Awards Table and Grants of All Other Equity Awards Table, discloses
equity awards granted pursuant to incentive plans separately from other
equity awards.
---------------------------------------------------------------------------

    \153\ Item 402(c)(2)(v) and (vi).
    \154\ FAS 123R requires a company to aggregate individuals
receiving awards into relatively homogenous groups with respect to
exercise and post-vesting employment termination behaviors for the
purpose of determining expected term, for example executives and
non-executives. The rules we adopt today are not intended to change
the method used to value employee stock options for purposes of FAS
123R or to affect the judgments as to reasonable groupings for
purposes of determining the expected term assumption required by FAS
123R. Under the rules we adopt today, where a company uses more than
one group, the measurement of grant date fair value for purposes of
Item 402 would be derived using the expected term assumption for the
group that includes the named executive officers (or the group that
includes directors for purposes of Item 402(k)).
    \155\ See Section II.C.2., discussing the Grants of Plan-Based
Awards Table required by Item 402(d).
---------------------------------------------------------------------------

    We are adopting as proposed an instruction that requires a footnote
referencing the discussion of the relevant assumptions in the notes to
the company's financial statements or the discussion of relevant
assumptions in the MD&A.\156\ The same instruction also

provides that the referenced sections will be deemed to be part of the
disclosure provided pursuant to Item 402. The referenced sections
containing this disclosure are required in the company's annual report
to shareholders that must precede or accompany the company's proxy
statement.\157\ In the case of Internet disclosure of proxy materials,
companies could provide hyperlinks from the proxy statement to the
referenced sections contained in the annual report.\158\ While some
commenters recommended requiring these valuation assumptions to be
presented in the proxy statement,\159\ we believe that investors will
be able to easily access this information without requiring it to be
repeated from other documents.
---------------------------------------------------------------------------

    \156\ Instruction 1 to Item 402(c)(2)(v) and (vi).
    \157\ See Exchange Act Rule 14a-3 [17 CFR 240.14a-3].
    \158\ In addition, in December 2005, we proposed rules that
would allow companies and other persons to use the Internet to
satisfy proxy material delivery requirements. Internet Availability
of Proxy Materials, Release No. 34-52926 (Dec. 8, 2005) [70 FR
74597].
    \159\ See, e.g., letters from Buck Consultants; CII; Frederic W.
Cook & Co.; and IUE-CWA.
---------------------------------------------------------------------------

    We proposed that previously awarded options or freestanding stock
appreciation awards that the company repriced or otherwise materially
modified during the last fiscal year be disclosed in the Summary
Compensation Table based on the total fair value of the award as so
modified. Under FAS 123R, only the incremental fair value, computed as
of the repricing or modification date, is recognized for such an award.
Several commenters recommended conforming Summary Compensation Table
reporting to the incremental fair value recognition approach of FAS
123R, objecting that the proposed total fair value approach would
inappropriately double count the fair value of many modified
awards.\160\ As adopted, the new rules reflect this
recommendation.\161\ Grants of reload or restorative options, however,
are reportable based on total grant date fair value because they are
new awards that do not replace previously cancelled awards.\162\
---------------------------------------------------------------------------

    \160\ See, e.g., letters from AICPA; Cleary Gottlieb Steen &
Hamilton LLP (``Cleary''); Compass Bancshares; Cravath, Swaine &
Moore LLP (``Cravath''); Hewitt; KPMG; Leggett & Platt, Incorporated
(``Leggett & Platt''); SCSGP; and Sullivan.
    \161\ Instruction 2 to Item 402(c)(2)(v) and (vi).
    \162\ Generally speaking, reload or restorative options are
grants of new options that are granted automatically when an
executive exercises the old option. Reload or restorative options
are treated as new grants under FAS 123R.
---------------------------------------------------------------------------

    We proposed that all earnings, such as dividends, be included in
the Stock Awards and Option Awards columns when paid. Several
commenters noted that the value of the right to receive dividends is
factored into the grant date fair value computed under FAS 123R.\163\
If the stock award or option award entitles the holder to receive
dividends, then such ``dividend protection'' is included in the grant
date fair value computed under FAS 123R. We are persuaded by the
commenters that subsequent disclosure of the value of dividends in
these circumstances, as they are received, would repeat in the same
table compensation that was previously disclosed. Therefore, we have
revised the requirement. However, we note that if the stock award or
option award does not entitle the holder to receive dividends, then
``dividend protection'' is not included in the grant date fair value
computed under FAS 123R. Accordingly, the value of any dividends
received would not have been previously disclosed in the Summary
Compensation Table as part of the grant date fair value of the award.
In order to appropriately capture the compensation in these latter
circumstances, we are adopting a requirement to disclose any earnings
on stock awards or option awards that are not included in the grant
date fair value computation for those awards in the All Other
Compensation column of the Summary Compensation Table when the
dividends or other earnings are paid.\164\ In addition, the material
terms of any equity award (including whether dividends will be paid,
the applicable dividend rate and whether that rate is preferential) may
be factors to be discussed in the related narrative section.\165\
---------------------------------------------------------------------------

    \163\ See, e.g., letters from Cleary; Emerson Electric Co.
(``Emerson''); Foley; Hewitt; SCSGP; and Towers Perrin.
    \164\ Item 402(c)(2)(ix)(G).
    \165\ Item 402(e)(1)(iii), discussed in Section II.C.3.a. below.
---------------------------------------------------------------------------

    We had proposed a definition of ``non-stock incentive plan'' that
some commenters stated would result in confusing and potentially
anomalous treatment of some awards.\166\ To clarify the reporting
treatment of different types of awards, we have:
---------------------------------------------------------------------------

    \166\ See, e.g., letter from ABA.
---------------------------------------------------------------------------

     Adopted a separate definition of ``equity incentive plan''
as ``an incentive plan or portion of an incentive plan under which
awards are granted that fall within the scope of FAS 123R''; \167\ and
---------------------------------------------------------------------------

    \167\ Item 402(a)(6)(iii). An equity incentive plan includes
plans that have a performance or market condition. As defined in
Appendix E of FAS 123R, a performance condition is ``a condition
affecting the vesting, exercisability, exercise price or other
pertinent factors used in determining the fair value of an award
that relates to both (a) an employee's rendering service for a
specified (either explicitly or implicitly) period of time and (b)
achieving a specified performance target that is defined solely by
reference to the employer's own operations (or activities).
Attaining a specified growth rate in return on assets, obtaining
regulatory approval to market a specified product, selling shares in
an initial public offering or other financing event, and a change in
control are examples of performance conditions for purposes of this
Statement. A performance target also may be defined by reference to
the same performance measure of another entity or group of entities.
For example, attaining a growth rate in earnings per share that
exceeds the average growth rate in earnings per share of other
entities in the same industry is a performance condition for
purposes of this Statement. A performance target might pertain
either to the performance of the enterprise as a whole or to some
part of the enterprise, such as a division or an individual
employee.'' An award also would be considered to have a performance
condition if it is subject to a market condition, which is ``a
condition affecting the exercise price, exercisability, or other
pertinent factors used in determining the fair value of an award
under a share-based payment arrangement that relates to the
achievement of (a) a specified price of the issuer's shares or a
specified amount of intrinsic value indexed solely to the issuer's
shares or (b) a specified price of the issuer's shares in terms of a
similar (or index of similar) equity security (securities).'' An
award that vests on an accelerated basis upon the occurrence of a
change in control is not considered an award under an equity
incentive plan if (a) the award contains no other performance or
market conditions and (b) the award would otherwise vest based on
the completion of a specified employee service period.
---------------------------------------------------------------------------

     Defined ``non-equity incentive plan'' as ``an incentive
plan or portion of an incentive plan that is not an equity incentive
plan.'' \168\
---------------------------------------------------------------------------

    \168\ Item 402(a)(6)(iii). See also discussion of the definition
of ``incentive plan'' at Section II.C.1.f. below.
---------------------------------------------------------------------------

ii. Non-Equity Incentive Plan Compensation Column
    The Non-Equity Incentive Plan Compensation column (column (g)) will
report, as proposed, the dollar value of all amounts earned during the
fiscal year pursuant to non-equity incentive plans.\169\ This column
includes all other incentive plan awards not included in the stock
awards and option awards columns.\170\ Compensation awarded under an
incentive plan that is not within the scope of FAS 123R will be
disclosed in the Summary Compensation Table in the year when the
relevant specified performance criteria under the plan are satisfied
and the compensation earned, whether or

not payment is actually made to the named executive officer in that
year.
---------------------------------------------------------------------------

    \169\ Item 402(c)(2)(vii). An incentive plan generally provides
for compensation intended to serve as an incentive for performance
to occur over a specified period, whether such performance is
measured by reference to financial performance of the company or an
affiliate, the company's stock price, or any other performance
measure. See Item 402(a)(6)(iii) for the definition of ``incentive
plan.''
    \170\ Awards disclosed in this column, column (g), are not
covered by FAS 123R for financial reporting purposes because they do
not involve share-based payment arrangements. Awards that involve
share-based payment arrangements should be disclosed in the Stock
Awards or Option Awards columns, as appropriate.
---------------------------------------------------------------------------

    The grant of an award under a non-equity incentive plan will be
disclosed in the supplemental Grants of Plan-Based Awards Table in the
year of grant, which may be some year prior to the year in which
compensation under the non-equity incentive plan is reported in the
Summary Compensation Table.\171\ As noted above, several commenters
recommended Summary Compensation Table reporting of non-equity
incentive plan awards on a grant date fair value basis, consistent with
the reporting of equity incentive plans.\172\ However, because there is
not one clearly required or accepted standard for measuring the value
at grant date of these non-equity incentive plan awards that reflects
the applicable performance contingencies, as there is for equity-based
awards with FAS 123R, we are not including such a value in the Summary
Compensation Table. Instead, we continue the disclosure approach of
reflecting these items of compensation when earned.\173\
---------------------------------------------------------------------------

    \171\ See Section II.C.2., discussing the Grants of Plan-Based
Awards Table.
    \172\ See, e.g., letters from Amalgamated; Anonymous
Compensation Consultant; BDO Seidman; CII; CRPTF; Mercer; and
Teamsters Local 671. See discussion at Section II.C.1.a. above.
    \173\ Prior to these amendments, Items 402(b)(2)(iv)(C) and
402(e) required disclosure of long-term incentive plan payouts when
earned.
---------------------------------------------------------------------------

    Once the disclosure has been provided in the Summary Compensation
Table when the specified performance criteria have been satisfied and
the compensation earned, and the grant of the award has been disclosed
in the Grants of Plan-Based Awards Table, no further disclosure will be
specifically required when payment is actually made to the named
executive officer. Some commenters objected to Summary Compensation
Table reporting of awards for which the relevant performance condition
has been satisfied that remain subject to forfeiture conditions (such
as conditions requiring continued service or conditions that provide
for forfeiture based on future company performance).\174\ We continue
to believe that satisfaction of the relevant performance condition
(including an interim performance condition in a long term plan) is the
event that is material to investors for Summary Compensation Table
reporting purposes. We encourage companies to use the related narrative
section to disclose material features that are not reflected in the
tabular disclosure including, for example, subsequent forfeitures of
amounts reported in the table with respect to previous fiscal
years.\175\
---------------------------------------------------------------------------

    \174\ See, e.g., letters from Mercer; Watson Wyatt; and Richard
E. Wood.
    \175\ Commenters' issues concerning the scope of awards
reportable in this column, in particular as compared to compensation
reportable in the bonus column, are discussed in Section II.C.1.f.
below.
---------------------------------------------------------------------------

