US Catching Up To Australia On Disclosures

Last Wednesday, July 26, the SEC voted publicly to adopt new disclosure standards that, in many ways, are similar to Australia’s disclosure requirements.  One point of difference is that the company’s relative performance chart will be removed from the report (although it will be required to be published elsewhere). 

While largely unchanged since their release of the discussion paper in January (and the receipt of over 20,000 responses from the public), the SEC rules will include requirements for companies to disclose if options were backdated in a tabular summary that will be already familiar to Australian investors. 

The final version of the rules will be published in a few weeks, although the flavour of it can be found here.

The plan requires companies to provide detailed information on how they determine when option grants are made to executives. The required tables showing option awards to executives will include the date that options were granted. If the exercise price is less than the stock’s market price on the date of the grant, a separate column will have to be added showing the market price on that date.

For Australian investors and directors with long memories of our own laws, there has been debate on whether to include the pay of the highest paid outside the top 5 executives.  As a result, the SEC has modified a provision that would require companies to disclose the pay of as many as three non-executive employees who earned more than the top five officers. Now, it will be the highest paid “most responsible” positions (possibly similar to IFRS’s “key management personnel”).  Also, the “highest paid” determination would exclude defined benefit pension and benefit arrangements, which would inflate the total compensation of long serving employees.  Companies would also only have to describe their jobs but not disclose their names.

As it had been originally proposed, this requirement had been dubbed the “Katie Couric clause” because it would have forced companies to disclose the pay of star performers who make a lot of money but play no management role.  (Katie is an American celebrity news anchor who had her compensation revealed in a recent legal action).  It will be interesting to see if Australia’s Treasury takes the opportunity to amend the Corporations Act to bring it into line with accounting standards to remove the remainder of our version of “Katie Couric” disclosures.

We covered Australia’s positioning on disclosure relative to the rest of the world, including the new US standards, in an earlier newsletter.

© Guerdon Associates 2024
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