The Joint Committee on Employee Benefits (JCEB) of the American Bar Association (ABA) recently issued Q&As containing nonbinding responses from the Securities and Exchange Commission (SEC) to ten questions. The Q&As, compiled by JCEB, are based on discussions between JCEB and SEC representatives at their 2014 Joint Committee on Employee Benefits Technical Session. Responses to the questions are unofficial and nonbinding. Topics addressed included:

Retirement vesting features permit the equity awards of executive officers that reach the company's pre-established retirement age to become exercisable or earned when the executive retires according to the awards' original vesting schedule, but there is no continued service requirement.

SEC representatives were asked how equity awards with a retirement vesting feature should be reported for purposes of Item 402 of Regulation S-K. Specifically, representatives were asked how to report equity awards for an executive officer who:

According to SEC representatives, companies should disregard the retirement vesting feature and report the equity awards based on their normal vesting schedule, accompanied by a footnote or other supplemental disclosure that describes the retirement vesting feature. They further explained that once the executive officer retires, the equity award should be treated as any other fully-vested equity award for Item 402 purposes.

Item 407(e)(5)(ii) of Regulation S-K requires the name of each member of a company's compensation committee to appear below the company's compensation committee report (see Practice Note, Proxy Statements: Compensation Committee Report). SEC representatives were asked under what circumstances a member of the board who resigned from the compensation committee during the course of the year but remains a member of the board should be named in the report.

The SEC representatives responded that resigned compensation committee members that continue to serve as members of the board should be named:

Item 402 of Regulation S-K requires the disclosure of all compensation awarded, earned or paid to named executive officers. However, Item 402 exempts certain compensation arrangements that do not discriminate in favor of executive officers and are available generally to all salaried employees. SEC representatives were asked whether annual contributions a company makes to the health savings accounts (HSAs) of all of its salaried employees who are covered by a high-deductible health plan (HDHP) qualifies for the exception (regarding HSAs, see Practice Note, Defined Contribution Health Plans: Health Savings Accounts (HSAs)). The SEC stipulated the following additional facts in its response:

The SEC representatives responded that, under these facts, the company's contributions to an HSA will qualify for the exclusion since a company's contributions to an HSA may not discriminate in scope, terms or in favor of executive officers, even though not all of the company's employees may choose to enroll in the HDHP.

Item 402 of Regulation S-K provides that if a named executive officer is also a member of the board of directors and receives compensation for service as a director, all of the individual's compensation should be reported in the Summary Compensation Table, with an appropriate footnote identifying and itemizing the compensation and amounts. Representatives were asked how compensation should be reported when a named executive officer who previously served on the board and received no additional compensation for his service, resigns from his position as an executive officer but remains a member of the board and begins receiving payment for his board service. Specifically, they were asked whether in this circumstance his compensation as executive officer could be reported in the Summary Compensation Table and his director compensation reported in the Director Compensation Table. They were further asked whether the reporting requirements would differ if the named executive officer was serving as board chair.

The SEC representatives indicated that under all circumstances where a member of the board also served as a named executive officer during the applicable fiscal year, all of the individual's compensation should be reported in the "All Other Compensation" column of the Summary Compensation Table, with an appropriate footnote identifying and itemizing the compensation (including amounts) received for service as a director.

SEC representatives were asked about the reporting of an executive officer's restricted stock unit (RSU) award where the award is fully vested as of the grant date but will not be settled until a later date, subject to earlier settlement in the event that the executive officer is terminated or there is a change in control. Specifically, they were asked, if the grant date fair value of the award was reported in the Summary Compensation Table for the year of grant, then for purposes of calculating the estimated benefits that would be provided to a named executive officer in the event of termination or change in control, would it be appropriate to omit the RSU award from this disclosure?

According to SEC representatives, because the RSUs were fully vested as of the grant date, subject only to a deferred settlement date, there is no incremental value associated with the receipt of the shares when the triggering event occurs and therefore no additional amount must be disclosed. However, representatives noted that the company should disclose the triggering events that would result in early receipt of the shares.