    As proposed and adopted, earnings on outstanding non-equity
incentive plan awards are also included in the Non-Equity Incentive
Plan Compensation column and identified and quantified in a footnote to
the table.\176\
---------------------------------------------------------------------------

    \176\ Item 402(c)(2)(vii). These earnings were reportable prior
to today's amendments in the Other Annual Compensation or All Other
Compensation columns of the Summary Compensation Table under Items
402(b)(2)(iii)(C)(3) and 402(b)(2)(v)(C), respectively.
---------------------------------------------------------------------------

d. Change in Pension Value and Nonqualified Deferred Compensation
Earnings Column
    As we proposed, we are expanding the Summary Compensation Table to
include information regarding the aggregate increase in actuarial value
to the named executive officer of all defined benefit and actuarial
plans (including supplemental plans) accrued during the year and
earnings on nonqualified deferred compensation. However, as mentioned
above, we have decided to present this information in a separate column
rather than include it in the All Other Compensation column as
proposed.\177\ Footnote identification and quantification of the full
amount of each element is required.\178\ Any amount attributable to the
defined benefit and actuarial plans that is a negative number should be
disclosed by footnote, but should not be reflected in the amount
reported in the column.\179\
---------------------------------------------------------------------------

    \177\ See the discussion of the Total column in Section
II.C.1.a. above and the discussion of determination of named
executive officers in Section II.C.6. below.
    \178\ Instruction 3 to Item 402(c)(2)(viii). In contrast, as
proposed to be disclosed in the All Other Compensation Column,
separate identification and quantification of each element would
have been required only if the element exceeded $10,000, although
the amounts would have been included in that column without regard
to size.
    \179\ Instruction 3 to Item 402(c)(2)(viii).
---------------------------------------------------------------------------

i. Earnings on Deferred Compensation
    We proposed to require disclosure of all earnings on compensation
that is deferred on a basis that is not tax-qualified, including non-
tax qualified defined contribution retirement plans.\180\ Prior to our
amendments, these earnings were required to be disclosed only to the
extent of any portion that was ``above-market or preferential.'' This
limitation generated criticism that the rule prior to today's
amendments permitted companies to avoid disclosure of substantial
compensation.
---------------------------------------------------------------------------

    \180\ Nonqualified defined contribution and other nonqualified
deferred compensation plans are plans providing for deferral of
compensation that do not satisfy the minimum coverage,
nondiscrimination and other rules that ``qualify'' broad-based plans
for favorable tax treatment under the Internal Revenue Code. A
typical 401(k) plan, by contrast, is a qualified deferred
compensation plan.
---------------------------------------------------------------------------

    Some commenters supported this proposal.\181\ However, many
commenters asserted that the Summary Compensation Table should continue
to require disclosure only of earnings at above-market or preferential
rates.\182\ Commenters stated that differences in earnings on
nonqualified deferred compensation among executives may result entirely
from the executives' investment acumen and decisions as to amounts to
defer. Commenters further claimed that deferred amounts invested at
market rates are conceptually no different from amounts invested
directly by an executive. Absent providing an above-market return,
contributing additional amounts or guaranteeing investment returns,
commenters asserted that the company has no role in the annual growth
of the account.
---------------------------------------------------------------------------

    \181\ See, e.g., letters from CFA Centre 1 and jointly, Lucian
A. Bebchuk, Jesse M. Fried and Robert J. Jackson, Jr. (``Professor
Bebchuk, et al.'').
    \182\ See, e.g., letters from American Academy of Actuaries'
Pension Committee (``Academy of Actuaries''); BRT; Frederic W. Cook
& Co.; Computer Sciences; Kimball International, Inc.; NAM; and
Sullivan.
---------------------------------------------------------------------------

    We are persuaded that Summary Compensation Table disclosure of
nonqualified deferred compensation earnings should continue to be
limited to the above-market or preferential portion.\183\ As under the
rule prior to these amendments, the above-market or preferential
portion is determined for interest by reference to 120% of the
applicable federal long-term rate and for dividends by reference to the
dividend rate on the company's common stock.\184\ Footnote or narrative
disclosure of the company's criteria for determining any portion
considered to be above-market may be provided. The above-market or
preferential earnings in this column would always be positive, as it
would not be possible for above-market or preferential losses to occur.
---------------------------------------------------------------------------

    \183\ Item 402(c)(2)(viii)(B).
    \184\ Instruction 2 to Item 402(c)(2)(viii), which is based on
the language which had appeared in Instructions 3 and 4 to Item
402(b)(2)(iii)(C) prior to these amendments.
---------------------------------------------------------------------------

    However, we do not overlook the fact that the company is obligated
to pay the executive the entire amount of the nonqualified deferred
compensation account, which represents a claim on company assets and is
part of a plan that provides the executive with tax

benefits.\185\ To reflect this obligation, we have decided to require
disclosure of all earnings on nonqualified deferred compensation in the
separate Nonqualified Deferred Compensation Table, as we proposed.\186\
The disclosure required by that table discloses the rate at which the
company's obligation grows on an annual basis.
---------------------------------------------------------------------------

    \185\ Nonqualified defined contribution and other nonqualified
deferred compensation plans are generally unfunded, and their
taxation is governed by Section 409A of the Internal Revenue Code
[26 U.S.C. 409A].
    \186\ This separate table is discussed in Section II.C.5.b.
below.
---------------------------------------------------------------------------

    Further, the method of calculating earnings on deferred
compensation plans is an example of a factor that may be material and
therefore described in the narrative disclosure to the Summary
Compensation Table and the Grants of Plan-Based Awards Table.\187\
---------------------------------------------------------------------------

    \187\ See Section II.C.3.a. below.
---------------------------------------------------------------------------

ii. Increase in Pension Value
    We proposed to require Summary Compensation Table disclosure of the
aggregate increase in actuarial value to the executive officer of
defined benefit and actuarial plans (including supplemental plans)
accrued during the year.
    In contrast to defined contribution plans, for which the Summary
Compensation Table requires disclosure of company contributions, the
rules prior to our amendments did not require disclosure of the annual
change in value of defined benefit plans, such as pension plans, in
which the named executive officers participated.\188\ The annual
increase in actuarial value of these plans may be a significant element
of compensation that is earned on an annual basis, thus we proposed to
include it in the computation of total compensation.
---------------------------------------------------------------------------

    \188\ A typical defined contribution plan is a retirement plan
in which the company and/or the executive makes contributions of a
specified amount, and the amount that is paid out to the executive
depends on the return on investments from the contributed amounts. A
typical defined benefit plan is a retirement plan in which the
company pays the executive specified amounts at retirement which are
not tied to investment performance of the contributions that fund
the plan.
---------------------------------------------------------------------------

    Such disclosure is necessary to permit the Summary Compensation
Table to reflect total compensation for the year. Such disclosure also
permits a full understanding of the company's compensation obligations
to named executive officers, given that defined benefit plans guarantee
what can be a lifetime stream of payments and allocate risk of
investment performance to the company and its shareholders. In addition
commentators have noted that the absence of such a disclosure
requirement creates an incentive to shift compensation to pensions,
results in the understatement of non-performance-based compensation,
and distorts pay comparisons between executives and between companies.
    We are adopting the requirement substantially as proposed.\189\ As
proposed and adopted, an instruction specifies that this disclosure
applies to each plan that provides for the payment of retirement
benefits, or benefits that will be paid primarily following retirement,
including but not limited to tax-qualified defined benefit plans and
supplemental executive retirement plans, but excluding defined
contribution plans.\190\ The retirement section, discussed below,
provides more information regarding these covered plans.\191\
---------------------------------------------------------------------------

    \189\ Item 402(c)(2)(viii)(A).
    \190\ Instruction 1 to Item 402(c)(2)(viii). Defined benefit
plans include, for example, cash balance plans in which the
retiree's benefit may be determined by the amount represented in an
account rather than based on a formula referencing salary while
still employed.
    \191\ See Section II.C.5.a., discussing the Pension Benefits
Table.
---------------------------------------------------------------------------

    Some commenters raised issues regarding computation of the amount
to be disclosed.\192\ In response to these comments, we have revised
the language of the requirement as adopted to clarify that the
disclosure applies to the change, from the pension plan measurement
date used for the company's audited financial statements for the prior
completed fiscal year to the pension plan measurement date used for the
company's audited financial statements for the covered fiscal year, in
the actuarial present value of the named executive officer's
accumulated benefit under all defined benefit and actuarial pension
plans (including supplemental plans). The disclosure therefore includes
both:
---------------------------------------------------------------------------

    \192\ See, e.g., letters from Academy of Actuaries; Frederick W.
Cook & Co.; ABA-JCEB; and Mercer.
---------------------------------------------------------------------------

     The increase in value due to an additional year of
service, compensation increases, and plan amendments (if any); and
     The increase (or decrease) in value attributable to
interest.
    As discussed below, this disclosure relates to the disclosure
provided in the Pension Benefits Table \193\ and promotes company-to-
company comparability. In computing the amount to be disclosed, the
company must use the assumptions it uses for financial reporting
purposes under generally accepted accounting principles.\194\
---------------------------------------------------------------------------

    \193\ Item 402(h), discussed in Section III.C.5.a. below.
    \194\ Instruction 1 to Item 402(c)(2)(viii) and Instruction 2 to
Item (h)(2). Regarding such key assumptions as itnerest rate, form
of benefit, number of years of service, level of compensation used
to determine the benefit and mortality tables, a company must use
the same assumptions as it applies pursuant to Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 87,
Employers' Accounting for Pensions (FAS 87) both for this Summary
Compensation Table column and the separate Pension Benefits Table.
---------------------------------------------------------------------------

    Other commenters objected to this item's potential to ``distort''
the Total column and the determination of named executive
officers.\195\ As described above, we continue to believe that
inclusion of this element in the table is necessary to permit the
Summary Compensation Table to reflect total compensation. However, we
have addressed commenters' concerns by segregating this item and above-
market or preferential earnings on nonqualified deferred compensation
from the All Other Compensation column, presenting their sum in a
separate column so that it will be deducted from the total for purposes
of determining the named executive officers.\196\
---------------------------------------------------------------------------

    \195\ See, e.g., letters from Eli Lilly and SCSGP.
    \196\ See Section II.C.6. below..
---------------------------------------------------------------------------

e. All Other Compensation Column
    The next column in the Summary Compensation Table discloses all
other compensation not required to be included in any other
column.\197\ This approach allows the capture of all compensation in
the Summary Compensation Table and also allows a total compensation
calculation. We confirm that disclosure of all compensation is clearly
required under the rules.\198\
---------------------------------------------------------------------------

    \197\ Item 402(c)(2)(ix).
    \198\ The only exception, as discussed below, is for perquisites
and personal benefits if they aggregate less than $10,00 for a named
executive officer. The 1992 Release, at Section II.A.4., also noted
``the revised item includes an express statement that it requires
disclosure of all compensation to the named executive officers and
directors for services rendered in all capacities to the registrant
and its subsidiaries.'' See also Item 402(a)(2) as stated prior to
these amendments. Further, as described above, Summary Compensation
Table disclosure of nonqualified deferred compensation earnings is
limited to the above-market or preferential portion of earnings. As
was previously the case before these amendments, companies may omit
information regarding group life, health, hospitalization and
medical reimbursement plans that do not discriminate in scope, terms
or operation in favor of executive officers or directors of the
company and that are available generally to all salaried employees.
See Item 402(a)(6)(ii).
---------------------------------------------------------------------------

