New SEC Rules Require Greater Disclosure of Equity Compensation Plan Information

Originally published on January 18, 2002

On December 19, 2001, the Securities and Exchange Commission adopted amendments to its disclosure requirements applicable to annual reports filed on Form 10-K and to proxy and information statements filed by U.S. companies reporting under the Securities Exchange Act of 1934. In adopting the amendments, the SEC noted that equity compensation grants and awards may result in a significant reallocation of ownership between existing stockholders and management and employees. The SEC further noted that it is becoming increasingly common for companies to adopt equity compensation plans without the approval of stockholders, with at least 20% of public companies currently maintaining non-stockholder approved plans. As a result, stockholders may not be able to determine the total size of a registrant's equity compensation program and therefore not understand the potential dilutive effect of a registrant's equity compensation program.