments.
---------------------------------------------------------------------------

    \197\ See, e.g., letters from Business Roundtable and Robert 
Ahrenholz.
    \198\ This estimate is based on the estimated total burden hours 
of the amendments associated with the schedules and forms that would 
include the new disclosure, an assumed 75%/25% split of the burden 
hours between internal staff and external professionals with respect 
to proxy and information statements, an assumed 25%/75% split of the 
burden hours between internal staff and external professionals with 
respect to registration statements, and an hourly rate of $200 for 
internal staff time and $400 for external professionals.
---------------------------------------------------------------------------

    Companies may also face costs related to the disclosure of the 
company's compensation policies to the extent that

[[Page 68357]]

it provides management with incentives to adopt risk-averse strategies 
that result in the abandonment of risky projects whose returns 
otherwise would compensate for the amount of additional risk. This 
could discourage beneficial risk-taking behavior.
2. Costs Related to Revisions to Summary Compensation Table Disclosure
    Investors may face some costs related to revisions in executive 
compensation reporting. Under the amendments to the Summary 
Compensation Table and as noted in the Benefits section, the 
identification of named executive officers based on total compensation 
for the last completed fiscal year will reflect the aggregate grant 
date fair value of equity awards granted in that year, so that some 
executives subject to executive compensation disclosure may be 
different.
    Smaller reporting companies, which are not required to provide the 
Grants of Plan-Based Awards Table, may incur some costs on a 
transitional basis in switching from the previously required measure of 
stock awards and option awards to aggregate grant date fair value 
reporting. We expect that any such additional costs will be limited by 
the fact that grant date fair value information required under the 
amendments is also collected to comply with financial reporting 
purposes. Because companies other than smaller reporting companies 
previously were required to report the grant date fair value of 
individual equity awards in the Grants of Plan-Based Awards Table, we 
expect that they will incur only negligible costs in switching to the 
amended Summary Compensation Table and Director Compensation Table 
disclosure requirements.
    Moreover, grant date fair value guidelines under FASB ASC Topic 718 
call for management to exercise judgment in valuing stock options. For 
financial statement recognition purposes, the grant date fair value 
measure of compensation cost is expensed over the expected term of the 
option. Compensation cost for awards containing a performance-based 
vesting condition is recognized only if it is probable that the 
performance condition will be achieved. To the extent that an investor 
believes that Summary Compensation Table and Director Compensation 
Table disclosure of stock awards and option awards should be measured 
based on financial statement recognition principles to take into 
account potential adjustments, the amendments may entail a cost. The 
special instruction for awards subject to performance conditions 
mitigates this potential cost to some extent by providing that such 
awards are reported in the Summary Compensation Table and Director 
Compensation Table based upon the probable outcome of the performance 
condition(s) as of the grant date. This instruction also requires 
footnote disclosure of the maximum value assuming the highest level of 
performance conditions is probable. We believe that any incremental 
cost associated with providing this footnote disclosure would be 
minimal.
3. Costs Related to Enhanced Director and Nominee Disclosure
    Companies may face some information gathering and reporting costs 
related to enhanced director and nominee disclosure. One commenter 
noted that companies may face costs related to the amendments to the 
extent that companies will need to update their director and officer 
questionnaires to obtain more detailed information, and will need to 
spend additional time analyzing the information as well as preparing 
the disclosures.\199\ Companies may also experience increased costs as 
it may be more difficult to find candidates willing to serve on boards 
if they do not want this information disclosed in a Commission filing. 
To the extent that information is available and verifiable through 
other sources, however, we expect the potential costs of the additional 
disclosure will be limited. Using our PRA burden estimates, we estimate 
the aggregate annual cost to operating companies to be approximately 
$20,790,000.\200\ With respect to our PRA burden estimates for 
registered management investment companies, we estimate the aggregate 
annual cost to be approximately $6,979,700.\201\
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    \199\ See letter from Business Roundtable.
    \200\ This estimate is based on the estimated total burden hours 
of the amendments associated with the schedules and forms that would 
include the new disclosures, an assumed 75%/25% split of the burden 
hours between internal staff and external professionals with respect 
to proxy and information statements, an assumed 25%/75% split of the 
burden hours between internal staff and external professionals with 
respect to registration statements, and an hourly rate of $200 for 
internal staff time and $400 for external professionals.
    \201\ This estimate is based on the estimated total burden hours 
of 22,742, an assumed 75%/25% split of the burden hours between 
internal staff and external professionals with respect to proxy 
statements, an assumed 25%/75% split of the burden hours between 
internal staff and external professionals with respect to 
registration statements, and an hourly rate of $200 for internal 
staff time and $400 for external professionals.
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    In addition, although the amendments are not intended to steer 
behavior, a company may adopt a diversity policy in connection with 
preparing its disclosure regarding whether and, if so, how diversity is 
considered in connection with identifying and evaluating persons for 
consideration as nominees for a position on the board of directors. If 
this policy turns out to be difficult to implement, companies could 
incur economic costs as a result in the form of recruiting costs or 
otherwise.
4. Costs Related to New Disclosure About Board Leadership Structure and 
the Board's Role in Risk Oversight
    Companies may face some costs related to new disclosure about board 
leadership structure. Disclosure of the board's role in risk oversight 
may have some similar costs. The information gathering costs are likely 
to be less significant than the costs to prepare the disclosure. Using 
our PRA burden estimates, we estimate the aggregate annual cost to 
operating companies to be approximately $11,970,000.\202\ With respect 
to our PRA burden estimates for registered management investment 
companies, we estimate the aggregate annual cost to be approximately 
$6,367,200.\203\ Although the amendments are not intended to drive 
behavior, there may be possible costs if a company re-evaluates its 
leadership structure or the board's role in risk oversight and decides 
to make changes as a result.
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    \202\ This estimate is based on the estimated total burden hours 
of the amendments associated with the schedules and forms that would 
include the new disclosures, an assumed 75%/25% split of the burden 
hours, and an hourly rate of $200 for internal staff time and $400 
for external professionals.
    \203\ This estimate is based on the estimated total burden hours 
of 20,292, an assumed 75%/25% split of the burden hours between 
internal staff and external professionals with respect to proxy 
statements, an assumed 25%/75% split of the burden hours between 
internal staff and external professionals with respect to 
registration statements, and an hourly rate of $200 for internal 
staff time and $400 for external professionals.
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5. Costs Related to New Disclosure Regarding Compensation Consultants
    Companies may face some costs related to new disclosure about fees 
for compensation consulting and for other services provided by 
compensation consultants. Using our PRA burden estimates, we estimate 
the aggregate annual cost to be approximately $5,985,000.\204\ In 
addition, the costs to a company in contracting with compensation 
consultants could be increased under these amendments, and compensation 
consultants also may alter

[[Page 68358]]