    As proposed, we are clarifying the disclosure required in the All
Other Compensation column (revised column (i)) in two principal
respects:
     Consistent with the requirement that the Summary
Compensation Table

disclose all compensation, we state explicitly that compensation not
properly reportable in the other columns reporting specified forms of
compensation must be reported in this column; and
     To simplify the Summary Compensation Table and eliminate
confusing distinctions between items currently reported as ``Annual''
and ``Long Term'' compensation, we have moved into this column all
items formerly reportable as ``Other Annual Compensation.'' \199\
---------------------------------------------------------------------------

    \199\ Prior to today's amendments, Item 402(b)(2)(iii)(c) had
required the separate column entitled ``Other Annual Compensation.''
---------------------------------------------------------------------------

    We also are requiring that each item of compensation included in
the All Other Compensation column that exceeds $10,000 be separately
identified and quantified in a footnote. We believe that the $10,000
threshold balances our desire to avoid disclosure of clearly de minimis
matters against the interests of investors in the nature of items
comprising compensation. Each item of compensation less than that
amount will be included in the column (other than aggregate perquisites
and other personal benefits less than $10,000 as discussed below), but
is not required to be identified by type and amount.\200\ Items to be
disclosed in the All Other Compensation column include, but are not
limited to, the items discussed below.
---------------------------------------------------------------------------

    \200\ See Section II.C.1.e.i. regarding separate standards for
identification of perquisites and other personal benefits.
---------------------------------------------------------------------------

i. Perquisites and Other Personal Benefits
    Perquisites and other personal benefits are included in the All
Other Compensation column. As we proposed, we are adopting changes to
the disclosure of perquisites and other personal benefits to improve
disclosure and facilitate computing a total amount of compensation. Our
amendments require the disclosure of perquisites and other personal
benefits unless the aggregate amount of such compensation is less than
$10,000. Some commenters thought this threshold was too high; \201\
while other commenters thought it was too low.\202\ While we realize
that this threshold may result in the total amount of compensation
reportable in the Summary Compensation Table being slightly less than a
complete total amount of compensation, we believe $10,000 is a
reasonable balance between investors' need for disclosure of total
compensation and the burden on a company to track every benefit, no
matter how small. Prior to today's amendments, the rule permitted
omission of perquisites and other personal benefits if the aggregate
amount of such compensation was the lesser of either $50,000 or 10% of
the total of annual salary and bonus, allowing omission of too much
information that investors may consider material.
---------------------------------------------------------------------------

    \201\ See, e.g., letters from Association of BellTel Retirees
(``ABTR''); AFL-CIO; Amalgamated; Association of US West Retirees
(``AUSWR''); Corporate Library; ISS; UCF; and Walden.
    \202\ See e.g., letters from Buck Consultants; Chamber of
Commerce; Compass Bancshares; Computer Sciences; Eli Lilly; Emerson;
Hodak Value Advisors; C. Kollar; NAM; and SCSGP.
---------------------------------------------------------------------------

    The amendments we adopt today require, as proposed, footnote
disclosure that identifies perquisites and other personal benefits.
Prior to these amendments, the rule required identification and
quantification only of perquisites and other personal benefits that
were 25% of the total amount for each named executive officer.\203\ We
have modified this requirement so that, unless the aggregate value of
perquisites and personal benefits is less than $10,000, any perquisite
or other personal benefit must be identified and, if it is valued at
the greater of $25,000 or ten percent of total perquisites and other
personal benefits, its value must be disclosed.\204\ Consistent with
our objective to streamline the Summary Compensation Table, the revised
threshold is intended to avoid requiring separate quantification of
perquisites having de minimis value. Where perquisites are subject to
identification, they must be described in a manner that identifies the
particular nature of the benefit received. For example, it is not
sufficient to characterize generally as ``travel and entertainment''
different company-financed benefits, such as clothing, jewelry,
artwork, theater tickets and housekeeping services.
---------------------------------------------------------------------------

    \203\ The requirement had been set forth in Instruction 1 to
Item 402(b)(2)(iii)(C) prior to these amendments.
    \204\ Instruction 4 to Item 402(c)(2)(ix).
---------------------------------------------------------------------------

    As was formerly the case, tax ``gross-ups'' or other reimbursement
of taxes owed with respect to any compensation, including but not
limited to perquisites and other personal benefits, must be separately
quantified and identified in the tax reimbursement category described
below, even if the associated perquisites or other personal benefits
are eligible for exclusion or would not require identification or
footnote quantification under the rule.
    In the Proposing Release, we provided interpretive guidance about
factors to be considered in determining whether an item is a perquisite
or other personal benefit. One commenter suggested that the Commission
engage in a separate rulemaking to adopt a definition of perquisites in
Regulation S-K.\205\ As we noted in the Proposing Release, for decades
questions have arisen as to what is a perquisite or other personal
benefit required to be disclosed. We continue to believe that it is not
appropriate for Item 402 to define perquisites or personal benefits,
given that different forms of these items continue to develop, and thus
a definition would become outdated. As stated in the Proposing Release,
we are concerned that sole reliance on a bright line definition in our
rules might provide an incentive to characterize perquisites or
personal benefits in ways that would attempt to circumvent the bright
lines. Many commenters sought additional or modified interpretive
guidance, including guidance with respect to an item that is integrally
and directly related to the performance of the executive's duties but
has a personal benefit aspect as well.\206\ Accordingly, we are
providing additional explanation regarding how to apply this guidance.
The amendments we adopt today require perquisites and personal benefits
to be disclosed for both named executive officers and directors.\207\
Further, the disclosure requirements we adopt regarding potential
payments upon termination or change-in-control include disclosure of
perquisites.\208\ Accordingly, this discussion also applies in the
context of each of these disclosure requirements.
---------------------------------------------------------------------------

    \205\ See letter from Chamber of Commerce.
    \206\ See, e.g., letter from SCSGP.
    \207\ For directors, the disclosure will be required in the
Director Compensation Table discussed below in Section II.C.9.
    \208\ Item 402(j), discussed in Section II.C.5.c. below.
---------------------------------------------------------------------------

    Among the factors to be considered in determining whether an item
is a perquisite or other personal benefit are the following:
     An item is not a perquisite or personal benefit if it is
integrally and directly related to the performance of the executive's
duties.
     Otherwise, an item is a perquisite or personal benefit if
it confers a direct or indirect benefit that has a personal aspect,
without regard to whether it may be provided for some business reason
or for the convenience of the company, unless it is generally available
on a non-discriminatory basis to all employees.
    We believe the way to approach this is by initially evaluating the
first prong of the analysis. If an item is integrally and directly
related to the performance of the executive's duties, that is the end
of the analysis--the item is not a perquisite or personal benefit and
no

compensation disclosure is required. Moreover, if an item is integrally
and directly related to the performance of an executive's duties under
this analysis, there is no requirement to disclose any incremental cost
over a less expensive alternative. For example, with respect to
business travel, it is not necessary to disclose the cost differential
between renting a mid-sized car over a compact car.
    Because of the integral and direct connection to job performance,
the elements of the second part of the analysis (e.g., whether there is
also a personal benefit or whether the item is generally available to
other employees) are irrelevant. An example of such an item could be a
``Blackberry'' or a laptop computer if the company believes it is an
integral part of the executive's duties to be accessible by e-mail to
the executive's colleagues and clients when out of the office. Just as
these devices represent advances over earlier technology (such as
voicemail), we expect that as new technology facilitates the extent to
which work is conducted outside the office, additional devices may be
developed that will fall into this category.
    The concept of a benefit that is ``integrally and directly
related'' to job performance is a narrow one. The analysis draws a
critical distinction between an item that a company provides because
the executive needs it to do the job, making it integrally and directly
related to the performance of duties, and an item provided for some
other reason, even where that other reason can involve both company
benefit and personal benefit. Some commenters objected that
``integrally and directly related'' is too narrow a standard,
suggesting that other business reasons for providing an item should not
be disregarded in determining whether an item is a perquisite.\209\ We
do not adopt this suggested approach. As we stated in the Proposing
Release, the fact that the company has determined that an expense is an
``ordinary'' or ``necessary'' business expense for tax or other
purposes or that an expense is for the benefit or convenience of the
company is not responsive to the inquiry as to whether the expense
provides a perquisite or other personal benefit for disclosure
purposes. Whether the company should pay for an expense or it is
deductible for tax purposes relates principally to questions of state
law regarding use of corporate assets and of tax law; our disclosure
requirements are triggered by different and broader concepts.
---------------------------------------------------------------------------

    \209\ See, e.g., letters from NACCO Industries, Inc. (``NACCO
Industries'') and NAM.
---------------------------------------------------------------------------

    As we noted in the Proposing Release, business purpose or
convenience does not affect the characterization of an item as a
perquisite or personal benefit where it is not integrally and directly
related to the performance by the executive of his or her job.
Therefore, for example, a company's decision to provide an item of
personal benefit for security purposes does not affect its
characterization as a perquisite or personal benefit. A company policy
that for security purposes an executive (or an executive and his or her
family) must use company aircraft or other company means of travel for
personal travel, or must use company or company-provided property for
vacations, does not affect the conclusion that the item provided is a
perquisite or personal benefit.
    If an item is not integrally and directly related to the
performance of the executive's duties, the second step of the analysis
comes into play. Does the item confer a direct or indirect benefit that
has a personal aspect (without regard to whether it may be provided for
some business reason or for the convenience of the company)? If so, is
it generally available on a non-discriminatory basis to all employees?
For example, a company's provision of helicopter service for an
executive to commute to work from home is not integrally and directly
related to job performance (although it would benefit the company by
getting the executive to work faster), clearly bestows a benefit that
has a personal aspect, and is not generally available to all employees
on a non-discriminatory basis. As we have noted, business purpose or
convenience does not affect the characterization of an item as a
perquisite or personal benefit where it is not integrally and directly
related to the performance by the executive of his or her job.
    A company may reasonably conclude that an item is generally
available to all employees on a non-discriminatory basis if it is
available to those employees to whom it lawfully may be provided. For
this purpose, a company may recognize jurisdictionally based legal
restrictions (such as for foreign employees) or the employees'
``accredited investor'' \210\ status. In contrast, merely providing a
benefit consistent with its availability to employees in the same job
category or at the same pay scale does not establish that it is
generally available on a non-discriminatory basis to all employees.
---------------------------------------------------------------------------

    \210\ ``Accredited investor'' is defined in Securities Act Rule
501(a)[17 CFR 230.501(a)] for purposes of Regulation D [17 CFR
230.501-508].
---------------------------------------------------------------------------

    Applying the concepts that we outline above, examples of items
requiring disclosure as perquisites or personal benefits under Item 402
include, but are not limited to: club memberships not used exclusively
for business entertainment purposes, personal financial or tax advice,
personal travel using vehicles owned or leased by the company, personal
travel otherwise financed by the company, personal use of other
property owned or leased by the company, housing and other living
expenses (including but not limited to relocation assistance and
payments for the executive or director to stay at his or her personal
residence), security provided at a personal residence or during
personal travel, commuting expenses (whether or not for the company's
convenience or benefit), and discounts on the company's products or
services not generally available to employees on a non-discriminatory
basis.
    Beyond the examples provided, we assume that companies and their
advisors, who are more familiar with the detailed facts of a particular
situation and who are responsible for providing materially accurate and
complete disclosure satisfying our requirements, can apply the two-step
analysis to assess whether particular arrangements require disclosure
as perquisites or personal benefits. In light of the importance of the
subject to many investors, all participants should approach the subject
of perquisites and personal benefits thoughtfully.\211\
---------------------------------------------------------------------------

