The federal securities laws require clear, concise disclosure about
compensation paid to CEOs, CFOs, and certain other high-ranking
executive officers of public companies.

Rules for executive compensation are governed by the federal
securities laws. Several types of documents that a company must file
regarding their executive compensation policies and practices should be
organized within a company’s proxy statement, annual report on Form
10-K, within registration statements filed by the company established
to register securities for sale to the public, and also should be
contained within the company’s current report on Form 8-K.

In the annual proxy statement, companies must disclose information
revealing the amount and type of compensation paid to its chief
executive officer and the three other most highly compensated executive
officers. Companies must also disclose the criteria used in reaching
executive compensation decisions and the type of relationship existing
between the firm’s executive compensation practices and company
performance.

The cornerstone of the Security and Exchange Commission’s required
discourse on executive compensation is The Summary Compensation Table
(SCT). In a single location, the SCT provides a comprehensive overview
of a company’s executive compensation practices. In larger
multinational corporations, these can become somewhat complex in their
structure, but will always bear a superficial resemblance to a flow
chart. SCTs must include the total compensation paid the firm’s chief
executive officer, chief financial officer, and three other most highly
compensated officers for at least three previous fiscal years. The SCT
is succeeded in order by other tables and precise disclosures
containing increasingly detailed information about the various facets
of compensation used during the most recently completed fiscal year.
Essential to include are grants of stock options, stock appreciation
rights, long-term incentive plan awards, pension plans, employment
contracts, and related arrangements.

An additional component of a company’s executive compensation
dossier is the Compensation Discussion and Analysis (CD & A).
Functioning in the manner of an appendix, this section should explain
all material elements of the relevant executive compensation programs
not yet addressed.

Jack Zinda is an Austin business lawyer with Heselmeyer Zinda, PLLC. To learn more about Austin business attorney Jack Zinda visit Texasbusinessattorneys.net.