SEC representatives were asked about the reporting of an RSU award which was granted in 2012, vested due to the executive's termination of employment in 2014, but because of Code Section 409A's six-month delay requirement, will not be settled until June 2015. SEC representatives were asked whether the value of the RSU award should be reported in the Option Exercises and Stock Vested Table, and if so for which year.

Noting that in this case the deferral of receipt of the RSU award is required solely to comply with Code Section 409A, the SEC representatives indicated that it would be permissible for a company to report the value realized on vesting of the RSUs in column (e) ("Value Realized on Vesting") of the Option Exercises and Stock Vested Table in the year of vesting (2014). They also advised that a footnote should be included to disclose:

SEC representatives were asked how a company with a director compensation program that provides for payment to board members in the form of an annual cash fee and an annual equity award should report in the Director Compensation Table a one-time decision by the board to alter the compensation arrangement. Specifically, they were asked how to report a one-time board decision to pay the aggregate annual cash fees 25% in cash and 75% in equity for a particular year.

According to SEC representatives, the aggregate annual cash fees for the year at issue should be reported in the Director Compensation Table as:

Item 402 of Regulation S-K requires a company's CD&A to discuss the company's consideration of the results of the most recent shareholder advisory vote on executive compensation in determining a company's compensation decisions and policies and how the results affected its executive compensation decisions and policies. SEC representatives were asked whether including this information in the supporting statement to its proposal containing a shareholder advisory vote to approve compensation of its named executive officers with an appropriate cross-reference to the information included in the CD&A was sufficient to comply with this disclosure requirement.

The SEC representatives agreed that, given the close relationship between the subject matter of the CD&A and the required vote on compensation, this disclosure requirement could properly be satisfied by including this information in the supporting statement to its proposal to approve compensation of its named executive officers accompanied by an appropriate cross-reference to such information specifying that it is included in the CD&A.

C&DI question 12.06 provides that where a named executive officer receives a target award for a certain number of shares at the start of a three-year period, with one-third of the amount allocated to each of three one-year performance periods, then for purposes of the Grants of Plan-Based Awards Table, the grant date fair value of the award should be determined as follows:

SEC representatives were asked to confirm whether, if the performance targets are set at the beginning of each year, then in the award's second and third years, each respective tranche would be reported as a separate award and reported in column (l) ("Grant Date Fair Value of Stock and Option Awards") of the Grants of Plan-Based Awards Table.

The SEC representatives confirmed that under this scenario the second and third year tranches of the award would be reported as separate awards and should be reported in:

Rule 701 of the Securities Act of 1933 (Securities Act) provides a safe harbor exemption from registration for equity securities issued as employee compensation. The purpose of Rule 701 is to facilitate the use of securities as compensation by private companies. SEC representatives were asked about equity awards granted under an equity plan of a privately held company that qualify for exemption under Rule 701 but that were granted under a plan that also permits the grant of awards:

Such awards would not qualify for the Rule 701 exemption.

SEC representatives were asked whether, in connection with a company going public, outstanding stock options that otherwise qualify for the exemption under Rule 701 could be registered on a Form S-8 where:

Under this fact pattern, the SEC representatives indicated that the fact that the equity plan that the company used to make equity awards when it was privately held permitted the types of grants above does not affect the ability of the company to register outstanding equity awards to individuals who were consultants and advisors:

SEC representatives stipulated that the equity awards to be registered on Form S-8 must have been granted solely to individuals eligible to have their securities registered on Form S-8.

For more information on Form S-8, see Practice Notes, Registration Statement: Form S-8 and Form S-8 Considerations: Prospectus Disclosure and Annual Reports: Form S-8.

The SEC representatives clarified several important questions regarding proxy rules and executive compensation disclosure. Companies completing their executive compensation disclosures should review these clarifications and amend their disclosures as necessary.