    \211\ The Commission has taken action in circumstances where
perquisites were not properly disclosed. See SEC v. Greg A. Gadel
and Daniel J. Skrypek, Litigation Release No. 19720 (June 7, 2006)
and In the Matter of Tyson Foods, Inc. and Donald Tyson, Litigation
Release No. 19208 (Apr. 28, 2005).
---------------------------------------------------------------------------

    The amendments we adopt today, as proposed, call for aggregate
incremental cost to the company as the proper measure of value of
perquisites and other personal benefits.\212\ Some commenters instead
recommended valuing perquisites based on current market values.\213\
Consistent with our

approach of disclosing a company's compensation costs, we remain of the
view that perquisites should be valued based on aggregate incremental
cost.
---------------------------------------------------------------------------

    \212\ Instruction 4 to Item 402(c)(2)(is).
    \213\ See e.g., letters from ABTR; AUSWR; CH; Computer Sciences;
Pearl Meyer & Partners; and Institutional Investors Group. As we
stated in the Proposing Release, the amount attributed to
perquisites and other personal benefits for federal income tax
purposes is not the incremental cost for purposes of our disclosure
rules unless, independently of the tax characterization, it
constitutes such incremental cost. Therefore, for example, the cost
of aircraft travel attributed to an executive for federal income tax
purposes is not generally the incremental cost of such a perquisite
or personal benefit for purposes of our disclosure rules. See IRS
Regulation Sec.  1.61-21(g) [26 CFR 1.61-21(g)] regarding Internal
Revenue Service guidelines for imputing taxable personal income to
an employee who travels for personal reasons on corporate aircraft.
These complex regulations are known as the Standard Industry Fare
Level or SIFL rules.
---------------------------------------------------------------------------

    Finally, commenters observed that investors cannot fully understand
disclosed perquisite amounts without disclosure of the methodology used
to compute them.\214\ We agree that this disclosure will improve
investors' ability to compare the cost of perquisites from company to
company. The rule as adopted requires footnote disclosure of the
methodology for computing the aggregate incremental cost for the
perquisites.\215\
---------------------------------------------------------------------------

    \214\ See, e.g., letter from Mercer.
    \215\ Instruction 4 to Item 402(c)(2)(ix).
---------------------------------------------------------------------------

ii. Additional All Other Compensation Column Items
    We are adopting as proposed a requirement that items to be
disclosed in the All Other Compensation column include, but are not
limited to, the following items: \216\
---------------------------------------------------------------------------

    \216\ All of these items were required to be disclosed either
under All Other Compensation or under Other Annual Compensation
proir to these amendments.
---------------------------------------------------------------------------

     Amounts paid or accrued pursuant to a plan or arrangement
in connection with any termination (or constructive termination) of
employment or a change in control; \217\
---------------------------------------------------------------------------

    \217\ Unlike the text of Item 402(b)(2)(v)(A) prior to these
amendments, Item 402(c)(2)(ix)(D) as amended does not refer to
amounts payable under post-employment benefits. Instruction 5 to
Item 402(c)(2)(ix) provides that an accrued amount is an amount for
which payment has become due, such as a severance payment currently
owed by the company to an executive officer. These items, as well as
amounts that are payable in the future, are also the subject of
disclosure as post-termination compenstaion, as described in Section
II.C.5.c. below. For any compensation as a result of a business
combination, other than pursuant to a plan or arrangement in
connection with any termination of employment or change-in-control,
such as a retention bonus, acceleration of option or stock vesting
period, or performance-based compensation intended to serve as an
incentive for named executive officers to acquire other companies or
enter into a merger agreement, disclosure will now be requlired in
the appropriate Summary Compensation Table column and in the other
tables or narrative disclosure where the particular element of
compensation is required to be disclosed.
---------------------------------------------------------------------------

     Annual company contributions or other allocations to
vested and unvested defined contribution plans; \218\
---------------------------------------------------------------------------

    \218\ Item 402(c)(2)(ix)(E).
---------------------------------------------------------------------------

     The dollar value of any insurance premiums paid by the
company with respect to life insurance for the benefit of a named
executive officer; \219\
---------------------------------------------------------------------------

    \219\ Item 402(c)(2)(ix)(F). Because the amendments call for
disclosure of the dollar value of any life insurance premiums,
rather than only premiums with respect to term life insurance (as
was required prior to these amendments), the requirement that had
been previously specified in Item 402(b)(2)(v)(E)(1) and (2) to
disclose the value of any remaining premiums with respect to
circumstances where the named executive officer has an interest in
the policy's cash surrender value is not retained in the amended
rule.
---------------------------------------------------------------------------

     ``Gross-ups'' or other amounts reimbursed during the
fiscal year for the payment of taxes; \220\ and
---------------------------------------------------------------------------

    \220\ Item 402(c)(2)(ix)(B).
---------------------------------------------------------------------------

     For any security of the company or its subsidiaries
purchased from the company or its subsidiaries (through deferral of
salary or bonus) at a discount from the market price of such security
at the date of purchase, unless that discount is available generally
either to all security holders or to all salaried employees of the
company, the compensation cost, if any, computed in accordance with FAS
123R.\221\
---------------------------------------------------------------------------

    \221\ Item 402(c)(2)(ix)(C). This requirement as adopted has
been revised from the proposal to clarify that no amount of
compensation is required to be disclosed if there is no compensation
cost computed for the discounted securities purchase in accordance
with FAS 123R. For example, under FAS 123R, if the discount is five
percent or less, all qualified employees can participate in the
offer and there are no option features, then there is no
compensation cost to recognize for financial reporting purposes and
thus no compensation is reported for this item in the All Other
Compensation column.
---------------------------------------------------------------------------

    An additional requirement to include the dollar value of any
dividends or other earnings paid on stock or option awards when the
dividends or earnings were not factored into the grant date fair value
has been adopted for this column as discussed above.\222\
---------------------------------------------------------------------------

    \222\ Item 402(c)(2)(ix)(G).
---------------------------------------------------------------------------

    In response to commenters' concerns about double counting pension
benefits,\223\ we have not retained the aspect of proposed Instruction
2 to this column that would have required disclosure of pension
benefits paid to the named executive officer during the period covered
by the table.\224\ As adopted, an instruction provides that benefits
paid pursuant to defined benefit and actuarial plans are not reportable
as All Other Compensation unless accelerated pursuant to a change in
control.\225\ Similarly, distributions of nonqualified deferred
compensation are not reportable as All Other Compensation.
---------------------------------------------------------------------------

    \223\ See, e.g., letter from Cravath.
    \224\ We have moved this disclosure requirement to the Pension
Benefits Table, described in Section II.C.5.a. below.
    \225\ Instruction 2 to Item 402(c)(2)(ix).
---------------------------------------------------------------------------

f. Captions and Table Layout
    Before today's amendments, a portion of the table was labeled as
``annual compensation'' and another portion as ``long term
compensation.'' These captions created distinctions that may have been
confusing to both users and preparers of the Summary Compensation
Table. As proposed, the amendments we adopt today do not separately
identify some columns as ``annual'' and other columns as ``long term''
compensation. Consistent with this change, as described above, we are
merging the current Other Annual Compensation column into the new All
Other Compensation column, and include current earnings information
regarding non-equity incentive plan compensation in the column for that
form of award.
    In eliminating this distinction, we also revise the former
definition of ``long term incentive plan'' to eliminate any distinction
between a ``long term'' plan and one that may provide for periods
shorter than one year. Like the captions, the former approach created
distinctions that may have been confusing to users and preparers. As
proposed and adopted, the amendments define an ``incentive plan'' as
any plan providing compensation intended to serve as incentive for
performance to occur over a specified period.\226\ The related
definition of ``incentive plan award'' as an award provided under an
incentive plan is also adopted as proposed.\227\
---------------------------------------------------------------------------

    \226\ Item 402(a)(6)(iii).
    \227\ Id.
---------------------------------------------------------------------------

    Noting that companies formerly reported as ``bonuses'' awards that
would be short-term incentive plan awards under this definition,
commenters requested guidance as to what distinguishes items reportable
as non-equity incentive plan compensation from those reportable as
bonuses under the amended rules.\228\ An award would be considered
``intended to serve as an incentive for performance to occur over a
specified period'' if the outcome with respect to the relevant
performance target is substantially uncertain at the time the
performance target is established and the target is communicated to the
executive. Compensation pursuant to such a non-equity award would be
reported in the Summary Compensation Table as non-equity incentive plan
compensation and the grant of the award would be reported as a non-
equity incentive plan award in the Grants of Plan-Based Awards
Table.\229\ In contrast, a cash

award based on satisfaction of a performance target that was not pre-
established and communicated, or the outcome of which is not
substantially uncertain, would be reportable in the Summary
Compensation Table as a bonus.
---------------------------------------------------------------------------

    \228\ See, e.g., letters from Hewitt; Mercer; NACCO Industries;
and SCSGP.
    \229\ This table is described in Section II.C.2. immediately
below. Further, no longer reporting compensation pursuant to these
awards as ``bonus'' in the Summary Compensation Table does not
affect the determination of named executive officers because, as
described in Section II.C.6.b. below, that determination is not
limited to consideration of salary and bonus.
---------------------------------------------------------------------------

2. Supplemental Grants of Plan-Based Awards Table
    Following the Summary Compensation Table, we proposed two
supplemental tables to explain information in the Summary Compensation
Table. The proposed tables were derived from two tables required under
the rules prior to these amendments.
    The first table we proposed to supplement the Summary Compensation
Table would have included information regarding non-stock grants of
incentive plan awards, stock-based incentive plan awards and awards of
options, restricted stock and similar instruments under plans that are
performance-based (and thus provide the opportunity for future
compensation if conditions are satisfied).\230\ The second table we
proposed to supplement the Summary Compensation Table would have shown
the equity-based compensation awards granted in the last fiscal year
that are not performance-based, such as stock, options or similar
instruments where the payout or future value is tied to the company's
stock price, and not to other performance criteria.\231\
---------------------------------------------------------------------------

    \230\ Proposed Item 402(d).
    \231\ Proposed Item 402(e), containing much of the information
that was required prior to these amendments by the Option/SAR Grants
Table (formerly specified in Item 402(c)).
---------------------------------------------------------------------------

    Because much of the information for each proposed table is
consistent, we have followed the recommendation of a commenter to
simplify the disclosure format by combining the proposed disclosure in
a single table.\232\
---------------------------------------------------------------------------

    \232\ See letter from Hewitt.