their mix of services. For instance, costs may increase if companies 
decide to contract with multiple compensation consultants for services 
that had previously been provided by only one compensation consultant. 
Several commenters asserted that the amendments could discourage 
companies from using a single compensation consulting firm to provide 
executive compensation services and services other than executive 
compensation consulting.\205\ Possible increased costs might include 
the costs associated with the time each new compensation consultant 
will need to learn about the company and the decline in any economies 
of scale the compensation consultant may have factored into fees 
charged to the company. To the extent that compensation consulting 
firms exit compensation consulting to eliminate potential conflicts and 
mandatory fee disclosure, fewer experienced consultants may be 
available for hire. To the extent that the remaining consultants cannot 
scale operations sufficiently quickly to meet demand, then this could 
result in less qualified opinions from remaining consultants, with 
potential costs to shareholders. In the long run, however, industry 
capacity may increase, which would mitigate this effect.
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    \204\ This estimate is based on the estimated total burden hours 
related to the amendments in connection to Schedules 14A and 14C, an 
assumed 75%/25% split of the burden hours, and an hourly rate of 
$200 for internal staff time and $400 for external professionals.
    \205\ See, e.g., letters from Mercer, Towers Perrin and Watson 
Wyatt.
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    Disclosures on compensation consultants may have effects on 
competition in the compensation consulting industry, introducing 
potential relative costs and benefits to multi-service consulting firms 
and consulting firms specializing in executive compensation. Specific 
potential effects on competition are discussed in the Section V below. 
As discussed in more detail in Section V, competition could conceivably 
decrease if some multi-service firms exit the executive compensation 
consulting industry. Any decrease in competition could increase prices 
of consulting services, potentially creating higher costs for client 
companies, while benefiting the compensation consulting industry as a 
whole. However, competition could increase, for example, to the extent 
that the amendments make smaller boutique firms more attractive to 
companies. If the amendments increase competitiveness of the industry, 
compensation consultants may charge lower fees. They may also, however, 
feel pressure to generate recommendations favorable to management in 
order to increase the likelihood of being retained in the future. Any 
decline in the objectivity of advice from compensation consultants 
would potentially be costly to shareholders.
6. Costs Related to Reporting of Voting Results on Form 8-K
    Shareholders who are used to receiving this information in a Form 
10-Q filing may incur costs of adapting their research practices to 
find this information in Form 8-K filings, which may involve searching 
through a number of filings. This adjustment may involve costs, in 
particular, to those investors who process this information using 
automated systems. A separate filing to report the information and 
potentially report both preliminary and final voting results may also 
increase direct costs to companies for filing fees, filing creation, 
and report dissemination because it may require two Form 8-K filings. 
However, the cost for preparing a quarterly report on Form 10-Q would 
be less because this disclosure would not appear in that Form. 
Companies that report preliminary voting results may face some 
additional information gathering and reporting costs because they would 
need to file a Form 8-K to disclose preliminary voting results and to 
file an amended Form 8-K to disclose final vote results. Using our PRA 
burden estimates, we estimate the aggregate annual cost to be 
approximately $2,207,750.\206\
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    \206\ This estimate is based on the estimated 8,831 additional 
Form 8-K filings, an assumed 75%/25% split of one burden hour 
between internal staff and external professionals, and an hourly 
rate of $200 for internal staff time and $400 for external 
professionals.
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V. Consideration of Impact on the Economy, Burden on Competition and 
Promotion of Efficiency, Competition and Capital Formation

    Section 23(a)(2) of the Exchange Act requires us,\207\ when 
adopting rules under the Exchange Act, to consider the impact that any 
new rule would have on competition. In addition, Section 23(a)(2) 
prohibits us from adopting any rule that would impose a burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Exchange Act.
---------------------------------------------------------------------------

    \207\ 15 U.S.C. 78w(a)(2).
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    Section 2(b) of the Securities Act,\208\ Section 3(f) of the 
Exchange Act,\209\ and Section 2(c) of the Investment Company Act 
require us,\210\ when engaging in rulemaking where we are required to 
consider or determine whether an action is necessary or appropriate in 
the public interest, to consider, in addition to the protection of 
investors, whether the action will promote efficiency, competition, and 
capital formation.
---------------------------------------------------------------------------

    \208\ 15 U.S.C. 77b(b).
    \209\ 15 U.S.C. 78c(f).
    \210\ 15 U.S.C. 80a-2(c).
---------------------------------------------------------------------------

    The amendments that we are adopting are designed to enhance the 
information companies provide to investors with regard to the 
following:
     Risk: By requiring disclosure about the board's role in 
oversight of risk and, to the extent that risks arising from a 
company's compensation policies and practices are reasonably likely to 
have a material adverse effect on the company, disclosure about such 
policies and practices as they relate to risk management;
     Governance and Director Qualifications: By requiring 
expanded disclosure of the background and qualifications of directors 
and director nominees and new disclosure about a company's board 
leadership structure, and accelerating the reporting of information 
regarding shareholder voting results; and
     Compensation: By revising the reporting of stock and 
option awards received by named executive officers, and requiring 
disclosure of potential conflicts of interest of compensation 
consultants in certain circumstances.
    The amendments are designed to enable investors to make better 
informed voting and investment decisions. For example, several 
commenters noted that investors will be able to use the new risk 
disclosures to make more informed investment decisions.\211\ Improved 
investment decisions could lead to increased efficiency and 
competitiveness of the U.S. capital markets. Investors could allocate 
capital across companies, toward companies where the risk incentives 
are more aligned with an investor's risk preference. In this regard, 
the amendments may affect the relative ability of some companies to 
raise capital depending on how investors react to the disclosures they 
provide in response to the amendments. In addition, the amendments may 
improve the efficiency of information gathering by investors to the 
extent that disclosure provided in response to the amendments is easier 
to access through filings made with the Commission.
---------------------------------------------------------------------------

    \211\ See, e.g., letters from CalSTRS, CII, the General Board of 
Pension and Health Benefits of the United Methodist Church, and 
Hermes.
---------------------------------------------------------------------------

    The amendments may affect competition, such as encouraging 
competition among companies to demonstrate superior risk oversight and 
improved incentive structures for management and the employees of the 
company. Several commenters indicated

[[Page 68359]]

that the amendments requiring fee and other disclosures related to 
compensation consultants might have some effects on competition among 
firms in this industry. Some of these commenters believed the 
amendments could negatively impact competition among large multi-
service compensation consulting firms.\212\ Companies will face new 
disclosure requirements with respect to their use of compensation 
consulting firms in certain circumstances, but not with respect to 
compensation consulting firms who provide only executive compensation 
consulting services. To the extent that companies receiving 
compensation for consulting services are reluctant to disclose the fees 
paid for advice on executive compensation, this may put some larger 
multi-service compensation consulting firms at a competitive 
disadvantage relative to smaller firms who focus on executive 
compensation consulting. In such cases, multi-service firms may be 
excluded from competing for compensation consulting services at 
companies where they already provide other non-executive compensation 
consulting services. However, this potential anti-competitive impact 
may be diminished to the extent that the potential opportunities lost 
to some multi-service firms would otherwise be available to other 
multi-service firms who do not provide non-executive compensation 
consulting services to the company. To the extent that this occurs, 
competition between multi-service firms could increase. In addition, 
the amendments provide a limited exception to the disclosure 
requirements for fees paid to other compensation consultants retained 
by the company if the board has retained its own consultant that 
reports to the board. This exception limits disclosure to circumstances 
that are more likely to present conflicts of interest, which should 
also address concerns about the competitive disadvantage faced by 
multi-service firms.
---------------------------------------------------------------------------

    \212\ See, e.g., letters from Hewitt, Mercer and Towers Perrin.
---------------------------------------------------------------------------

    In some instances, the amendments may result in disclosure of 
pricing information that certain compensation consulting firms would 
prefer to remain private, which could affect some consulting firms' 
marginal cost of providing executive compensation and non-executive 
compensation services. Competition in the compensation consulting 
industry also may be affected if, for example, some compensation 
consulting firms choose not to provide executive compensation 
consulting services to avoid having to disclose fees on other, more 
critical aspects of their businesses. If multi-service compensation 
consulting firms currently use cross-selling synergies to subsidize 
their compensation consulting services for the purpose of soliciting 
other business, then their departure may result in an increase in fees, 
which may better approximate the stand-alone value of the services and 
promote competition from new market participants who could not 
otherwise subsidize compensation consulting services.
    Conversely, the amendments may increase competition in the 
executive compensation consulting industry. If certain larger 
compensation consulting firms currently enjoy an advantage related to 
their ability to cross sell services, for example, where management is 
more likely to recommend to the board a compensation consultant with 
whom management has prior experience, the marginal cost of providing 
services may be lower, currently, than it is for smaller compensation 
consulting firms. In this circumstance, any additional marginal costs 
related to disclosure by multi-service firms may have the effect of 
making marginal costs faced by multi-service firms and boutique firms 
more equal, allowing boutique firms to compete more effectively. This 
may encourage entry into compensation consulting services by more 
firms, or at least make the threat of their entry more credible. If the 
number of multi-service compensation consulting firms is limited, 
relative to potential entrants, the level of effective competition in 
the industry may increase. The industry may also become more 
competitive for other reasons. For example, more public availability of 
aggregate fee disclosure, in general, may provide an informational 
advantage to companies as they negotiate with potential compensation 
consulting firms, effectively lowering the price of consulting 
services. Additionally, pricing disclosed, either publicly or in 
private negotiation, may more accurately reflect each particular 
service provided. If multi-service compensation consulting firms 
currently use cross-selling synergies to subsidize their compensation 
consulting services for the purpose of soliciting other business, then 
an increase in fees resulting from their departure may better 
approximate the stand-alone value of the services and promote 
competition from new market participants who could not otherwise 
subsidize compensation consulting services.
    The size of the market for compensation consulting services is 
large; depending on the assumptions, we estimate that the total fee 
revenues of the compensation consulting market could be in the range of 
$480 million to $3.7 billion. The lower approximate bound is calculated 
using the $200,000 average per firm fee for executive compensation 
advice paid by the 250 large companies studied in the Waxman Report, 
and an estimated 2,190 companies from the Russell 3000 index that 
report using an executive compensation consultant.\213\ The lower 
estimate could be higher to the extent that non-Russell 3000 companies 
also hire compensation consultants, or lower to the extent that smaller 
companies pay less than $200,000 for compensation consulting advice. 
The upper approximate bound is calculated from the periodic reports of 
the four largest multi-service compensation consulting firms: Towers 
Perrin, Mercer, Hewitt, and Watson Wyatt. These four firms reported 
2008 fiscal year-end total revenues of $9.9 billion, of which $2.16 
billion was disclosed as generated from compensation consulting 
activities, but which could include non-executive compensation 
consulting services.\214\ Considering that these four firms represent 
approximately 58% of the compensation consulting market,\215\ this 
indicates the total compensation consulting market could be $3.7 
billion.
---------------------------------------------------------------------------

