The Securities and Exchange Commission has launched an online tool that lets investors quickly and easily compare compensation packages for executives at some of the largest companies in the United States, in yet another effort to demonstrate the usefulness of XBRL.
The Executive Compensation Reader, available at www.sec.gov/xbrl, allows investors to search for a company and then see the total annual pay as well as dollar amounts for salary, bonus, stock, options, and company perks for its top executives; investors can also compare those details against other businesses according to industry or company size. XBRL was used to “tag” that data, which is included in the summary executive compensation reports that are disclosed in company proxy statements. So far, the SEC has tagged the 2006 compensation data for 500 large companies.
The compensation reader is intended to let investors quickly sift through the maze of detail that companies disclose about compensation paid to their top executives; that disclosure was expanded dramatically under revised SEC rules that took effect last year. SEC Chairman Christopher Cox, an outspoken cheerleader for XBRL, ultimately wants the technology to deliver the same sort of comparability for all financial statements and wants to mandate such filings by the end of the year.
Users of the compensation reader can, for example, view amounts included in the Stock Awards and Option Awards columns of the Summary Compensation Table in one or both methods of valuing options; view comparisons in table and graph form; and download the data into Microsoft Excel. The program also includes direct links to companies’ proxy statements, including footnotes and the companies’ explanations of their compensation decisions.
The compensation reader follows the release of the newly completed XBRL “taxonomy” of U.S. Generally Accepted Accounting Principles, a dictionary of roughly 15,000 accounting terms that can be tagged in XBRL. The taxonomy, unveiled in December, is out for public comment until April.
Cox
Meanwhile, the SEC is expected to hold a series of forums to explore whether it should mandate use of XBRL by the end of 2008. Cox wants to have a rule to mandate XBRL in place by the end of the year, but said at last month’s XBRL International Conference that the timeline for any such rule will depend on public feedback about the GAAP taxonomy.
Currently, about 60 U.S. companies file their financial statements with the SEC in XBRL under a voluntary program. The U.S. effort to push XBRL is in keeping with initiatives by other global securities regulators. Regulators in several countries, including Japan, China, and Korea, already plan to mandate XBRL in the very near future.
SEC Speaks on Options Expensing
Thanks to SEC staff guidance issued just before the start of the new year, some companies can continue to use a simplified method to estimate the expected term of their so-called “plain vanilla” options when determining their expense under the stock option accounting rules.
Under Staff Accounting Bulletin 110, issued Dec. 21, eligible companies can continue to use a simplified method allowed under SAB 107 to estimate the expected term of a “plain vanilla” option using the average of the time to vesting and the full term of the option.
Use of the simplified method, provided by SAB 107 in March 2005, was set to expire Dec. 31, 2007, based on a staff expectation at the time that detailed historical information about employee exercise behavior in other companies—such as actuarial studies based on patterns in similar industries or in comparable situations—would soon be readily available. In SAB 110, however, the staff admitted that the information still isn’t readily available.
The staff will continue to accept use of the simplified method on an interim basis, provided a company concludes that its own historical share option exercise experience doesn’t provide a reasonable basis for estimating expected term. Once relevant detailed external information about exercise behavior becomes widely available for companies to make more refined estimates of expected term, the SEC said the staff will no longer accept the simplified method.
Specifically, SAB No. 110 amends and replaces a portion of the staff’s views about valuing share-based payments (included in Section D.2 of SAB Topic 14 of the codification of SABs) to continue acceptance, under certain circumstances, of the simplified method.
According to the SEC, “plain vanilla” options are those where: (1) the share options are granted at-the-money; (2) exercisability is conditional only on performing service through the vesting date; (3) if an employee terminates service prior to vesting, the employee would forfeit the share options; (4) if an employee terminates service after vesting, the employee would have a limited time to exercise the share options (typically 30-90 days); and (5) the share options are non-transferable and non-hedgeable.
A complete text of the bulletin is available on the SEC Web site.
Deadline Extended for Direct Registration Compliance
The SEC has granted an extension for public registrants to comply with stock exchanges’ listing requirements for direct registration programs.
The approval means issuers on Nasdaq, the American Stock Exchange, the New York Stock Exchange, and NYSE Arca have until March 31 to comply with the requirement that their securities be made eligible to participate in a direct registration program. That requirement, adopted by the exchanges in August 2006, took effect for new listed securities on Jan. 1, 2007, and was scheduled to become effective for all listed securities on Jan. 1, 2008.
In approving the extension, the SEC said the process to become eligible for the Direct Registration System—which requires coordination between the company, its transfer agent, and the Depository Trust Corp.—“may have been confusing to some issuers or their transfer agents” who were unfamiliar with DRS.
In addition to giving companies more time to comply fully with the requirement, the SEC said the extension will avoid possible investor confusion that could result if a number of companies were temporarily not in compliance with their exchange’s listing standards while they complete the DRS eligibility process.
The Direct Registration System provides for electronic direct registration of securities in an investor’s name on the books for the transfer agent or issuer and allows shares to be transferred between a transfer agent and broker electronically. While the exchange rules don’t require issuers to participate in DRS or to eliminate physical certificates, they require that all listed securities be DRS eligible.
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