                                                               Grants of Plan-Based Awards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                           Estimated future payouts under non-equity    Estimated future payouts under equity     All other     All other
                                     incentive plan awards                      incentive plan awards               stock        option
                         --------------------------------------------------------------------------------------    awards:       awards:     Exercise or
                                                                                Number of     Number of    base price
   Name      Grant date                                                                                shares of    securities     of option
                            Threshold     Target  ($)   Maximum  ($)    Threshold      Target        Maximum      stock or     underlying    awards  ($/
                               ($)                                     ()   ()   ()      units        options         Sh)
                                                                                ()   ()
(a)        (b)            (c)            (d)            (e)           (f)           (g)           (h)           (i)           (j)           (k)
--------------------------------------------------------------------------------------------------------------------------------------------------------
PEO

--------------------------------------------------------------------------------------------------------------------------------------------------------
PFO

--------------------------------------------------------------------------------------------------------------------------------------------------------
A

--------------------------------------------------------------------------------------------------------------------------------------------------------
B

--------------------------------------------------------------------------------------------------------------------------------------------------------
C
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Disclosure in this table complements Summary Compensation Table
disclosure of grant date fair value of stock awards and option awards
by disclosing the number of shares of stock or units comprising or
underlying the award. This supplemental table shows the terms of grants
made during the current year, including estimated future payouts for
both equity incentive plans and non-equity incentive plans, with
separate disclosure for each grant.\233\
---------------------------------------------------------------------------

    \233\ Instruction 1 to Item 402(d).
---------------------------------------------------------------------------

    To simplify the presentation further, we have eliminated some of
the proposed columns. Because the narrative section identifies the
material terms of an award reported in this table as an example of a
material factor to be described,\234\ and thus will cover the same
information, we have eliminated the proposed columns reporting vesting
date, or performance or other period until vesting or payout. As a
commenter noted, vesting information typically cannot be reported
easily in a single line in a table.\235\ Similarly, because the
modifications we are making to the Outstanding Equity Awards at Fiscal
Year-End Table require that table to report the expiration dates of
options and similar awards,\236\ we are eliminating the proposed
expiration date column. Finally, the proposed column reporting the
dollar amount of consideration paid for the award, if any, is not
adopted, reflecting comments that this column would be used only
rarely.\237\ Instead, in those rare instances where consideration is
paid for an award, this disclosure will be provided in a footnote to
the appropriate column.\238\
---------------------------------------------------------------------------

    \234\ Item 402(e)(1)(iii), described in Section II.C.3.a.
immediately below.
    \235\ See letter from ABA.
    \236\ See Section II.C.4.a. below.
    \237\ Proposed Item 402(d)(2)(v). See, e.g., letters from
Frederic W. Cook & Co. and SCSGP.
    \238\ Instruction 5 to Item 402(d).
---------------------------------------------------------------------------

    As proposed, the Grants of All Other Equity Awards Table would have
permitted aggregation of option grants with the same exercise or base
price. We have not adopted such an instruction for this table, based on
our belief that grant-by-grant disclosure is the most appropriate
approach, particularly given our particular disclosure concerns
regarding option grants. For incentive plan awards, threshold, target
and maximum payout information should be provided, but if the award
provides only for a single estimated payout, that amount should be
reported as the target.\239\ Where there is a tandem grant of two
instruments, only one of which is granted under an incentive plan, only

the instrument that is not granted under an incentive plan is reported
in the table, with the tandem feature noted.\240\ Because the rules as
adopted require Summary Compensation Table disclosure of the
incremental fair value, computed in accordance with FAS 123R, of
options, stock appreciation rights and similar option-like instruments
granted in connection with a repricing transaction, rather than the
total fair value as we had proposed, grants of these instruments are
not reported in this table.\241\ Disclosure should be provided in the
Compensation Discussion and Analysis and the narrative disclosures for
the Summary Compensation Table and Grants of Plan-Based Awards, as
appropriate, regarding awards granted in connection with repricing
transactions.
---------------------------------------------------------------------------

    \239\ Instruction 2 to Item 402(d).
    \240\ Instruction 4 to Item 402(d).
    \241\ See discussion at Section II.C.1.c.i. above.
---------------------------------------------------------------------------

    As proposed and adopted, if the per-share exercise or base price of
options, stock appreciation rights and similar option-like instruments
is less than the market price of the underlying security on the grant
date, a separate column must be added showing market price on the grant
date.\242\ Some commenters objected to our proposal to calculate grant
date market price for this purpose using the closing price per share of
the underlying security on that date. These commenters stated that
plans requiring awards to be granted with an exercise price equal to
the underlying security's grant date fair market value may define
``fair market value'' based on a formula related to the average market
price on the grant date or a range of days either before or after the
grant date.\243\ Our proposed departure from the rule prior to these
amendments, which permitted use of such formulas even for securities
traded on an established market,\244\ was considered, and along with
the requirement to disclose the grant date, reflects the significance
of issues in awards of option grants.\245\ Moreover, commenters
expressed concern regarding the manipulation of option grant dates to
achieve below-market exercise prices.\246\ The rule as adopted uses the
measure for grant date market price of the underlying security that we
proposed, modified to specify that the grant date closing market price
per share is the last sale price on the principal United States market
for the security on the specified date.\247\ Moreover, if the exercise
or base price is not the grant date closing market price per share, we
require a description of the methodology for determining the exercise
or base price either by footnote to the table or in the accompanying
narrative section.\248\ Further reflecting the significance of grant
date issues in awards of option grants and in response to
comments,\249\ we are also providing that if the date on which the
compensation committee (or a committee of the board of directors
performing a similar function or the full board of directors) takes
action or is deemed to take action to grant equity-based awards is
different from the date of grant, a column must be added to disclose
the date of action.\250\ For these purposes, the ``date of grant'' or
``grant date'' is the grant date determined for financial statement
reporting purposes pursuant to FAS 123R.\251\ Finally, in combining the
proposed tables, we have adopted an instruction specifying that if a
non-equity incentive plan award is denominated in units or other
rights, then a separate, adjoining column would be required to disclose
the units or other rights awarded.\252\
---------------------------------------------------------------------------

    \242\ Item 402(d)(2)(vii).
    \243\ See, e.g., letters from Cravath; Eli Lilly; and Sidley
Austin LLP (``Sidley Austin'').
    \244\ This requirement had been set forth in Instruction 6 to
Item 402(c) prior to today's amendments.
    \245\ See the discussion of options disclosure in Section II.A.,
above.
    \246\ See, e.g., letter from CFA Centre for Financial Market
Integrity, dated May 30, 2006 (``CFA Centre 2'').
    \247\ Because the concept of closing market price is used in a
number of provisions of Item 402, we are adopting a definition of
the term closing market price in Item 402(a)(6)(v). A foreign
company complying with this requirement may instead look to the
principal foreign market in which the underlying securities trade.
    \248\ Instruction 3 to Item 402(d).
    \249\ See, e.g., letter from CFA Centre 2.
    \250\ Item 402(d)(2)(ii).
    \251\ Item 402(a)(6)(iv).
    \252\ Instruction 6 to Item 402(d).
---------------------------------------------------------------------------

3. Narrative Disclosure to Summary Compensation Table and Grants of
Plan-Based Awards Table
a. Narrative Description of Additional Material Factors
    As we proposed, we are requiring narrative disclosure following the
Summary Compensation Table and the Grants of Plan-Based Awards Table in
order to give context to the tabular disclosure. A company will be
required to provide a narrative description of any additional material
factors necessary to an understanding of the information disclosed in
the tables.\253\ Unlike the Compensation Discussion and Analysis, which
focuses on broader topics regarding the objectives and implementation
of executive compensation policies, the narrative disclosures following
the Summary Compensation Table and other tables focus on and provide
specific context to the quantitative disclosure in the tables. For
example, narrative disclosure following a table might explain material
aspects of a plan that are not evident from the quantitative tabular
disclosure and are not addressed in the Compensation Discussion and
Analysis.
---------------------------------------------------------------------------

    \253\ Item 402(e)(1). The standard of materiality that applies
in Item 402(e) is that of Basic v. Levinson, 485 U.S. 224 (1988) and
TSC Industries v. Northway, 426 U.S. 438 (1976).
---------------------------------------------------------------------------

    The material factors that require disclosure will vary depending on
the facts and circumstances. As one example, such material factors
might include descriptions of the material terms in the named executive
officers' employment agreements as those descriptions might provide
material information necessary to an understanding of the tabular
disclosure. The narrative disclosure covers written or unwritten
agreements or arrangements.\254\ Requiring this disclosure in proximity
to the Summary Compensation Table is intended to make the tabular
disclosure more meaningful. Mere filing of employment agreements (or
summaries of oral agreements) may not be adequate to disclose material
factors depending on the circumstances. As stated in the Proposing
Release, provisions regarding post-termination compensation need to be
addressed in the narrative section only to the extent disclosure of
such compensation is required in the Summary Compensation Table;
otherwise these provisions will be disclosable as post-termination
compensation.\255\
---------------------------------------------------------------------------

    \254\ Item 402(e)(1)(i).
    \255\ Item 402(j), described in Section II.C.5.c.
---------------------------------------------------------------------------

    The factors that could be material include each repricing or other
material modification of any outstanding option or other equity-based
award during the last fiscal year. This disclosure addresses not only
option repricings, but also other significant changes to the terms of
equity-based awards.\256\ As proposed, we are eliminating the former
ten-year option repricing table.\257\ In its place, the narrative
disclosure following the Summary Compensation Table will describe, to
the extent material and necessary to an understanding of the tabular
disclosure, repricing, extension of exercise periods, change of vesting
or forfeiture conditions, change or

elimination of applicable performance criteria, change of the bases
upon which returns are determined, or any other material
modification.\258\
---------------------------------------------------------------------------

    \256\ Item 402(e)(1)(ii).
    \257\ The ten-year option repricing table had been required by
Item 402(i) prior to its elimination with these amendments. We
believe that the narrative disclosure requirement will provide
investors with material information regarding repricings and
modifications and eliminate the arguably dated information contained
in the former ten-year option repricing table.
    \258\ As described in Section II.C.1.c.i. above, the tabular
disclosure will report the incremental fair value of the
modification for financial reporting purposes. However, narrative
disclosure will not apply to any repricing that occurs through a
pre-existing formula or mechanism in the plan or award that results
in the periodic adjustment of the option or stock appreciation right
exercise or base price, an antidilution provision, or a
recapitalization or similar transaction equally affecting all
holders of the class of securities underlying the options or stock
appreciation rights. Instruction 1 to Item 402(e).
---------------------------------------------------------------------------

    Narrative text accompanying the tables will also describe, to the
extent material and necessary to an understanding of the tabular
disclosure, award terms relating to disclosure provided in the Grants
of Plan-Based Awards Table. This could include, for example, a general
description of the formula or criteria to be applied in determining the
amounts payable, the vesting schedule, a description of the
performance-based conditions and any other material conditions
applicable to the award, whether dividends or other amounts would be
paid, the applicable rate and whether that rate is preferential.\259\
As noted above and consistent with current disclosure requirements,
however, companies will not be required to disclose any factor,
criteria, or performance-related or other condition to payout or
vesting of a particular award that involves confidential trade secrets
or confidential commercial or financial information, disclosure of
which would result in competitive harm to the company.\260\
---------------------------------------------------------------------------

    \259\ Item 402(e)(1)(iii), which combines some information that
had been required by Instruction 2 to Item 402(b)(2)(iv) with
information that had been required by Instruction 1 to Item 402(e)
as they were stated in the rule before these amendments.
    \260\ We have adopted Instruction 2 to Item 402(e)(1), which
specifically applies to the narrative disclosure of Item 402(e)(1)
the same standard applicable to Compensation Discussion and Analysis
for determining whether disclosure would result in competitive harm
for the company. See Section II.B.2., above, for a discussion of
this standard.
---------------------------------------------------------------------------

    We proposed that this example also include material assumptions
underlying the determination of the amount of increase in the actuarial
value of defined benefit and actuarial plans. However, in light of the
modifications we are adopting, we have concluded that the better place
to discuss these assumptions is in the narrative section accompanying
the Pension Benefits Table.\261\
---------------------------------------------------------------------------

    \261\ See Section II.C.5.a. below.
---------------------------------------------------------------------------

    Further, in response to commenters' concerns regarding the
computation of total compensation and the expanded basis for
determining the most highly compensated officers,\262\ we specify as an
additional example an explanation of the level of salary and bonus in
proportion to total compensation.\263\
---------------------------------------------------------------------------