    \213\ See letter from Mary Ellen Carter.
    \214\ Hewitt reported 33% of total revenues ($990 million) from 
Talent and Organizational Consulting; Mercer reported $550 million 
in consulting revenue from management and rewarding of employees, 
the design of remuneration programs, and improvement of human 
resource effectiveness; Watson Wyatt reported 10% of total revenues 
($167 million) from its Human Capital Group, which included 
providing advice on compensation plans and other long-term incentive 
programs; Towers Perrin reported 26.6% of total revenues ($450 
million) from Talent and Rewards Consulting.
    \215\ See letter from Mary Ellen Carter.
---------------------------------------------------------------------------

VI. Final Regulatory Flexibility Analysis

    This Final Regulatory Flexibility Analysis (``FRFA'') has been 
prepared in accordance with the Regulatory Flexibility Act.\216\ This 
FRFA relates to amendments to Regulation S-K, Schedule 14A and Forms 8-
K, 10-Q, and 10-K under the Exchange Act, and Forms N-1A, N-2, and N-3, 
under the Investment Company Act. The amendments will require the 
following:
---------------------------------------------------------------------------

    \216\ 5 U.S.C. 601.
---------------------------------------------------------------------------

     To the extent that risks arising from a company's 
compensation policies and practices for employees are reasonably likely 
to have a material adverse effect on the company, discussion of the 
company's compensation policies or practices as they relate to risk

[[Page 68360]]

management and risk-taking incentives that can affect the company's 
risk and management of that risk;
     Reporting of the aggregate grant date fair value of stock 
awards and option awards granted in the fiscal year in the Summary 
Compensation Table and Director Compensation Table to be computed in 
accordance with FASB ASC Topic 718, with a special instruction for 
awards subject to performance conditions;
     New disclosure of the qualifications of directors and 
nominees for director, and the reasons why that person should serve as 
a director of the company at the time at which the relevant filing is 
made with the Commission; the same information would be required with 
respect to directors nominated by others;
     Additional disclosure of any directorships held by each 
director and nominee at any time during the past five years at any 
public company or registered investment company;
     Additional disclosure of other legal actions involving a 
company's executive officers, directors, and nominees for director, and 
lengthening the time during which such disclosure is required from five 
to ten years;
     New disclosure about a company's board leadership 
structure and the board's role in the oversight of risk;
     New disclosure regarding the consideration of diversity in 
the process by which candidates for director are considered for 
nomination by a company's nominating committee;
     New disclosure about the fees paid to compensation 
consultants and their affiliates under certain circumstances; and
     Reporting of the vote results from a meeting of 
shareholders on Form 8-K generally within four business days of the 
meeting.

An Initial Regulatory Flexibility Analysis (``IRFA'') was prepared in 
accordance with the Regulatory Flexibility Act and included in the 
Proposing Release.

A. Need for the Amendments

    As described both in this release and the Proposing Release, during 
the past few years, investors have increasingly focused on corporate 
accountability, and have expressed the desire for additional 
information that would enhance their ability to make informed voting 
and investment decisions. The amendments are intended to improve the 
disclosure shareholders of public companies receive regarding 
compensation and corporate governance, and facilitate communications 
relating to voting decisions. We believe the amendments will enhance 
the transparency of a company's compensation policies and practices, 
and the impact of such policies and practices on risk taking; director 
and nominee qualifications; board leadership structure; the potential 
conflicts of compensation consultants; and will provide investors with 
clearer and more meaningful executive compensation disclosure.

B. Significant Issues Raised by Public Comments

    In the Proposing Release, we requested comment on any aspect of the 
IRFA, including the number of small entities that would be affected by 
the proposed amendments, the nature of the impact, how to quantify the 
number of small entities that would be affected, and how to quantify 
the impact of the proposed amendments. We did not receive comments 
specifically addressing the IFRA. However, several commenters addressed 
aspects of the proposed rule amendments that could potentially affect 
small entities. In particular, some commenters believed that compliance 
with the proposed amendments would impose a significant burden on 
smaller companies.\217\ Other commenters believed that smaller 
companies should be exempted from all or parts of the amendments.\218\ 
Although we believe that a complete exemption from the amendments would 
not be appropriate because this would interfere with achieving the goal 
of enhancing the information provided to all investors, we have made 
revisions to the amendments that we believe will significantly reduce 
the impact of the amendments on reporting companies, including smaller 
companies. In addition, we did not propose, and we are not at this time 
adopting, a requirement that smaller companies discuss their 
compensation policies and practices for employees if such policies and 
practices are reasonably likely to have a material adverse effect.
---------------------------------------------------------------------------

    \217\ See letters from Keith Bishop and Theragenics.
    \218\ See, e.g., letters from the Committee on Securities Law of 
the Business Law Section of the Maryland State Bar Association and 
Theragenics.
---------------------------------------------------------------------------

C. Small Entities Subject to the Final Amendments

    The amendments will affect some companies that are small entities. 
The Regulatory Flexibility Act defines ``small entity'' to mean ``small 
business,'' ``small organization,'' or ``small governmental 
jurisdiction.'' \219\ The Commission's rules define ``small business'' 
and ``small organization'' for purposes of the Regulatory Flexibility 
Act for each of the types of entities regulated by the Commission. 
Securities Act Rule 157 \220\ and Exchange Act Rule 0-10(a) \221\ 
defines a company, other than an investment company, to be a ``small 
business'' or ``small organization'' if it had total assets of $5 
million or less on the last day of its most recent fiscal year. We 
estimate that there are approximately 1,229 companies, other than 
registered investment companies, that may be considered small entities. 
The amendments to Regulation S-K, Schedule 14A and Forms 8-K, 10-Q, and 
10-K will affect any small entity that is subject to Exchange Act 
periodic and proxy reporting requirements. In addition, the amendments 
also will affect small entities that file a registration statement 
under the Securities Act.
---------------------------------------------------------------------------

    \219\ 5 U.S.C. 601(6).
    \220\ 17 CFR 230.157.
    \221\ 17 CFR 240.0-10(a).
---------------------------------------------------------------------------

    An investment company is considered to be a ``small business'' if 
it, together with other investment companies in the same group of 
related investment companies, has net assets of $50 million or less as 
of the end of its most recent fiscal year.\222\ We believe that the 
amendments will affect small entities that are investment companies. We 
estimate that there are approximately 162 investment companies that may 
be considered small entities.
---------------------------------------------------------------------------

    \222\ 17 CFR 270.0-10(a).
---------------------------------------------------------------------------

