It’s been a rough couple of weeks at the SEC.
Firstly, things aren’t looking good for the SEC’s buybacks rule, which was kicked back to the Commission on October 31 by the Fifth Circuit Court of Appeals for immediate improvement. The SEC asked for an extension (denied) and has stayed the rule, but the remedy period expired on November 30.
Why it matters: The buybacks rule would have drastically increased the amount of required disclosure around stock repurchases. Since it does not seem that the SEC has corrected the deficiencies in the rule by the deadline, the Chamber of Commerce and other participants in the lawsuit regarding the rule can request that the rule be vacated entirely. In the meantime, the rule is not in effect, so companies can breathe a sigh of relief—for now.
Secondly, the SEC issued yet another set of Pay Versus Performance disclosure guidance that seems to reverse the most controversial provision of the last set. Many companies were confused by the retirement-eligibility provision in the earlier guidance, which stated that equity awards must be disclosed as vested as soon as the executive becomes eligible for retirement (even if they haven’t yet retired). This would mean that two executives (of different ages) with the same equity grant would appear to have been paid differently in a given year, since the retirement-eligible one would have their grant show as vested.
What they’re saying: Now the SEC seems to be indicating that companies do NOT have to count equity as vested just because an executive is retirement-eligible. Instead, “other substantive conditions” must be considered in addition to retirement eligibility, allowing companies to value awards consistently regardless of whether an individual executive happens to be retirement-eligible. See this Equity Methods blog for a deep dive on this issue.