Important Proxy Disclosure Requirements Many Corporate Boards Often Overlooked
Don’t miss out on important proxy disclosure requirements during the busy proxy season. Failing to address crucial factors can lead to non-compliance with SEC rules, potentially resulting in penalties and compliance issues. To ensure that your company’s proxy statements and annual reports meet all necessary standards, here are six compensation disclosure watchouts for 2025.
Firstly, it’s essential to include all required individual executives in the proxy statement. Additionally, it’s crucial to ensure that the valuation and calculation of company plane use perks are accurate. Companies that granted stock options or stock appreciation rights must detail grant practices in an appropriate tabular format and provide related narrative disclosure. If an insider trading policy is adopted, it should be disclosed and discussed, or if not adopted, the company should explain why. Quarterly and annual reports should include proper disclosure regarding Rule 10b5-1 stock trading plans for outside directors and officers. Lastly, a reconciliation from adjusted financial measures used for incentive compensation purposes should be provided back to the required “General Accepted Accounting Principles” (GAAP) financial statements.
Named Executive Officers (NEOs) are a critical part of compensation disclosure rules for companies that are not considered smaller reporting companies. The following executives must be included in compensation tables and discussed in the Compensation Discussion and Analysis (CD&A) section of the proxy:
– Anyone who served as CEO during the year.
– Anyone who served as CFO during the year.
– The three top highest-paid executive officers employed as of the last day of the fiscal year, other than the CEO and CFO, who were in broad policy-making functions.
– Up to two additional executives not employed at fiscal year-end but whose compensation would place them among the top three highest-paid executives. Reviewing the draft 2025 proxy should include consideration of any executives who left the company in the past year and whether they need to be included, as well as any interim CEO directors who need former CEO pay disclosed.
There have been specific concerns with personal use of company planes, resulting in SEC reviews and potential fines for incorrect disclosure methods. Meridian’s study of S&P 500 companies in 2024 found that 54% disclosed NEOs’ personal plane use, with median values of $146,076 for CEOs and $39,638 for non-CEOs.
Beginning with 2025 proxy statements, companies must disclose narrative and tabular information about the timing of stock option or SAR awards granted close to disclosures of material non-public information (MNPI). Companies in 2025 annual reports should disclose whether they adopted insider trading policies and, if not, provide an explanation. Additionally, companies must disclose whether any director or officer adopted or terminated a Rule 10b5-1 trading plan in the most recent quarter, along with the material terms of such plans. Finally, if non-GAAP financial measures are provided in the CD&A or any part of the proxy, they are subject to Regulation G and Item 10(e) of Reg.