D. Reporting, Recordkeeping, and Other Compliance Requirements

    The amendments are designed to enhance the transparency of boards 
of directors, provide investors with a better understanding of the 
functions and activities of boards, and to provide investors with 
clearer and more meaningful compensation disclosure. These amendments 
will require small entities that are operating companies to provide:
     Reporting stock awards and option awards in the Summary 
Compensation Table and Director Compensation Table based on aggregate 
grant date fair value;
     Disclosure of the qualifications of directors and nominees 
for director, and a brief discussion of the specific experience, 
qualifications, attributes or skills that led to the conclusion that 
the person should serve as a director for the company at the time the 
disclosure is made, in light of the company's business and structure;
     Additional disclosure concerning certain legal proceedings 
involving a company's directors, nominees for director and executive 
officers;
     Disclosure regarding the consideration of diversity in the 
process

[[Page 68361]]

by which candidates for director are considered for nomination by a 
company's nominating committee;
     Additional disclosure, in certain instances, about 
compensation consultants retained by the board of directors; and
     Disclosure of the results of shareholder votes on Form 8-K 
generally within four business days after the end of the meeting.
    In addition, these amendments would require small entities that are 
registered management investment companies to provide:
     Disclosure of the qualifications of directors and nominees 
for director, and the reasons why that person should serve as a 
director of the company at the time at which the relevant filing is 
made with the Commission;
     Disclosure of any directorships held by each director and 
nominee at any time during the past five years at public companies or 
registered management investment companies; and
     Disclosure about a fund's board leadership structure and 
the board's role in the oversight of risk.

E. Agency Action To Minimize Effect on Small Entities

    The Regulatory Flexibility Act directs us to consider alternatives 
that would accomplish our stated objectives, while minimizing any 
significant adverse impact on small entities. In connection with the 
disclosure amendments, we considered the following alternatives:
     Establishing different compliance or reporting 
requirements or timetables that take into account the resources 
available to small entities;
     Clarifying, consolidating or simplifying compliance and 
reporting requirements under the rules for small entities;
     Using performance rather than design standards; and
     Exempting small entities from all or part of the 
requirements.
    In connection with the amendments, we considered alternatives, 
including establishing different compliance or reporting requirements 
that take into account the resources available to small entities, 
clarifying or simplifying compliance and reporting requirements under 
the amendments for small entities, using design rather than performance 
standards, and exempting small entities from all or part of the 
amendments.
    Under our current rules, small entities are subject to some 
different compliance or reporting requirements under Regulation S-K, 
and the amendments do not alter these requirements. Under Regulation S-
K, small entities are required to provide abbreviated compensation 
disclosure with respect to the principal executive officer and two most 
highly compensated executive officers for the last two completed fiscal 
years. Specifically, small entities may provide the executive 
compensation disclosure specified in Items 402(l) through (r) of 
Regulation S-K, rather than the corresponding disclosure specified in 
Items 402(a) through (k) of Regulation S-K. Items 402(l) through (r) 
also do not require small entities to provide CD&A or the Grants of 
Plan-Based Awards Table. The amendments to the Summary Compensation 
Table and Director Compensation Table are unlikely to have a 
significant impact on small entities because their principal effect is 
to disclose stock and option awards based on grant date fair value, 
which small entities need to compute for financial reporting purposes. 
We did not propose, and we are not adopting, a requirement that smaller 
companies discuss their compensation policies and practices for 
employees if such policies and practices are reasonably likely to have 
a material adverse effect. In addition, the amendments to the Grants of 
Plan-Based Awards Table do not apply to small entities.
    We considered, but did not establish additional different 
compliance requirements for small entities. We believe that investors 
in companies that are small entities may want and would benefit from 
the disclosures elicited by the amendments regarding director and 
nominee qualifications, as well as board leadership and risk oversight. 
For example, many commenters noted that our amendments to enhance 
director and nominee disclosure would provide investors with additional 
information that would allow them to make better informed investment 
and voting decisions.\223\ Different compliance requirements or an 
exemption for small entities would interfere with achieving the goal of 
enhancing the information provided to all investors. We believe that 
uniform and comparable disclosures across all companies will help 
investors and the markets.
---------------------------------------------------------------------------

    \223\ See, e.g., letters from Board of Directors Network, Forum 
of Executive Women, Integrated Governance Solutions, and Norges 
Bank.
---------------------------------------------------------------------------

    We also considered, but did not establish, different disclosure 
thresholds for small entities under our amendments regarding 
compensation consultant disclosure. Although the disclosure exclusion 
provided in the amendment where the fees for non-executive compensation 
consulting services do not exceed $120,000 for a company's fiscal year 
will reduce the compliance burdens for all companies, we believe this 
change will likely be more meaningful to companies that are small 
entities because these companies likely expend a lesser amount of their 
revenues on compensation consulting services.
    The amendments clarify, consolidate and simplify the reporting 
requirements for all public companies including small entities. The 
amendments require clear and straightforward disclosure of director and 
nominee qualifications, board leadership structure and the potential 
conflicts of interest of compensation consultants. We have used a mix 
of design and performance standards in connection with the amendments. 
Based on our past experience, we believe the amendments will be more 
useful to investors if there are specific disclosure requirements, 
however, some of the new requirements provide companies flexibility in 
determining what information to disclose. The disclosures are intended 
to result in more comprehensive and clearer disclosure.

VII. Statutory Authority and Text of the Amendments

    The amendments contained in this release are being adopted under 
the authority set forth in Sections 3(b), 6, 7, 10, and 19(a) of the 
Securities Act; Sections 12, 13, 14, 15(d) and 23(a) of the Exchange 
Act; and Sections 8, 20(a), 24(a), 30 and 38 of the Investment Company 
Act.

List of Subjects

    17 CFR Parts 229, 239, 240, 249 and 274 Reporting and recordkeeping 
requirements, Securities.

Text of the Amendments

0
For the reasons set out in the preamble, the Commission amends title 
17, chapter II, of the Code of Federal Regulations as follows:

PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES 
ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND 
CONSERVATION ACT OF 1975--REGULATION S-K

0
1. The authority citation for part 229 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2, 
77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 777iii, 
77jjj, 77nnn, 77sss, 78c, 78i, 78j, 78l, 78m, 78n, 78o, 78u-5, 78w, 
78ll, 78mm, 80a-8, 80a-9, 80a-20, 80a-29, 80a-30, 80a-31(c), 80a-37, 
80a-38(a), 80a-39, 80b-11, and 7201 et seq.; and 18 U.S.C. 1350, 
unless otherwise noted.
* * * * *


[[Page 68362]]



0
2. Amend Sec.  229.401 by:
0
a. Revising paragraph (e)(1);
0
b. In paragraph (e)(2) revising the phrase ``Indicate any other 
directorships'' to read ``Indicate any other directorships held, 
including any other directorships held during the past five years,'';
0
c. In paragraph (f), introductory text, revising the phrase ``during 
the past five years'' to read ``during the past ten years'';
0
d. Removing the word ``or'' following the semi-colon at the end of 
paragraph (f)(4);
0
e. Removing the period at the end of paragraphs (f)(5) and (f)(6) and 
adding in their place a semi-colon;
0
f. Adding paragraphs (f)(7) and (f)(8) before the Instructions to 
paragraph (f);
0
g. In the Instruction 1 to paragraph (f) revise the phrase ``For 
purposes of computing the five year period'' to read ``For purposes of 
computing the ten-year period''; and
0
h. Adding Instruction 5 to the Instructions to paragraph (f).
    The revisions and additions read as follows:


Sec.  229.401  (Item 401) Directors, executive officers, promoters and 
control persons.