    \262\ See Section II.C.1.a. above and Section II.C.6.b. below.
    \263\ Item 402(e)(1)(iv).
---------------------------------------------------------------------------

b. Request for Additional Comment on Compensation Disclosure for up to
Three Additional Employees
    As part of this narrative disclosure requirement, we had proposed
an additional item that would have required disclosure for up to three
employees who were not executive officers during the last completed
fiscal year and whose total compensation for the last completed fiscal
year was greater than that of any of the named executive officers.\264\
We received extensive comment on this proposal. Some commenters
supported the proposal or suggested that it should go further.\265\
Many commenters expressed concern that the benefits of this disclosure
to investors would be negligible, yet compliance might require the
outlay of considerable company resources.\266\ Some commenters
expressed concern that the proposed disclosure would raise privacy
issues or negatively impact competition for employees.\267\ While we
continue to consider whether to adopt such a requirement as part of the
executive compensation disclosure rules, in Release No. 33-8735 we are
requesting additional comment as to whether potential modifications
would address the concerns that commenters have raised.
---------------------------------------------------------------------------

    \264\ Proposed Item 402(f)(2).
    \265\ See, e.g., letters from Corporate Library; The Greenlining
Institute; Institutional Investor Group; and SBAF.
    \266\ See, e.g., letters from ABA; Chamber of Commerce; Eli
Lilly; Leggett & Platt; N. Ludgus; and Mercer.
    \267\ See, e.g., letters from ABA-JCEB; BRT; jointly, CBS
Corporation, The Walt Disney Company, NBC Universal, News
Corporation, and Viacom, Inc. (``Entertainment Industry Group'');
Committee on Corporate Finance of Financial Executives International
(``FEI''); Chamber of Commerce; Cleary; CNET Networks, Inc. (``CNET
Networks''); Compass Bancshares; Compensia; Cravath; DreamWorks
Animation SKG (``DreamWorks''); Eli Lilly; Emerson; Fenwick; The
Financial Services Roundtable (``FSR''); Professor Joseph A.
Grundfest, dated April 10, 2006 (``Grundfest''); ICI; Intel
Corporation (``Intel''); Kellogg Company (``Kellogg''); Kennedy &
Baris, LLP (``Kennedy''); Mercer; Peabody Energy; Pearl Meyer &
Partners; Securities Industry Association (``SIA''); Sullivan;
SCSGP; and WorldatWork.
---------------------------------------------------------------------------

    We note in particular that some commenters questioned the
materiality of the information that would have been required by the
proposal, given that the covered employees would not be in policy-
making positions as executive officers.\268\ After considering the
issues raised by these commenters, we remain concerned about disclosure
with respect to employees, particularly within very large companies,
whether or not they are executive officers, whose total compensation
for the last completed fiscal year was greater than that of one or more
of the named executive officers. If any of these employees exert
significant policy influence at the company, at a significant
subsidiary of the company or at a principal business unit, division, or
function of the company, then investors seeking a fuller understanding
of a company's compensation program may believe that disclosure of
these employees' total compensation is important information.\269\
Knowing the compensation, and job positions within the organization, of
these highly compensated policy-makers whose total compensation for the
last fiscal year was greater than that of a named executive officer,
should assist in placing in context and permit a better understanding
of the compensation structure of the named executive officers and
directors.
---------------------------------------------------------------------------

    \268\ See, e.g., letters from CalSTRS; Cleary; CNET Networks;
Compass Bancshares; DreamWorks; Entertainment Industry Group; Fried,
Frank, Harris, Shriver & Jacobson LLP (``Fried Frank''); FSR;
Hewitt; ICI; Intel; Kellogg; Kennedy; Leggett & Platt; Peabody
Energy; Pearl Meyer & Partners; SCSGP; SIA; Stradling Yocca Carlson
& Rauth (``Stradling Yocca''); Top Five Data Services, Inc. (``Top
Five Data''); Towers Perrin; and Walden.
    \269\ The Commission expressed similar concerns in 1978, when it
stated ``a key employee or director of a subsidiary might be the
highest-paid person in the entire corporate structure and have
managerial responsibility for major aspects of the registrant's
overall operations.'' 1978 Release. See n. 327 for a discussion of
the term ``executive officer.'' In light of some of the comments
that we received, we have clarified that the definition of
``executive officer'' includes all individuals in a registrant
policy-making role. See, e.g., letters from SCSGP and Cravath.
---------------------------------------------------------------------------

    Our intention is to provide investors with information regarding
the most highly compensated employees who exert significant policy
influence by having responsibility for significant policy decisions.
Responsibility for significant policy decisions could consist of, for
example, the exercise of strategic, technical, editorial, creative,
managerial, or similar responsibilities. Examples of employees who
might not be executive officers but who might have responsibility for
significant policy decisions could include the director of the news
division of a major network; the principal creative leader of the
entertainment function of a media conglomerate; or the head of a
principal business unit developing a significant technological
innovation. By contrast, we are convinced by commenters that a

salesperson, entertainment personality, actor, singer, or professional
athlete who is highly compensated but who does not have responsibility
for significant policy decisions would not be the type of employee
about whom we would seek disclosure. Nor, as a general matter, would
investment professionals (such as a trader, or a portfolio manager for
an investment adviser who is responsible for one or more mutual funds
or other clients) be deemed to have responsibility for significant
policy decisions at the company, at a significant subsidiary or at a
principal business unit, division or function simply as a result of
performing the duties associated with those positions. On the other
hand, an investment professional, such as a trader or portfolio
manager, who does have broader duties within a firm (such as, for
example, oversight of all equity funds for an investment adviser) may
be considered to have responsibility for significant policy decisions.
    We continue to consider whether it is appropriate to require some
level of narrative disclosure so that shareholders will have
information about these most highly compensated employees. This
consideration includes the appropriate level of information about these
employees and their compensation in light of their roles.
    As to issues regarding privacy and competition for employees, to
the extent that commenters objected that the disclosure could result in
a competitor stealing a company's top ``talent,'' \270\ we have tried
to address these concerns by focusing the disclosure on persons who
exert significant policy influence within the company or significant
parts of the company.
---------------------------------------------------------------------------

    \270\ See, e.g., letter from Entertainment Industry Group. In
addition, we note our intention is not to suggest that these
additional employees, whether or not they are executive officers,
are individuals whose compensation is required to be reported under
the Exchange Act ``by reason of such employee being among the 4
highest compensated officers for the taxable year,'' as stated in
Internal Revenue Code Section 162(m)(3)(B) [26 U.S.C. 162(m)(3)(B)].
See letter from Cleary (expressing concern that the additional
individuals not fall within the purview of Section 162(m) of the
Internal Revenue Code).
---------------------------------------------------------------------------

Request for Comment
    We request additional comment on the proposal to require
compensation disclosure for up to three additional employees. In
addition to general comment, we encourage commenters to address the
following specific questions:
     Would the rule more appropriately require disclosure of
the employees described above if it were structured in the following or
similar manner:
    For each of the company's three most highly compensated employees,
whether or not they were executive officers during the last completed
fiscal year, whose total compensation for the last completed fiscal
year was greater than that of any of the named executive officers,
disclose each such employee's total compensation for that year and
describe the employee's job position, without naming the employee;
provided, however, that employees with no responsibility for
significant policy decisions within the company, a significant
subsidiary of the company, or a principal business unit, division, or
function of the company are not included when determining who are each
of the three most highly compensated employees for the purposes of this
requirement, and therefore no disclosure is required under this
requirement for any employee with no responsibility for significant
policy decisions within the company, a significant subsidiary of the
company, or a principal business unit, division, or function of the
company?
     Would it be appropriate to determine the highest paid
employees in the same manner that named executive officers are
determined, by calculating total compensation but excluding pension
plan benefits and above-market or preferential earnings on nonqualified
deferred compensation plans, and by comparing that amount to the same
amount earned by the named executive officers (excluding the amount
required to be disclosed for those named executive officers pursuant to
paragraph (c)(2)(viii) of Item 402)? If so, should the total amount
disclosed include these amounts as it does for named executive
officers? Should the pension benefit and above-market earnings be
separately disclosed in a footnote so investors can calculate the
amounts used in determining highest paid employees?
     Would modifying the proposed rule to apply only to large
accelerated filers\271\ properly focus this disclosure obligation on
companies that are more likely to have these additional highly
compensated employees? Would that modification address concerns that
the proposed rule would impose disproportionate compliance burdens by
limiting the disclosure obligation to companies that are presumptively
better able to track the covered employees? Would a different
limitation as to applicability be appropriate?
---------------------------------------------------------------------------

    \271\ The term large accelerated filer is defined in Exchange
Act Rule 12b-2 [17 CFR 240.12b-2].
---------------------------------------------------------------------------

     Is information regarding highly compensated employees,
including those who are not executive officers, material to investors?
In answering this question, commenters are encouraged to address the
following additional questions:
    [cir] Would modifications limiting the disclosure to employees who
make significant policy decisions within the company, a significant
subsidiary of the company, or a principal business unit, division, or
function of the company appropriately focus the disclosure on employees
for whom compensation information is material to investors?
    [cir] Would the approach that we are considering provide investors
with material information about how policy-making responsibilities are
allocated within a company? Are the examples describing responsibility
for significant policy decisions too broad or too narrow?
    [cir] Would the proposed rule, with the modifications described
above, provide investors with material information necessary to
understand the company's compensation policies and structure? How
should we address those concerns?
    [cir] What is typically the role of the compensation committee in
determining or approving the compensation of the additional employees
if they are not executive officers? If the compensation committee does
not oversee their compensation, is the additional employee compensation
information material to investors? What types of decisions would
investors make based on this information?
     Would the proposed rule, with the modifications described
above, raise privacy issues or negatively impact competition for
employees in a manner that would outweigh the materiality of the
disclosure to investors?
     Should we require that the three additional employees be
named? If not, what additional information should be required? Should
more information be required regarding the employee's compensation or
job position?
     Should we define ``responsibility for significant policy
decisions''? Should we use another test to describe those employees who
exert a significant policy influence on the company? Do the examples
provided above help identify and delimit the number of employees whose
compensation would be subject to disclosure under this provision? What
would help companies identify these employees?
     What additional work and costs are involved in collecting
the information necessary to identify the three additional employees?
What are the types of costs, and in what amounts? In what way can the
proposal be further modified to mitigate the costs?

