In 2016, the AFL-CIO submitted several shareholder proposals designed to curb the impact of stock buybacks on executive compensation. (See this PubCo post.) The question at the time was whether we would see many more of these proposals. However, amid significant media and academic criticism, as well as relatively high stock valuations, the levels of stock buybacks declined, and the anticipated wave of proposals on buybacks did not materialize. However, the new tax act is expected to trigger a new spike in the levels of stock buybacks. (See this MarketWatch article.) Perhaps with that in mind, one of the most prolific proponents of shareholder proposals has submitted a proposal to eliminate the impact of stock buybacks in determining executive compensation. Will these proposals now become a thing?
A Christmas gift from the SEC staff: guidance on disclosure of the accounting effect of the Tax Cuts and Jobs Act
Yesterday, the staffs of the Office of Chief Accountant and Corp Fin issued guidance regarding disclosure of the accounting impact of the Tax Cuts and Jobs Act, just signed into law on December 22. As discussed in this PubCo post, companies have been fretting about the timing of the new Act and whether they will be able to accurately determine the impact of the tax changes on their financial statements in time to file their annual and quarterly reports with the SEC. That is largely because, under U.S. accounting rules, companies must generally reflect the impact of these tax changes in the quarter they are signed into law, even if they go into effect at a future date. The staff has been talking with companies about their concerns and has responded with this guidance, which, Corp Fin Director Bill Hinman observes, “recognizes that investors demand and deserve high-quality information, while also recognizing that entities may face challenges in accounting for one of the most comprehensive changes to the U.S. federal tax code since 1986.” According to the related SEC Statement, the “staff guidance, which reflects the approach taken in prior situations where legislative changes could significantly affect financial reporting, provides a ‘measurement period’ for issuers to evaluate the impacts of the [Act] on the their financial statements. Importantly, the guidance also sets forth staff expectations for disclosure to investors during the measurement period.” Merry Christmas finance departments and auditors!
Corp Fin recently revised some of the guidance in its Financial Reporting Manual related to adoption of new accounting standards. One revision relates to the adoption of a new accounting standard in the context of a significant acquisition, and the second relates to transition period accommodations for EGCs. This new guidance could take on particular significance in the context of the new revenue recognition standard.
Summarized below are some of the highlights of the 2017 PLI Securities Regulation Institute panel discussions with the SEC staff (Michele Anderson, Wesley Bricker, Karen Garnett, William Hinman, Mark Kronforst, Shelley Parratt, Ted Yu), as well as a number of former staffers and other commentators. Topics included the Congressional and SEC agendas, fresh insights into the shareholder proposal guidance, as well as expectations regarding cybersecurity, conflict minerals, pay ratio disclosure, waivers and many other topics.
Yesterday, Corp Fin posted a new CDI 271.25 regarding permissible safeguards for protection of Rule 701(e) disclosures that are furnished electronically. You may recall that Rule 701—which provides an exemption from registration under the Securities Act for offers and sales to employees, directors and consultants under compensatory benefit plans and contracts—requires companies to deliver to the employee/investor a copy of the applicable benefit plan or contract, and, if the company sells, in any consecutive 12-month period, securities with a value in excess of $5 million, the company must deliver, a reasonable period of time before the date of sale, specified other information, including financial statements and information about the risks associated with the investment, much of which is likely to contain confidential or sensitive material.
Corp Fin posts two new CDIs regarding non-GAAP financial measures in connection with M&A transactions
The SEC has posted two new CDIs regarding the use of non-GAAP financial measures in connection with business combinations, summarized below.
Yesterday, Corp Fin issued new Guidance on Calculation of Pay Ratio Disclosure regarding the use of statistical sampling in connection with the pay-ratio disclosure requirement, which mandates public company disclosure of specified pay-ratio information, beginning with the upcoming 2018 proxy season. The new guidance provides a fairly expansive reading of the use of reasonable estimates, statistical sampling and other reasonable methods. But prepare yourself, it also uses terms such as “multimodal,” “gamma distribution” and, my favorite, “lognormal,” surely all firsts for this PubCo blog. (Wikipedia defines a “lognormal”distribution as “a continuous probability distribution of a random variable whose logarithm is normally distributed.” Does that help?) Whether or not you are mystified by some of the terminology (as am I), it is clear that the leitmotif (take that, statisticians) of the new guidance is that you can use or combine any number of different methodologies and estimates so long as they are all reasonable and appropriate under your particular facts and circumstances.