* * * * *
    (e) Business experience. (1) Background. Briefly describe the 
business experience during the past five years of each director, 
executive officer, person nominated or chosen to become a director or 
executive officer, and each person named in answer to paragraph (c) of 
Item 401, including: each person's principal occupations and employment 
during the past five years; the name and principal business of any 
corporation or other organization in which such occupations and 
employment were carried on; and whether such corporation or 
organization is a parent, subsidiary or other affiliate of the 
registrant. In addition, for each director or person nominated or 
chosen to become a director, briefly discuss the specific experience, 
qualifications, attributes or skills that led to the conclusion that 
the person should serve as a director for the registrant at the time 
that the disclosure is made, in light of the registrant's business and 
structure. If material, this disclosure should cover more than the past 
five years, including information about the person's particular areas 
of expertise or other relevant qualifications. When an executive 
officer or person named in response to paragraph (c) of Item 401 has 
been employed by the registrant or a subsidiary of the registrant for 
less than five years, a brief explanation shall be included as to the 
nature of the responsibility undertaken by the individual in prior 
positions to provide adequate disclosure of his or her prior business 
experience. What is required is information relating to the level of 
his or her professional competence, which may include, depending upon 
the circumstances, such specific information as the size of the 
operation supervised.
* * * * *
    (f) * * *
    (7) Such person was the subject of, or a party to, any Federal or 
State judicial or administrative order, judgment, decree, or finding, 
not subsequently reversed, suspended or vacated, relating to an alleged 
violation of:
    (i) Any Federal or State securities or commodities law or 
regulation; or
    (ii) Any law or regulation respecting financial institutions or 
insurance companies including, but not limited to, a temporary or 
permanent injunction, order of disgorgement or restitution, civil money 
penalty or temporary or permanent cease-and-desist order, or removal or 
prohibition order; or
    (iii) Any law or regulation prohibiting mail or wire fraud or fraud 
in connection with any business entity; or
    (8) Such person was the subject of, or a party to, any sanction or 
order, not subsequently reversed, suspended or vacated, of any self-
regulatory organization (as defined in Section 3(a)(26) of the Exchange 
Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in 
Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or 
any equivalent exchange, association, entity or organization that has 
disciplinary authority over its members or persons associated with a 
member.
    Instructions to Paragraph (f) of Item 401:
* * * * *
    5. This paragraph (f)(7) shall not apply to any settlement of a 
civil proceeding among private litigants.
* * * * *

0
3. Amend Sec.  229.402 by:
0
a. Revising paragraphs (c)(2)(v) and (c)(2)(vi);
0
b. Removing the Instruction to Item (c)(2)(v) and (vi), and adding in 
its place Instructions 1, 2, and 3 to Item (c)(2)(v) and (vi) before 
paragraph (c)(2)(vii);
0
c. Revising paragraph (c)(2)(ix)(G);
0
d. Removing the period at the end of paragraphs (d)(2)(iii) and 
(d)(2)(iv) and adding a semi-colon in their place;
0
e. Adding Instruction 8 to Item 402(d);
0
f. Revising paragraphs (k)(2)(iii) and (k)(2)(iv);
0
g. Revising paragraph (k)(2)(vii)(I) and Instruction to Item 402(k);
0
h. In paragraph (l) revising the phrase ``paragraphs (a) through (k)'' 
to read ``paragraphs (a) through (k) and (s)'';
0
i. Revising paragraphs (n)(2)(v) and (n)(2)(vi);
0
j. Removing the Instruction to Item 402(n)(2)(v) and (vi), and adding 
in its place Instructions 1, 2, and 3 to Item 402(n)(2)(v) and (vi) 
before paragraph (n)(2)(vii);
0
k. Revising paragraph (n)(2)(ix)(G);
0
l. Revising paragraphs (r)(2)(iii), (r)(2)(iv) and (r)(2)(vii)(I), and 
Instruction to Item 402(r); and
0
m. Adding paragraph (s) before the Instruction to Item 402.
    The revisions and additions read as follows:


Sec.  229.402  (Item 402) Executive compensation.

* * * * *
    (c) * * *
    (2) * * *
    (v) For awards of stock, the aggregate grant date fair value 
computed in accordance with FASB ASC Topic 718 (column (e));
    (vi) For awards of options, with or without tandem SARs (including 
awards that subsequently have been transferred), the aggregate grant 
date fair value computed in accordance with FASB ASC Topic 718 (column 
(f));
    Instruction 1 to Item 402(c)(2)(v) and (vi). For awards reported in 
columns (e) and (f), include a footnote disclosing all assumptions made 
in the valuation by reference to a discussion of those assumptions in 
the registrant's financial statements, footnotes to the financial 
statements, or discussion in the Management's Discussion and Analysis. 
The sections so referenced are deemed part of the disclosure provided 
pursuant to this Item.
    Instruction 2 to Item 402(c)(2)(v) and (vi). If at any time during 
the last completed fiscal year, the registrant has adjusted or amended 
the exercise price of options or SARs previously awarded to a named 
executive officer, whether through amendment, cancellation or 
replacement grants, or any other means (``repriced''), or otherwise has 
materially modified such awards, the registrant shall include, as 
awards required to be reported in column (f), the incremental fair 
value, computed as of the repricing or modification date in accordance 
with FASB ASC Topic 718, with respect to that repriced or modified 
award.
    Instruction 3 to Item 402(c)(2)(v) and (vi). For any awards that 
are subject to performance conditions, report the value at the grant 
date based upon the probable outcome of such conditions. This amount 
should be consistent with the estimate of aggregate compensation

[[Page 68363]]

cost to be recognized over the service period determined as of the 
grant date under FASB ASC Topic 718, excluding the effect of estimated 
forfeitures. In a footnote to the table, disclose the value of the 
award at the grant date assuming that the highest level of performance 
conditions will be achieved if an amount less than the maximum was 
included in the table.
* * * * *
    (ix) * * *
    (G) The dollar value of any dividends or other earnings paid on 
stock or option awards, when those amounts were not factored into the 
grant date fair value required to be reported for the stock or option 
award in column (e) or (f); and
* * * * *
    (d) * * *
    Instructions to Item 402(d).
* * * * *
    8. For any equity awards that are subject to performance 
conditions, report in column (l) the value at the grant date based upon 
the probable outcome of such conditions. This amount should be 
consistent with the estimate of aggregate compensation cost to be 
recognized over the service period determined as of the grant date 
under FASB ASC Topic 718, excluding the effect of estimated 
forfeitures.
* * * * *
    (k) * * *
    (2) * * *
    (iii) For awards of stock, the aggregate grant date fair value 
computed in accordance with FASB ASC Topic 718 (column (c));
    (iv) For awards of options, with or without tandem SARs (including 
awards that subsequently have been transferred), the aggregate grant 
date fair value computed in accordance with FASB ASC Topic 718 (column 
(d));
* * * * *
    (vii) * * *
    (I) The dollar value of any dividends or other earnings paid on 
stock or option awards, when those amounts were not factored into the 
grant date fair value required to be reported for the stock or option 
award in column (c) or (d); and
* * * * *
    Instruction to Item 402(k). In addition to the Instruction to 
paragraphs (k)(2)(iii) and (iv) and the Instructions to paragraph 
(k)(2)(vii) of this Item, the following apply equally to paragraph (k) 
of this Item: Instructions 2 and 4 to paragraph (c) of this Item; 
Instructions to paragraphs (c)(2)(iii) and (iv) of this Item; 
Instructions to paragraphs (c)(2)(v) and (vi) of this Item; 
Instructions to paragraph (c)(2)(vii) of this Item; Instructions to 
paragraph (c)(2)(viii) of this Item; and Instructions 1 and 5 to 
paragraph (c)(2)(ix) of this Item. These Instructions apply to the 
columns in the Director Compensation Table that are analogous to the 
columns in the Summary Compensation Table to which they refer and to 
disclosures under paragraph (k) of this Item that correspond to 
analogous disclosures provided for in paragraph (c) of this Item to 
which they refer.
* * * * *
    (n) * * *
    (2) * * *
    (v) For awards of stock, the aggregate grant date fair value 
computed in accordance with FASB ASC Topic 718 (column (e));
    (vi) For awards of options, with or without tandem SARs (including 
awards that subsequently have been transferred), the aggregate grant 
date fair value computed in accordance with FASB ASC Topic 718 (column 
(f));
    Instruction 1 to Item 402(n)(2)(v) and (n)(2)(vi). For awards 
reported in columns (e) and (f), include a footnote disclosing all 
assumptions made in the valuation by reference to a discussion of those 
assumptions in the smaller reporting company's financial statements, 
footnotes to the financial statements, or discussion in the 
Management's Discussion and Analysis. The sections so referenced are 
deemed part of the disclosure provided pursuant to this Item.
    Instruction 2 to Item 402(n)(2)(v) and (n)(2)(vi). If at any time 
during the last completed fiscal year, the smaller reporting company 
has adjusted or amended the exercise price of options or SARs 
previously awarded to a named executive officer, whether through 
amendment, cancellation or replacement grants, or any other means 
(``repriced''), or otherwise has materially modified such awards, the 
smaller reporting company shall include, as awards required to be 
reported in column (f), the incremental fair value, computed as of the 
repricing or modification date in accordance with FASB ASC Topic 718, 
with respect to that repriced or modified award.
    Instruction 3 to Item 402(n)(2)(v) and (vi). For any awards that 
are subject to performance conditions, report the value at the grant 
date based upon the probable outcome of such conditions. This amount 
should be consistent with the estimate of aggregate compensation cost 
to be recognized over the service period determined as of the grant 
date under FASB ASC Topic 718, excluding the effect of estimated 
forfeitures. In a footnote to the table, disclose the value of the 
award at the grant date assuming that the highest level of performance 
conditions will be achieved if an amount less than the maximum was 
included in the table.
* * * * *
    (ix) * * *
    (G) The dollar value of any dividends or other earnings paid on 
stock or option awards, when those amounts were not factored into the 
grant date fair value required to be reported for the stock or option 
award in column (e) or (f); and
* * * * *
    (r) * * *
    (2) * * *
    (iii) For awards of stock, the aggregate grant date fair value 
computed in accordance with FASB ASC Topic 718 (column (c));
    (iv) For awards of options, with or without tandem SARs (including 
awards that subsequently have been transferred), the aggregate grant 
date fair value computed in accordance with FASB ASC Topic 718 (column 
(d));
* * * * *
    (vii) * * *
    (I) The dollar value of any dividends or other earnings paid on 
stock or option awards, when those amounts were not factored into the 
grant date fair value required to be reported for the stock or option 
award in column (c) or (d); and
* * * * *
    Instruction to Item 402(r). In addition to the Instruction to 
paragraph (r)(2)(vii) of this Item, the following apply equally to 
paragraph (r) of this Item: Instructions 2 and 4 to paragraph (n) of 
this Item; the Instructions to paragraphs (n)(2)(iii) and (iv) of this 
Item; the Instructions to paragraphs (n)(2)(v) and (vi) of this Item; 
the Instructions to paragraph (n)(2)(vii) of this Item; the Instruction 
to paragraph (n)(2)(viii) of this Item; the Instructions to paragraph 
(n)(2)(ix) of this Item; and paragraph (o)(7) of this Item. These 
Instructions apply to the columns in the Director Compensation Table 
that are analogous to the columns in the Summary Compensation Table to 
which they refer and to disclosures under paragraph (r) of this Item 
that correspond to analogous disclosures provided for in paragraph (n) 
of this Item to which they refer.
* * * * *
    (s) Narrative disclosure of the registrant's compensation policies 
and practices as they relate to the registrant's risk management. To 
the extent that risks arising from the registrant's compensation 
policies and practices for its employees are

