March 30, 2001
Mr. Jonathan G. Katz
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
Re: File Number S7-04-01 - Disclosure of Equity Compensation Plan Information
Dear Mr. Katz:
With regard to the proposed amendments to the disclosure requirements applicable to proxy statements and periodic reports under the Securities Exchange Act of 1934, this letter presents the comments of Frederic W. Cook & Co., Inc.
Frederic W. Cook & Co. provides consulting assistance to corporations in developing compensation plans for their executives and key employees. Formed in 1973, we have served over 1,200 clients from offices in New York, Chicago, and Los Angeles.
Our objective is to add value to our clients' compensation programs through an independent viewpoint that balances the design and competitive level of compensation with its resulting impact on shareholder-value creation. Our consultants are widely recognized as experts in the field of equity-based compensation. In 1993, our firm was a resource to the SEC when the rules governing disclosure of executive compensation were revised. As such, we believe we are strongly qualified to comment on the proposed rule changes.
We are supportive of the move toward better disclosure. The use of equity compensation has dramatically increased during the last decade due to both larger individual grants and increased breadth of grants throughout employee ranks. This surge in equity compensation has sparked concern among institutional investors and shareholders.
Revised disclosure by companies would enable investors and shareholders to ascertain more readily the total number of shares allocated to equity compensation plans. With this knowledge, investors would be able to make more informed decisions regarding the approval of new equity compensation plans or modification to existing plans.
A summary of our comments is provided below:
- The proposed table developed by the SEC, along with the narrative footnotes, is an effective way to display equity compensation plan information. When included in conjunction with the already required annual report footnotes for stock incentive plans, the two tables will complement each other in providing better disclosure to investors.
- This gives investors the opportunity to evaluate new plans or increases to the shares reserved in existing plans within the context of the current situation.
- In order to provide consistency and clarity, the table should be disclosed every year in the annual report and additionally in the proxy statement in years when shareholders are being asked to vote on new or amended equity plans.
- Investors should not have to switch between the annual report and the proxy statement for equity plan information based on whether or not a vote is requested.
- Having the table in one place, the annual report footnotes, will provide a consistent location that investors can rely on to find the information and reduce confusion.
- All columns should provide totals for the information set forth in the table.
- Totaling the information provides investors with a more complete picture of the equity compensation plans.
- We encourage the use of a narrative statement that would provide the material features of each plan adopted without shareholder approval during the last completed fiscal year.
- In the first proxy statement released after the effective date of the new requirements, all existing non-shareholder approved plans should be explained in a narrative statement.
- Individual agreements that constitute 25% or more of the total shares applicable to such agreements should be considered a separate "plan."
- During years when the registrant is seeking shareholder action regarding a compensation plan, that plan should be included in the tabular format in the proxy statement, but should be highlighted as a proposal that has not yet been approved.
- The proxy statement table should indicate totals based on a "current state" environment and based on approval of the proposal.
- The annual report table should not include the proposed plan but it should provide in narrative form that a new plan or modification to an existing plan is being proposed in the proxy statement.
- The annual report is a look at the company on a specific date in time and should not include something that may or may not be approved in the future.
- Investors will still have the opportunity to evaluate the new proposal within the context of existing plans in the proxy statement.
- We believe that registrants should not be required to disclose whether their equity compensation plans involve the use of repurchased or treasury shares, since the source of shares has no bearing on the level of potential shareholder dilution.
* * * * * * *
In summary, we are supportive of the move toward better disclosure. However, we believe that the SEC's proposal should be modified slightly. We welcome the opportunity to assist in any way and I am available for questions at your request.
Louis C. Taormina