     In connection with the original proposal, we solicited
comment on all aspects of the proposal, including this one. No
commenter supplied cost estimates. We are now considering whether to
limit this provision to only large accelerated filers. For some large
accelerated filers, the number of employees potentially subject to this
requirement may already be known or easy to identify. Other, more
complex companies may need to establish systems to identify such
employees. Every large accelerated filer would need to evaluate whether
any employees exerted significant policy influence at the company, at a
significant subsidiary or at a principal business unit, division or
function and would have to track their compensation in order to comply
with the proposed requirement. These monitoring costs may be new to
some companies. We believe the cost of actually disclosing the
compensation would be incremental and minimal. The monitoring and
information collection costs are likely to be greatest in the first
year and significantly less in later years. We also assume that costs
would largely be borne internally, although some companies may seek the
advice of outside counsel in determining which employees meet the
standard for disclosure. In that event, for purposes of seeking
comment, we estimate that 1,700 \272\ companies will on average retain
outside counsel for 8 hours in the first year and 2 hours in each of
two succeeding years, at $400 per hour, for a total estimated average
annual cost of approximately $3 million. Assuming all large accelerated
filers spend 60 hours in the first year and 10 hours in each of the two
succeeding years, with an average internal cost of $175 per hour, the
total average annual burden of collecting and monitoring employee
compensation would be approximately 45,000 hours, or approximately $8
million. The total average annual cost is therefore estimated to be $11
million. We invite comment on this estimate and its assumptions.
---------------------------------------------------------------------------

    \272\ We estimate there are approximately 1,700 companies that
are large accelerated filers. See Revisions to Accelerated Filer
Definition and Accelerated Deadlines for Reporting Periodic Reports,
Release No. 33-8644 (Dec. 21, 2005) [70 FR 76626], at Section V.A.2.
---------------------------------------------------------------------------

4. Exercises and Holdings of Previously Awarded Equity
    The next section of the revised executive compensation disclosure
provides investors with an understanding of the compensation in the
form of equity that has previously been awarded and remains
outstanding, and is unexercised or unvested. As proposed, this section
also discloses amounts realized on this type of compensation during the
most recent fiscal year when, for example, a named executive officer
exercises an option or his or her stock award vests. We are adopting
substantially as proposed two tables: one table shows the amounts of
awards outstanding at fiscal year-end, and the other shows the exercise
or vesting of equity awards during the fiscal year.\273\ In response to
comment, we are requiring additional information regarding out-of-the-
money awards.
a. Outstanding Equity Awards at Fiscal Year-End Table
---------------------------------------------------------------------------

    \273\ Some of this information had been required in the
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-
End Option/SAR Value Table, which was required under Item 402(d)
prior to adoption of these amendments.
---------------------------------------------------------------------------

    As we noted in the Proposing Release, outstanding awards that have
been granted but the ultimate outcomes of which have not yet been
realized in effect represent potential amounts that the named executive
officer might or might not realize, depending on the outcome for the
measure or measures (for example, stock price or performance
benchmarks) to which the award relates. We are adopting a table that
will disclose information regarding outstanding awards, for example,
under stock option (or stock appreciation rights) plans, restricted
stock plans, incentive plans and similar plans and disclose the market-
based values of the rights, shares or units in question as of the
company's most recent fiscal year end.\274 \
---------------------------------------------------------------------------

    \274\ Item 402(f). Under the rules prior to today's amendments,
such disclosure was provided only for holdings of outstanding stock
options and stock appreciation rights.

                                                      Outstanding Equity Awards at Fiscal Year-End
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                             Option awards                                                           Stock awards
           ---------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Equity         Equity
                                                 Equity                                                                       incentive      incentive
               Number of       Number of     incentive plan                                                                  plan awards:   plan awards:
              securities       securities    awards: Number                                     Number of     Market value    Number of      Market or
   Name       underlying       underlying     of securities      Option          Option         shares or     of shares or     unearned     payout value
              unexercised     unexercised      underlying    exercise price    expiration    units of stock     units of    shares, units   of unearned
                options     options (< greek-   unexercised         ($)            date        that have not    stock that      or other    shares, units
              ()         i>)           unearned                                     vested ()         vested ($)      have not     rights that
                                               ()                                                                      vested        have not
                                                                                ()     vested ($)
(a)         (b)             (c)              (d)             (e)             (f)             (g)             (h)            (i)            (j)
--------------------------------------------------------------------------------------------------------------------------------------------------------
PEO

--------------------------------------------------------------------------------------------------------------------------------------------------------
PFO

--------------------------------------------------------------------------------------------------------------------------------------------------------
A

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

B

--------------------------------------------------------------------------------------------------------------------------------------------------------
C

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

    As proposed, the table included a column reporting aggregate dollar
amounts of in-the-money unexercised options.\275\ Some commenters
believed that this table should not include information on out-of-the-
money options because they believed that these awards have no value to
executives at the point they are out-of-the-money.\276\ Several other
commenters recommended disclosure of the number and key terms of out-
of-the-money instruments, so investors can understand the potential
compensation opportunity of these awards if the market price of the
underlying shares increases.\277\ We proposed to require expiration
date information in footnote disclosure. We note that some commenters
expressed concern that disclosure of expiration and vesting dates of
the instruments would be lengthy.\278\ However, because we agree with
other commenters that information regarding out-of-the-money options is
material to investors, we have revised the columns applicable to
unexercised options, stock appreciation rights and similar instruments
with option-like features to require disclosure of:
---------------------------------------------------------------------------

    \275\ Proposed Item 402(g)(2)(iii).
    \276\ See, e.g., letters from Frederic W. Cook & Co.; N. Ludgus;
and SCSGP.
    \277\ See, e.g., letters from Amalgamated; Brian Foley &
Company, Inc. (``Brian Foley & Co.''); Buck Consultants; CII; Hodak
Value Advisors; IUE-CWA; and SBAF.
    \278\ See, e.g., letters from Leggett & Platt; SCSGP; and Sidley
Austin.
---------------------------------------------------------------------------

     The number of securities underlying unexercised
instruments that are exercisable;
     The number of securities underlying unexercised
instruments that are unexercisable;
     The exercise or base price; and
     The expiration date.
    After evaluating the comments received, we believe disclosure of
individual exercise prices and expiration dates is required to provide
a full understanding of the potential compensation opportunity. In
particular, with respect to out-of-the-money awards, this allows
investors to see the amount the stock price must rise and the amount of
time remaining for it to happen. Consequently, this disclosure is
required for each instrument, rather than on the aggregate basis that
was proposed.\279 \
---------------------------------------------------------------------------

    \279\ Multiple awards may be aggregated where the expiration
date and the exercise and/or base price of the instruments is
identical. A single award consisting of a combination of options,
SARs and/or similar option-like instruments must be reported as
separate awards with respect to each tranche with a different
exercise and/or base price or expiration date. Instruction 4 to Item
402(f)(2). We have not adopted the proposed requirements to disclose
whether an option that expired after fiscal year-end had been
exercised, in response to comment that this would unnecessarily
deviate from the standard of reporting last fiscal year information.
See letter from ABA.
---------------------------------------------------------------------------

    As suggested by another commenter, we also modify the table to
clarify that these columns apply to options and similar awards that
have been transferred other than for value.\280\ The proposal reflected
interpretations of the former rule that the transfer of an option or
similar award by an executive does not negate the award's status as
compensation that should be reported.\281\ Because an award that a
named executive officer transferred for value is not an award for which
the outcome remains to be realized, the rules adopted today instead
require disclosure in the Option Exercises and Stock Vested Table of
the amounts realized upon transfer for value.\282\
---------------------------------------------------------------------------

    \280\ Instruction 1 to Item 402(f)(2). See letter from ABA.
    \281\ See Registration of Securities on Form S-8, Release No.
33-7646 (Feb. 25, 1999) [64 FR 11103], at Section III.D.
    \282\ Item 402(g), described in Section II.C.4.b. immediately
below.
---------------------------------------------------------------------------

    In view of our approach in the Grants of Plan-Based Awards Table as
adopted and the purposes of this table in showing all outstanding
equity awards, we are adopting a column (column (d)) for reporting the
number of securities underlying unexercised options awarded under
equity incentive plans.\283\ We have also revised the format of the
table to more clearly delineate between the information regarding
option awards and the information regarding stock awards.
---------------------------------------------------------------------------

    \283\ Item 402(f)(2)(iv).
---------------------------------------------------------------------------

    The remaining disclosure, relating to numbers and market values of
nonvested stock and equity incentive plan awards, is adopted on an
aggregate basis, substantially as proposed. One commenter expressed the
view that the table should not include unearned performance-based
awards because it would be difficult to disclose a meaningful value
before the performance conditions are satisfied.\284\ Another commenter
requested clarification of valuation of awards that are performance-
based and nonvested, specifically whether value should be based on
actual performance to date or

on achieving target performance goals.\285\ As adopted, an instruction
provides that the number of shares reported in the appropriate columns
for equity incentive plan awards (columns (d) and (i)) or the payout
value reported in column (j) is based on achieving threshold
performance goals, except that if the previous fiscal year's
performance has exceeded the threshold, the disclosure shall be based
on the next higher performance measure (target or maximum) that exceeds
the previous fiscal year's performance. If the award provides only for
a single estimated payout, that amount should be reported. If the
target amount is not determinable, registrants must provide a
representative amount based on the previous fiscal year's
performance.\286\ We have also adopted an instruction clarifying that
stock or options under equity incentive plans are reported in columns
(d) or (i) and (j), as appropriate, until the relevant performance
condition has been satisfied. Once the relevant performance condition
has been satisfied, if stock remains unvested or the option
unexercised, the stock or options are reported in columns (b) or (c),
or (g) and (h), as appropriate.\287\
---------------------------------------------------------------------------

    \284\ See letter from Sullivan.
    \285\ See, e.g., letter from Hewitt.
    \286\ Instruction 3 to Item 402(f).
    \287\ Instruction 5 to Item 402(f).
---------------------------------------------------------------------------

b. Option Exercises and Stock Vested Table
    We are adopting substantially as proposed a table that will show
the amounts received upon exercise of options or similar instruments or
the vesting of stock or similar instruments during the most recent
fiscal year. This table will allow investors to have a picture of the
amounts that a named executive officer realizes on equity compensation
through its final stage.\288\
---------------------------------------------------------------------------

    \288\ This table is similar to a portion of the Aggregate
Options/SAR Exercises in Last Fiscal Year and FY-End Options/SAR
Values Table that was required prior to these amendments, except
unlike that table it also includes the vesting of restricted stock
and similar instruments. Commentators have noted a need for
comparable disclosure of restricted stock vesting.

                                        Option Exercises and Stock Vested
----------------------------------------------------------------------------------------------------------------
                                       Option awards                                 Stock awards
                      ------------------------------------------------------------------------------------------
         Name             Number of shares                              Number of shares
                       acquired on  exercise    Value  realized on    acquired on vesting    Value  realized on
                             ()          exercise  ($)           ()           vesting  ($)
(a)                    (b)                    (c)                    (d)                    (e)
----------------------------------------------------------------------------------------------------------------
PEO

----------------------------------------------------------------------------------------------------------------
PFO

----------------------------------------------------------------------------------------------------------------
A

----------------------------------------------------------------------------------------------------------------
B

----------------------------------------------------------------------------------------------------------------
C

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

    We proposed that this table include the grant date fair value of
these instruments that would have been disclosed in the Summary
Compensation Table for the year in which they were awarded. We proposed
this column to eliminate the possible impact of double disclosure by
showing amounts previously disclosed. We have adopted the table without
the grant date fair value column in response to commenters' concerns
that this column would confuse investors and increase the potential for
double counting.\289\ As described in the preceding section, in
response to comment that transfers of awards for value also are
realization events, amounts realized upon such transfers must be
included in columns (c) and (e) of this table.\290\ Finally, we have
reformatted the columns to make the presentation of stock and option
awards consistent with the presentation in other tables.
---------------------------------------------------------------------------

    \289\ See, e.g., letters from Foley; SCSGP; and Stradling Yocca.
    \290\ Item 402(g)(2)(iii) and (v).
---------------------------------------------------------------------------