[[Page 68364]]

reasonably likely to have a material adverse effect on the registrant, 
discuss the registrant's policies and practices of compensating its 
employees, including non-executive officers, as they relate to risk 
management practices and risk-taking incentives. While the situations 
requiring disclosure will vary depending on the particular registrant 
and compensation policies and practices, situations that may trigger 
disclosure include, among others, compensation policies and practices: 
at a business unit of the company that carries a significant portion of 
the registrant's risk profile; at a business unit with compensation 
structured significantly differently than other units within the 
registrant; at a business unit that is significantly more profitable 
than others within the registrant; at a business unit where 
compensation expense is a significant percentage of the unit's 
revenues; and that vary significantly from the overall risk and reward 
structure of the registrant, such as when bonuses are awarded upon 
accomplishment of a task, while the income and risk to the registrant 
from the task extend over a significantly longer period of time. The 
purpose of this paragraph(s) is to provide investors material 
information concerning how the registrant compensates and incentivizes 
its employees that may create risks that are reasonably likely to have 
a material adverse effect on the registrant. While the information to 
be disclosed pursuant to this paragraph(s) will vary depending upon the 
nature of the registrant's business and the compensation approach, the 
following are examples of the issues that the registrant may need to 
address for the business units or employees discussed:
    (1) The general design philosophy of the registrant's compensation 
policies and practices for employees whose behavior would be most 
affected by the incentives established by the policies and practices, 
as such policies and practices relate to or affect risk taking by 
employees on behalf of the registrant, and the manner of their 
implementation;
    (2) The registrant's risk assessment or incentive considerations, 
if any, in structuring its compensation policies and practices or in 
awarding and paying compensation;
    (3) How the registrant's compensation policies and practices relate 
to the realization of risks resulting from the actions of employees in 
both the short term and the long term, such as through policies 
requiring claw backs or imposing holding periods;
    (4) The registrant's policies regarding adjustments to its 
compensation policies and practices to address changes in its risk 
profile;
    (5) Material adjustments the registrant has made to its 
compensation policies and practices as a result of changes in its risk 
profile; and
    (6) The extent to which the registrant monitors its compensation 
policies and practices to determine whether its risk management 
objectives are being met with respect to incentivizing its employees.
* * * * *

0
4. Amend Sec.  229.407 by:
0
a. Revising paragraph (c)(2)(vi);
0
b. Revising paragraph (e)(3)(iii); and
0
c. Adding paragraph (h) before the Instructions to Item 407.
    The revisions and additions read as follows:


Sec.  229.407  (Item 407) Corporate governance.

* * * * *
    (c) * * *
    (2) * * *
    (vi) Describe the nominating committee's process for identifying 
and evaluating nominees for director, including nominees recommended by 
security holders, and any differences in the manner in which the 
nominating committee evaluates nominees for director based on whether 
the nominee is recommended by a security holder, and whether, and if so 
how, the nominating committee (or the board) considers diversity in 
identifying nominees for director. If the nominating committee (or the 
board) has a policy with regard to the consideration of diversity in 
identifying director nominees, describe how this policy is implemented, 
as well as how the nominating committee (or the board) assesses the 
effectiveness of its policy;
* * * * *
    (e) * * *
    (3) * * *
    (iii) Any role of compensation consultants in determining or 
recommending the amount or form of executive and director compensation 
(other than any role limited to consulting on any broad-based plan that 
does not discriminate in scope, terms, or operation, in favor of 
executive officers or directors of the registrant, and that is 
available generally to all salaried employees; or providing information 
that either is not customized for a particular registrant or that is 
customized based on parameters that are not developed by the 
compensation consultant, and about which the compensation consultant 
does not provide advice) during the registrant's last completed fiscal 
year, identifying such consultants, stating whether such consultants 
were engaged directly by the compensation committee (or persons 
performing the equivalent functions) or any other person, describing 
the nature and scope of their assignment, and the material elements of 
the instructions or directions given to the consultants with respect to 
the performance of their duties under the engagement:
    (A) If such compensation consultant was engaged by the compensation 
committee (or persons performing the equivalent functions) to provide 
advice or recommendations on the amount or form of executive and 
director compensation (other than any role limited to consulting on any 
broad-based plan that does not discriminate in scope, terms, or 
operation, in favor of executive officers or directors of the 
registrant, and that is available generally to all salaried employees; 
or providing information that either is not customized for a particular 
registrant or that is customized based on parameters that are not 
developed by the compensation consultant, and about which the 
compensation consultant does not provide advice) and the compensation 
consultant or its affiliates also provided additional services to the 
registrant or its affiliates in an amount in excess of $120,000 during 
the registrant's last completed fiscal year, then disclose the 
aggregate fees for determining or recommending the amount or form of 
executive and director compensation and the aggregate fees for such 
additional services. Disclose whether the decision to engage the 
compensation consultant or its affiliates for these other services was 
made, or recommended, by management, and whether the compensation 
committee or the board approved such other services of the compensation 
consultant or its affiliates.
    (B) If the compensation committee (or persons performing the 
equivalent functions) has not engaged a compensation consultant, but 
management has engaged a compensation consultant to provide advice or 
recommendations on the amount or form of executive and director 
compensation (other than any role limited to consulting on any broad-
based plan that does not discriminate in scope, terms, or operation, in 
favor of executive officers or directors of the registrant, and that is 
available generally to all salaried employees; or providing information 
that either is not customized for a particular registrant or that is 
customized based on parameters that are not developed by the 
compensation consultant, and about which the compensation consultant

