REITs Executive Compensation Guide

Through informal guidance, the Staff has further refined the exception for previously disclosed compensatory plans and arrangements. For example, the Staff’s interpretations explain that, if the company has already disclosed a cash bonus plan, it would be unnecessary to disclose a cash award made under the plan if it is determined that the performance criteria have been satisfied. In accordance with the Staff’s view, a company would need to file an Item 5.02(e) Form 8-K if the recipient received a payment notwithstanding that the recipient did not satisfy the previously disclosed performance criteria. Disclosure is required under these circumstances because payment is materially inconsistent with the previously disclosed terms of the plan (i.e., the recipient failed to meet the merit-based goals, yet still received the bonus). Further, for plans involving target levels with respect to specific quantitative and qualitative performance-related factors, the Staff has taken the position that the company need not disclose targets if they consist of confidential trade secrets, commercial information or financial information that could result in competitive harm for the company. Finally, a company is not liable under Section 10 or Rule 10b-5 of the Exchange Act for failure to timely file an Item 5.02(e) Form 8-K. This is a significant distinction from other Items of Form 8-K which, if not timely filed, may result in securities fraud claims against the company. 15 Additionally, companies will not lose eligibility to use Form S-3 solely as a result of the failure to timely file an Item 5.02(e) Form 8-K.

PRACTICE POINT: To avoid the requirement to file an Item 5.02(e) Form 8-K at the time of each grant or award, you should provide robust disclosure of the types of awards that are authorized under your compensation arrangements and file the associated forms of award agreements as exhibits to a periodic or current report.

15 See https://www.sec.gov/rules/final/2006/33-8732a.pdf (Section III.B.).

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