Securities and Exchange Commission: Executive Compensation and Related Person Disclosure

GAO-06-1106R: Sep 25, 2006

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GAO reviewed the Securities and Exchange Commission's (SEC) new rule on executive compensation and related person disclosure. GAO found that the rule modifies disclosure requirements for executive and director compensation, related person transactions, director independence, and other corporate governance matters and security ownership of executive officers and directors; and SEC complied with applicable requirements for promulgating the rule.

Securities and Exchange Commission: Executive Compensation and Related Person Disclosure, GAO-06-1106R, September 25, 2006

B-298805

September 25, 2006

The Honorable Richard C. Shelby
Chairman
The Honorable Paul S. Sarbanes
Ranking Minority Member
Committee on Banking, Housing, and Urban Affairs
United States Senate

The Honorable Michael G. Oxley
Chairman
The Honorable Barney Frank
Ranking Minority Member
Committee on Financial Services
House of Representatives

Subject: Securities and Exchange Commission: Executive Compensation and Related Person Disclosure

Pursuant to section 801(a)(2)(A) of title 5, United States Code, this is our report on a major rule promulgated by the Securities and Exchange Commission (SEC), entitled –Executive Compensation and Related Person Disclosure— (RIN: 3235-AI80). We received the rule on August 11, 2006. It was published in the Federal Register as a final rule on September 8, 2006. 71 Fed. Reg. 53158.

The final rule modifies disclosure requirements for executive and director compensation, related person transactions, director independence and other corporate governance matters and security ownership of executive officers and directors.

Enclosed is our assessment of the SEC's compliance with the procedural steps required by section 801(a)(1)(B)(i) through (iv) of title 5 with respect to the rule. Our review indicates that the SEC complied with the applicable requirements.

If you have any questions about this report, please contact James W. Vickers, Assistant General Counsel, at (202) 512-8210. The official responsible for GAO evaluation work relating to the subject matter of the rule is Richard J. Hillman, Managing Director, Financial Markets and Community Investment. Mr. Hillman can be reached at (202) 512-8678.

signed

Kathleen E. Wannisky
Managing Associate General Counsel

Enclosure

cc: J. Lynn Taylor
Assistant Secretary
Securities and Exchange Commission


ENCLOSURE

ANALYSIS UNDER 5 U.S.C. sect. 801(a)(1)(B)(i)-(iv) OF A MAJOR RULE
ISSUED BY THE
SECURITIES AND EXCHANGE COMMISSION
ENTITLED
"EXECUTIVE COMPENSATION AND
RELATED PERSON DISCLOSURE"
(RIN: 3235-AI80)

(i) Cost-benefit analysis

The SEC expects the final rule will result in a total paperwork cost increase of over $250 million.

The SEC believes the final rule will enhance the efficiency of capital formation because when investors possess more information regarding executive compensation investors are likely to be more confident allocating capital to firms in which compensation practices are well-aligned with the investors' interests.

(ii) Agency actions relevant to the Regulatory Flexibility Act, 5 U.S.C. sections 603-605, 607, and 609

A Final Regulatory Flexibility Analysis was prepared in connection with the final rule. The analysis complies with the requirements of the Act including the steps taken to reduce the economic impact on small entities.

(iii) Agency actions relevant to sections 202-205 of the Unfunded Mandates Reform Act of 1995, 2 U.S.C. sections 1532-1535

As an independent regulatory agency, the SEC is not subject to title II of the Unfunded Mandates Reform Act of 1995.

(iv) Other relevant information or requirements under acts and executive orders

Administrative Procedure Act, 5 U.S.C. sections 551 et seq.

The final rule was issued using the notice and comment procedures found at 5 U.S.C. 553. On January 27, 2006, the SEC published a Notice of Proposed Rulemaking in the Federal Register. 71 Fed. Reg. 6542. In response, the SEC received more than 20,000 comments. The changes to the proposed rule based on these comments are discussed in the preamble to the final rule.

Paperwork Reduction Act, 44 U.S.C. sections 3501-3520

The final rule contains information collections that are subject to review by the Office of Management and Budget (OMB) under the Paperwork Reduction Act. The SEC had submitted the required information to OMB. In addition, it has submitted revised requirements and annual burden estimates based on comments it received.

Statutory authorization for the rule

The final rule is promulgated pursuant to the authority found in sections 3(b), 6, 7, 10, and 19(a) of the Securities Act, as amended; sections 10(b), 12, 13, 14, 15(d), 16, and 23(a) of the Exchange Act, as amended; sections 8, 20(a), 24(a), 30, and 38 of the Investment Company Act of 1940, as amended; and sections 3(a) and 306(a) of the Sarbanes-Oxley Act of 2002.

Executive Order No. 12866

As the rule is promulgated by an independent regulatory agency, it is not subject to the review requirements of the order.

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