[[Page 68365]]

does not provide advice) and such compensation consultant or its 
affiliates has provided additional services to the registrant in an 
amount in excess of $120,000 during the registrant's last completed 
fiscal year, then disclose the aggregate fees for determining or 
recommending the amount or form of executive and director compensation 
and the aggregate fees for any additional services provided by the 
compensation consultant or its affiliates.
* * * * *
    (h) Board leadership structure and role in risk oversight. Briefly 
describe the leadership structure of the registrant's board, such as 
whether the same person serves as both principal executive officer and 
chairman of the board, or whether two individuals serve in those 
positions, and, in the case of a registrant that is an investment 
company, whether the chairman of the board is an ``interested person'' 
of the registrant as defined in section 2(a)(19) of the Investment 
Company Act (15 U.S.C. 80a-2(a)(19)). If one person serves as both 
principal executive officer and chairman of the board, or if the 
chairman of the board of a registrant that is an investment company is 
an ``interested person'' of the registrant, disclose whether the 
registrant has a lead independent director and what specific role the 
lead independent director plays in the leadership of the board. This 
disclosure should indicate why the registrant has determined that its 
leadership structure is appropriate given the specific characteristics 
or circumstances of the registrant. In addition, disclose the extent of 
the board's role in the risk oversight of the registrant, such as how 
the board administers its oversight function, and the effect that this 
has on the board's leadership structure.
* * * * *

PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

0
5. The authority citation for Part 239 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3, 
77sss, 78c, 78l, 78m, 78n, 78o(d), 78u-5, 78w(a), 78ll, 78mm, 80a-
2(a), 80a-3, 80a-8, 80a-9, 80a-10, 80a-13, 80a-24, 80a-26, 80a-29, 
80a-30, and 80a-37, unless otherwise noted.
* * * * *

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

0
6. The authority citation for Part 240 is revised to read as follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 
78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 
80b-11, and 7201 et seq.; and 18 U.S.C. 1350 and 12 U.S.C. 
5221(e)(3) unless otherwise noted.

* * * * *

0
7. Amend Sec.  240.14a-101 by:
0
a. Revising paragraph (b) of Item 7;
0
b. In Item 22:
0
i. Redesignating paragraph (b)(3) as paragraph (b)(3)(ii);
0
ii. Adding new paragraph (b)(3)(i); and
0
iii. Redesignating Instruction to paragraph (b)(3) as Instruction to 
paragraph (b)(3)(ii);
0
iv. Redesignating paragraph (b)(4), introductory text, and paragraph 
(b)(4)(i) through paragraph (b)(4)(iv) as new paragraph (b)(4)(i), 
introductory text, and paragraph (b)(4)(i)(A) through paragraph 
(b)(4)(i)(D);
0
v. Adding new paragraph (b)(4)(ii);
0
vi. Revising paragraph (b)(11) before the Instruction; and
0
vii. Revising Instruction to paragraph (b)(11).
    The revisions and additions read as follows:


Sec.  240.14a-101  Schedule 14A. Information required in proxy 
statement.

* * * * *
    Item 7. Directors and executive officers.
* * * * *
    (b) The information required by Items 401, 404(a) and (b), 405 and 
407(d)(4), (d)(5) and (h) of Regulation S-K (Sec.  229.401, Sec.  
229.404(a) and (b), Sec.  229.405 and Sec.  229.407(d)(4), (d)(5) and 
(h) of this chapter).
* * * * *
    Item 22. Information required in investment company proxy 
statement.
* * * * *
    (b) Election of Directors. * * *
    (3)(i) For each director or nominee for election as director, 
briefly discuss the specific experience, qualifications, attributes, or 
skills that led to the conclusion that the person should serve as a 
director for the Fund at the time that the disclosure is made in light 
of the Fund's business and structure. If material, this disclosure 
should cover more than the past five years, including information about 
the person's particular areas of expertise or other relevant 
qualifications.
* * * * *
    (4) * * *
    (ii) Unless disclosed in the table required by paragraph (b)(1) of 
this Item or in response to paragraph (b)(4)(i) of this Item, indicate 
any directorships held during the past five years by each director or 
nominee for election as director in any company with a class of 
securities registered pursuant to section 12 of the Exchange Act (15 
U.S.C. 78l) or subject to the requirements of section 15(d) of the 
Exchange Act (15 U.S.C. 78o(d)) or any company registered as an 
investment company under the Investment Company Act of 1940 (15 U.S.C. 
80a-1 et seq.), as amended, and name the companies in which the 
directorships were held.
* * * * *
    (11) Provide in tabular form, to the extent practicable, the 
information required by Items 401(f) and (g), 404(a), 405, and 407(h) 
of Regulation S-K (Sec. Sec.  229.401(f) and (g), 229.404(a), 229.405, 
and 229.407(h) of this chapter).
    Instruction to paragraph (b)(11). Information provided under 
paragraph (b)(8) of this Item 22 is deemed to satisfy the requirements 
of Item 404(a) of Regulation S-K for information about directors, 
nominees for election as directors, and Immediate Family Members of 
directors and nominees, and need not be provided under this paragraph 
(b)(11).
* * * * *

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

0
8. The authority citation for part 249 continues to read in part as 
follows:

    Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; and 18 U.S.C. 
1350, unless otherwise noted.
* * * * *


0
9. Amend Form 8-K (referenced in Sec.  249.308) by adding Item 5.07 
under the caption ``Information To Be Included in the Report'' after 
the General Instructions read as follows:

    Note: The text of Form 8-K does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 8-K

* * * * *

General Instructions

* * * * *

Information To Be Included in the Report

* * * * *

Item 5.07 Submission of Matters to a Vote of Security Holders

    If any matter was submitted to a vote of security holders, through 
the solicitation of proxies or otherwise, provide the following 
information:

[[Page 68366]]

    (a) The date of the meeting and whether it was an annual or special 
meeting.
    (b) If the meeting involved the election of directors, the name of 
each director elected at the meeting, as well as a brief description of 
each other matter voted upon at the meeting; and state the number of 
votes cast for, against or withheld, as well as the number of 
abstentions and broker non-votes as to each such matter, including a 
separate tabulation with respect to each nominee for office.
    (c) A description of the terms of any settlement between the 
registrant and any other participant (as defined in Instruction 3 to 
Item 4 of Schedule 14A (17 CFR 240.14a-101)) terminating any 
solicitation subject to Rule 14a-12(c), including the cost or 
anticipated cost to the registrant.
    Instruction 1 to Item 5.07. The four business day period for 
reporting the event under this Item 5.07 shall begin to run on the day 
on which the meeting ended. The registrant shall disclose on Form 8-K 
under this Item 5.07 the preliminary voting results. The registrant 
shall file an amended report on Form 8-K under this Item 5.07 to 
disclose the final voting results within four business days after the 
final voting results are known. However, no preliminary voting results 
need be disclosed under this Item 5.07 if the registrant has disclosed 
final voting results on Form 8-K under this Item.
    Instruction 2 to Item 5.07. If any matter has been submitted to a 
vote of security holders otherwise than at a meeting of such security 
holders, corresponding information with respect to such submission 
shall be provided. The solicitation of any authorization or consent 
(other than a proxy to vote at a stockholders' meeting) with respect to 
any matter shall be deemed a submission of such matter to a vote of 
security holders within the meaning of this item.
    Instruction 3 to Item 5.07. If the registrant did not solicit 
proxies and the board of directors as previously reported to the 
Commission was re-elected in its entirety, a statement to that effect 
in answer to paragraph (b) will suffice as an answer thereto.
    Instruction 4 to Item 5.07. If the registrant has furnished to its 
security holders proxy soliciting material containing the information 
called for by paragraph (c), the paragraph may be answered by reference 
to the information contained in such material.
    Instruction 5 to Item 5.07. If the registrant has published a 
report containing all the information called for by this item, the item 
may be answered by a reference to the information contained in such 
report.
* * * * *

0
10. Amend Form 10-Q (referenced in Sec.  249.308a) by removing Item 4 
in Part II--Other Information, and redesignating Items 5 and 6 as Items 
4 and 5.

