A colloquialism for the controversial ruling the Securities and Exchange Commission considered implementing in 2006 in relation to the disclosure of executive compensation
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The Katie Couric Clause is a colloquialism for the controversial ruling that the Securities and Exchange Commission (SEC) considered implementing in 2006. The ruling was officially known as the Executive Compensation and Related Party Disclosure clause.
The proposed ruling had distinct impacts on executive compensation, director compensation, quarterly 8-K filings, related-party transactions, and corporate governance matters. If the ruling were passed, it would require publicly-traded companies to disclose the salaries of their top five earning executives and non-executives.
The Katie Couric Clause is a colloquialism for the controversial ruling the Securities and Exchange Commission considered implementing in 2006.
The ruling was officially known as the Executive Compensation and Related Party Disclosure clause. It would have distinctly impacted executive compensation, director compensation, financial statement reporting, related-party transactions, and overarching corporate governance concerns.
It is called the Katie Couric clause because she became the highest-paid newscaster in April 2006, and CBS News would have been forced to disclose her salary if the SEC ruling were implemented.
Why is it Called the Katie Couric Clause?
Katie Couric was the former star of the “Today Show” and became the highest-paid newscaster in the U.S. in April 2006. It was called the Katie Couric Clause in reference to a situation with her employer at the time, CBS News. If the Executive Compensation and Related Party Disclosure clause were passed, it would have required CBS to disclose Katie Couric’s salary publicly.
What is Executive Compensation?
Executive compensation is the total compensatory package received by members of the executive team. Generally, executive compensation comprises a mixture of fixed salary, variable performance-based bonuses, benefits, and other perquisites – all ideally configured to consider tax, government regulation, and organizational strategy.
Proposed Changes to the Disclosures of Executive Compensation
1. Addition of a compensation discussion and analysis
A compensation discussion and analysis would focus on the material factors underlying company compensation policy, compensation decisions, and a related Compensation Committee Report. There are six distinct items to be discussed:
What is the objective of a compensation program?
What does the compensation program reward?
What is each element of compensation?
Why does the company pay each element?
What method was applied to arrive at that amount?
How does this compensation fit into the company’s overall compensation objectives, and how does it affect decisions impacting other elements?
2. Compensation details of the five highest-paid executives
This section would display the total compensation of the five highest-paid executives through the following:
A total new compensation column
The fair value grant of all stock and stock-based awards
Amounts earned through non-equity incentive plans, even if payable at a later date
The overall change in the actuarial present value of pension benefits and above-market earnings on non-qualified deferred compensation
3. Presentation of holdings of equity-related interests received as compensation
This section of the disclosure would include a table that identifies all equity-related interests held at the end of the year and their respective values. An additional table would be supplied, providing investors relevant information about amounts realized by executives. The amounts can be realized throughout the year due to option exercise and vesting periods for employee stock options with restrictions.
4. Presentation of retirement and other post-employment benefits
This section of the Executive Compensation and Related Parties clause was to disclose potential severance and change-on-control benefits. Companies assume that the triggering event occurs on the last day of the company’s fiscal year and that the price per share is the closing price as of that date.
Moreover, in this section, there were to be two tables regarding the actuarial value of pension benefits and the value of any deferred compensation benefits.
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