5. Post-Employment Compensation
    As we proposed, we are making significant revisions to the
disclosure requirements regarding post-employment compensation to
provide a clearer picture of this potential future compensation. As we
noted in the Proposing Release, executive retirement packages and other
post-termination compensation may represent a significant commitment of
corporate resources and a significant portion of overall compensation.
First, we are replacing the former pension plan table, alternative plan
disclosure and some of the other narrative descriptions with a table
regarding defined benefit pension plans and enhanced narrative
disclosure. We have revised the table from the table proposed. Second,
we are adding a table and narrative disclosure that will disclose
information regarding nonqualified defined contribution plans and other
deferred compensation. We have adopted this table substantially as
proposed. Finally, we are adopting revised requirements substantially
as proposed regarding disclosure of compensation arrangements triggered
upon termination and on changes in control.
a. Pension Benefits Table
    We proposed significant revisions to the rules disclosing
retirement benefits to require disclosure of the estimate of retirement
benefits to be payable at normal retirement age and, if available,
early retirement. Disclosure under the rules prior to today's
amendments frequently did not provide investors

useful information regarding specific potential pension benefits
relating to a particular named executive officer.\291\ In particular,
it may have been difficult to understand which amounts related to any
particular named executive officer, obscuring the value of a
significant component of compensation.
---------------------------------------------------------------------------

    \291\ The rules prior to today's amendments provided that, for
defined benefit or actuarial plans, disclosure was required under
Item 402(f) by way of a general table showing estimated annual
benefits under the plan payable upon retirement (including amounts
attributable to supplementary or excess pension award plans) for
specified compensation levels and years of service. This table did
not provide disclosure for any specific named executive officer.
This requirement applied to plans under which benefits were
determined primarily by final compensation (or average final
compensation) and years of service, and included narrative
disclosure. If named executive officers were subject to other plans
under which benefits were not determined primarily by final
compensation (or average final compensation), narrative disclosure
had been required prior to these amendments of the benefit formula
and estimated annual benefits payable to the officers upon
retirement at normal retirement age.
---------------------------------------------------------------------------

    We therefore proposed a new table that would have required
disclosure of the estimated retirement benefits payable at normal
retirement age and, if available, early retirement, under defined
benefit plans. Under the proposal, benefits would have been quantified
based on the form of benefit currently elected by the named executive
officer, such as joint and survivor annuity or single life annuity.
    Some commenters objected that the proposed revisions would result
in disclosure that would not be comparable and could be
manipulated.\292\ In particular, the calculation of benefits would
depend on such factors as the form of benefit payment, the named
executive officer's marital status, and the actuarial assumptions
applied, which would vary from company to company and plan to plan.
Explanations of the complicated methodologies involved could hinder
transparency.
---------------------------------------------------------------------------

    \292\ See, e.g., letters from BRT; Chadbourne & Parke LLP
(``Chadbourne''); Cleary; and ABA-JCEB.
---------------------------------------------------------------------------

    Some commenters suggested that the Commission prescribe standard
assumptions for calculating annual benefits for disclosure purposes,
such as a single life annuity and retirement at age 65, in order to
facilitate comparability.\293\ Other commenters suggested disclosure of
the present value of the current accrued benefit computed as of the end
of the company's last completed fiscal year,\294\ achieving
comparability by reporting the economic value of the benefit that the
executive has accumulated through the plan.
---------------------------------------------------------------------------

    \293\ See, e.g., letters from ABA and NACCO Industries.
    \294\ See, e.g., letters from Buck Consultants; Frederic W. Cook
& Co.; Professor Bebchuk, et al.; and SBAF.
---------------------------------------------------------------------------

    Because the latter approach achieves comparability and transparency
by disclosing a benefit that already has accrued, we view it as
preferable to an approach that would ``normalize'' disclosure based on
hypothetical annual benefit assumptions prescribed by the Commission
that might bear no relationship to the assumptions that the company
actually applies with respect to the plan. Furthermore, this approach
will make clearer the relationship of this table to the Summary
Compensation Table disclosure of increase in pension value. This
approach will also lessen the burden on companies, since they are
required to calculate the present value for the Summary Compensation
Table. Accordingly, the table we adopt today requires disclosure of the
actuarial present value of the named executive officer's accumulated
benefit under the plan and the number of years of service credited to
the named executive officer under the plan reported in the table, each
computed as of the same pension plan measurement date for financial
statement reporting purposes with respect to the audited financial
statements for the company's last completed fiscal year.\295\ This
disclosure applies without regard to the particular form(s) of benefit
payment available under the plan.
---------------------------------------------------------------------------

    \295\ Item 402(h)(2)(iv). If the number of years of credited
service for a plan differs from the named executive officer's number
of actual years of service with the company, footnote quantification
of the difference and any resulting benefit augmentation is
required. Instruction 4 to Item 402(h)(2).
---------------------------------------------------------------------------

    Whether or not the plan allows for a lump-sum payment, presentation
of the present value of the accrued plan benefit provides investors an
understanding of the cost of promised future benefits in present value
terms.\296\ Companies must use the same assumptions, such as interest
rate assumptions, that they use to derive the amounts disclosed in
conformity with generally accepted accounting principles, but would
assume that retirement age is normal retirement age as defined in the
plan, or if not so defined, the earliest time at which a participant
may retire under the plan without any benefit reduction due to
age.\297\ The estimates are to be based on current compensation, and as
such, future levels of compensation need not be estimated for purposes
of the calculation. The valuation method and all material assumptions
applied will be described in the narrative section accompanying this
table.\298\ A separate row will be provided for each plan in which a
named executive officer participates.\299\ For purposes of allocating
the current accrued benefit between tax qualified defined benefit plans
and related supplemental plans, a company will apply the applicable
Internal Revenue Code limitations in effect as of the pension plan
measurement date.\300\ At the suggestion of a commenter, we have
simplified the name of the table.\301\
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    \296\ Further, basing pension plan disclosure on the accumulated
benefit is consistent with nonqualified deferred compensation plan
disclosure, which, as described in Section II.C.5.b. immediately
below, reports an aggregate account balance.
    \297\ Instruction 2 to Item 402(h)(2). Of course, the benefits
included in the plan document or the executive's contract itself is
not an assumption.
    \298\ Item 402(h)(3) and Instruction 2 to Item 402(h)(2). This
requirement could be satisfied by reference to a discussion of those
assumptions in the company's financial statements, footnotes to the
financial statements, or Management's Discussion and Analysis. The
sections so referenced would be deemed a part of the disclosure
provided by this Item.
    \299\ Instruction 1 to Item 402(h)(2).
    \300\ Instruction 3 to Item 402(h).
    \301\ See letter from ABA.

                                                 Pension Benefits
----------------------------------------------------------------------------------------------------------------
                                                 Number of years        Present value of
         Name                Plan name           credited service     accumulated benefit   Payments during last
                                                   ()                ($)             fiscal year  ($)
(a)                    (b)                    (c)                    (d)                    (e)
----------------------------------------------------------------------------------------------------------------
PEO

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

PFO

----------------------------------------------------------------------------------------------------------------
A

----------------------------------------------------------------------------------------------------------------
B

----------------------------------------------------------------------------------------------------------------
C

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    We have moved the disclosure proposed to be included in the Summary
Compensation Table of pension benefits paid to a named executive
officer during the last completed fiscal year to the Pension Benefits
Table so that pension benefits are disclosed only once in the Summary
Compensation Table.\302\ We remain of the view that disclosure of these
payments would be material to investors, particularly where the named
executive officer receives them while still employed by the
company.\303\
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    \302\ Item 402(h)(2)(v). See also Instruction 1 to Item
402(c)(2)(viii). We have included these amounts in this table rather
than the Summary Compensation Table since the increase in the value
of the pension benefit would have been previously disclosed in the
Summary Compensation Table.
    \303\ Item 402(a)(5) as amended provides that a column may be
omitted if there is no compensation required to be reported in that
column in any fiscal year covered by that table.
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    The table will be followed by a narrative description of material
factors necessary to an understanding of each plan disclosed in the
table. Examples of such factors may include, in given cases, among
other things:
     The material terms and conditions of benefits available
under the plan, including the plan's retirement benefit formula and
eligibility standards, and early retirement arrangements;\304\
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    \304\ For this purpose, ``normal retirement age'' means the
normal retirement age defined in the plan, or if not so defined, the
earliest time at which a participant may retire under the plan
without any benefit reduction due to age. ``Early retirement age''
means early retirement age as defined in the plan, or otherwise
available to the executive under the plan. Item 402(h)(3)(i) and
(ii).
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     The specific elements of compensation, such as salary and
various forms of bonus, included in applying the benefit formula,
identifying each such element;
     Regarding participation in multiple plans, the different
purposes for each plan; and
     Company policies with regard to such matters as granting
extra years of credited service.
b. Nonqualified Deferred Compensation Table
    In order to provide a more complete picture of potential post-
employment compensation, we are adopting substantially as proposed a
new table to disclose contributions, earnings and balances under each
defined contribution or other plan that provides for the deferral of
compensation on a basis that is not tax-qualified. These plans may be a
significant element of retirement and post-termination compensation.
Prior to these amendments, the rules had elicited disclosure of the
compensation when earned and only the above-market or preferential
earnings on nonqualified deferred compensation.\305\ The full value of
those earnings and the accounts on which they are payable was not
subject to disclosure, nor were investors informed regarding the rate
at which these amounts, and the corresponding cost to the company,
grow.\306\
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    \305\ See Section II.C.1.d.i. above.
    \306\ See Lucian A. Bebchuk and Jesse M. Fried, Stealth
Compensation via Retirement Benefits, 1 Berkeley Bus. L.J. 291, 314-
316 (2004).
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    As noted above, we are requiring disclosure in the Summary
Compensation Table only of the above-market or preferential portion of
earnings on compensation that is deferred on a basis that is not tax-
qualified. To provide investors with disclosure of the full amount of
nonqualified deferred compensation accounts that the company is
obligated to pay named executive officers, including the full amount of
earnings for the last fiscal year, we are also requiring new tabular
and narrative disclosure of nonqualified deferred compensation, as we
proposed.\307\
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    \307\ Item 402(i).

                                       Nonqualified Deferred Compensation
----------------------------------------------------------------------------------------------------------------
                                                                                Aggregate
                       Executive          Registrant         Aggregate         withdrawals/    Aggregate balance
       Name         contributions in   contributions in   earnings in last    distributions     at last FYE  ($)
                      last FY  ($)       last FY  ($)         FY  ($)              ($)
(a)                (b)                (c)                (d)                (e)                (f)
----------------------------------------------------------------------------------------------------------------
PEO

----------------------------------------------------------------------------------------------------------------
PFO

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

A

----------------------------------------------------------------------------------------------------------------
B

----------------------------------------------------------------------------------------------------------------
C

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

    One commenter noted that the title proposed--Nonqualified Defined
Contribution and Other Deferred Compensation Plans--suggested that tax
qualified plans that provide for deferral of compensation, such as
Section 401(k) plans, would be covered.\308\ We have adopted the
commenter's recommendation to modify the title to clarify that the
table covers only deferred compensation that is not tax-qualified, and
we have also shortened the title consistent with our amendments
regarding the Pension Benefits Table.
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    \308\ See letter from Foley.
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    As proposed and adopted, an instruction requires footnote
quantification of the extent to which amounts in the contributions and
earnings columns are reported as compensation in the year in question
and other amounts reported in the table in the aggregate balance column
were reported previously in the Summary Compensation Table for prior
years.\309\ This footnote provides information so that investors can
avoid ``double counting'' of deferred amounts by clarifying the extent
to which amounts payable as deferred compensation represent
compensation previously reported, rather than additional currently
earned compensation.\310\
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    \309\ Instruction to Item 402(i)(2).
    \310\ As described in Section II.C.1.b. above, the rules as
adopted do not include the corresponding footnote that was proposed
for the Summary Compensation Table.
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    The table will be followed by a narrative description of material
factors necessary to an understanding of the disclosure in the