0
11. Amend Form 10-K (referenced in Sec.  249.310) by removing Item 4 in 
Part I, and redesignating Items 5 through 15 as Items 4 through 14.

    Note: The text of Forms 10-Q and 10-K do not, and these 
amendments will not, appear in the Code of Federal Regulations.

PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

PART 274--FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 1940

0
12. The authority citation for Part 274 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m, 
78n, 78o(d), 80a-8, 80a-24, 80a-26, and 80a-29, unless otherwise 
noted.

* * * * *
0
13. Form N-1A (referenced in Sec. Sec.  239.15A and 274.11A), Item 17 
is amended by:
0
a. Revising the heading to paragraph (b);
0
b. Revising paragraph (b)(1);
0
c. Redesignating paragraph (b)(3), introductory text, and paragraph 
(b)(3)(i) through paragraph (b)(3)(iv) as paragraph (b)(3)(i), 
introductory text, and paragraph (b)(3)(i)(A) through paragraph 
(b)(3)(i)(D);
0
d. Adding new paragraph (b)(3)(ii); and
0
e. Adding paragraph (b)(10).
    The revisions and additions read as follows:

    Note: The text of Form N-1A does not, and these amendments will 
not, appear in the Code of Federal Regulations.

Form N-1A

* * * * *

Item 17. Management of the Fund

* * * * *
    (b) Leadership Structure and Board of Directors.
    (1) Briefly describe the leadership structure of the Fund's board, 
including the responsibilities of the board of directors with respect 
to the Fund's management and whether the chairman of the board is an 
interested person of the Fund. If the chairman of the board is an 
interested person of the Fund, disclose whether the Fund has a lead 
independent director and what specific role the lead independent 
director plays in the leadership of the Fund. This disclosure should 
indicate why the Fund has determined that its leadership structure is 
appropriate given the specific characteristics or circumstances of the 
Fund. In addition, disclose the extent of the board's role in the risk 
oversight of the Fund, such as how the board administers its oversight 
function and the effect that this has on the board's leadership 
structure.
* * * * *
    (3) * * *
    (ii) Unless disclosed in the table required by paragraph (a)(1) of 
this Item 17 or in response to paragraph (b)(3)(i) of this Item 17, 
indicate any directorships held during the past five years by each 
director in any company with a class of securities registered pursuant 
to section 12 of the Securities Exchange Act (15 U.S.C. 78l) or subject 
to the requirements of section 15(d) of the Securities Exchange Act (15 
U.S.C. 78o(d)) or any company registered as an investment company under 
the Investment Company Act, and name the companies in which the 
directorships were held.
* * * * *
    (10) For each director, briefly discuss the specific experience, 
qualifications, attributes, or skills that led to the conclusion that 
the person should serve as a director for the Fund at the time that the 
disclosure is made, in light of the Fund's business and structure. If 
material, this disclosure should cover more than the past five years, 
including information about the person's particular areas of expertise 
or other relevant qualifications.
* * * * *

0
14. Form N-2 (referenced in Sec. Sec.  239.14 and 274.11a-1), Item 18 
is amended by:
0
a. Redesignating paragraph 5, introductory text, and paragraph 5(a) 
through paragraph 5(d) as paragraph 5(b), introductory text, and 
paragraph 5(b)(1) through paragraph 5(b)(4);
0
b. Adding new paragraph 5(a);
0
c. Redesignating paragraph 6, introductory text, and paragraph 6(a) 
through paragraph 6(d) as paragraph 6(a), introductory text, and 
paragraph 6(a)(1) through paragraph 6(a)(4);
0
d. Adding new paragraph 6(b); and
0
e. Adding paragraph 17 after the instructions.
    The additions read as follows:

    Note: The text of Form N-2 does not, and these amendments will 
not, appear in the Code of Federal Regulations.

Form N-2

* * * * *

[[Page 68367]]

Item 18. Management

* * * * *
    5.(a) Briefly describe the leadership structure of the Registrant's 
board, including whether the chairman of the board is an interested 
person of the Registrant, as defined in section 2(a)(19) of the 1940 
Act (15 U.S.C. 80a-2(a)(19)). If the chairman of the board is an 
interested person of the Registrant, disclose whether the Registrant 
has a lead independent director and what specific role the lead 
independent director plays in the leadership of the Registrant. This 
disclosure should indicate why the Registrant has determined that its 
leadership structure is appropriate given the specific characteristics 
or circumstances of the Registrant. In addition, disclose the extent of 
the board's role in the risk oversight of the Registrant, such as how 
the board administers its oversight function, and the effect that this 
has on the board's leadership structure.
* * * * *
    6. * * *
    (b) Unless disclosed in the table required by paragraph 1 of this 
Item 18 or in response to paragraph 6(a) of this Item 18, indicate any 
directorships held during the past five years by each director in any 
company with a class of securities registered pursuant to section 12 of 
the Exchange Act (15 U.S.C. 78l) or subject to the requirements of 
section 15(d) of the Exchange Act (15 U.S.C. 78o(d)) or any company 
registered as an investment company under the 1940 Act, and name the 
companies in which the directorships were held.
* * * * *
    17. For each director, briefly discuss the specific experience, 
qualifications, attributes, or skills that led to the conclusion that 
the person should serve as a director for the Registrant at the time 
that the disclosure is made, in light of the Registrant's business and 
structure. If material, this disclosure should cover more than the past 
five years, including information about the person's particular areas 
of expertise or other relevant qualifications.
* * * * *

0
15. Form N-3 (referenced in Sec. Sec.  239.17a and 274.11b), Item 20 is 
amended by:
0
a. Redesignating paragraph (d), introductory text, and paragraph (d)(i) 
through paragraph (d)(iv) as paragraph (d)(ii), introductory text, and 
paragraph (d)(ii)(A) through paragraph (d)(ii)(D);
0
b. Adding new paragraph (d)(i);
0
c. Redesignating paragraph (e), introductory text, and paragraph (e)(i) 
through paragraph (e)(iv) as paragraph (e)(i), introductory text, and 
paragraph (e)(i)(A) through paragraph (e)(i)(D);
0
d. Adding new paragraph (e)(ii); and
0
e. Adding paragraph (o) after the instructions.
    The additions read as follows:

    Note: The text of Form N-3 does not, and these amendments will 
not, appear in the Code of Federal Regulations.

Form N-3

* * * * *

Item 20. Management

* * * * *
    (d)(i) Briefly describe the leadership structure of the 
Registrant's board, including whether the chairman of the board is an 
interested person of the Registrant, as defined in Section 2(a)(19) of 
the 1940 Act (15 U.S.C. 80a-2(a)(19)) and the rules thereunder. If the 
chairman of the board is an interested person of the Registrant, 
disclose whether the Registrant has a lead independent director and 
what specific role the lead independent director plays in the 
leadership of the Registrant. This disclosure should indicate why the 
Registrant has determined that its leadership structure is appropriate 
given the specific characteristics or circumstances of the Registrant. 
In addition, disclose the extent of the board's role in the risk 
oversight of the Registrant, such as how the board administers its risk 
oversight function, and the effect that this has on the board's 
leadership structure.
    (e) * * *
    (ii) Unless disclosed in the table required by paragraph (a) of 
this Item 20 or in response to paragraph (e)(i) of this Item 20, 
indicate any directorships held during the past five years by each 
director in any company with a class of securities registered pursuant 
to section 12 of the Exchange Act (15 U.S.C. 78l) or subject to the 
requirements of Section 15(d) of the Exchange Act (15 U.S.C. 78o(d)) or 
any company registered as an investment company under the 1940 Act, and 
name the companies in which the directorships were held.
* * * * *
    (o) For each director, briefly discuss the specific experience, 
qualifications, attributes, or skills that led to the conclusion that 
the person should serve as a director for the Registrant at the time 
that the disclosure is made, in light of the Registrant's business and 
structure. If material, this disclosure should cover more than the past 
five years, including information about the person's particular areas 
of expertise or other relevant qualifications.
* * * * *

    Dated: December 16, 2009.

    By the Commission.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-30327 Filed 12-17-09; 4:15 pm]
