While the Dodd-Frank Act increased executive compensation oversight, the Jumpstart Our Business Startups Act (JOBS Act) goes the other direction. Signed into law on April 5, 2012, the JOBS Act is "intended to encourage companies to go public and to make it easier for private companies to raise capital without registering with the SEC." Deborah Lifshey explained in a recent BLR webinar.

It is intended to spur activity, raise capital, and stimulate the economy by reducing executive compensation reporting requirements for certain companies. The goal is to encourage more companies to go public and to raise capital without getting mired in SEC documentation.

How Does the JOBS Act Reduce Executive Compensation Reporting Requirements?

What does the JOBS Act do and how are executive compensation reporting requirements affected? The JOBS Act:

• Reduces executive compensation reporting requirements for emerging growth companies (EGCs). EGCs include any company that went public on or after December 9, 2011, and that had total annual gross revenues of less than $1 billion. It remains an EGC until the earliest of:
  • The last day of the fiscal year when it had revenue of $1 billion or more
  • The last day of the fiscal year following the 5th anniversary of its IPO
  • The date on which is has (over the past 3 years) issued more than $1 billion in non-convertible debt
  • The date it becomes a large accelerated filer (a company with a public float of over $700 million)
• Exempts all EGCs from these Dodd-Frank Act provisions: Say on Pay, Say on Frequency, and Say on Golden Parachute. The JOBS Act continues to exempt an EGC from all three of these advisory votes until one year after it ceases to be an EGC.
• Exempts the EGCs from Pay-for-Performance disclosures and Internal Pay Equity disclosures. Pay-for-Performance requires companies to disclose the relationship between financial performance and executive compensation payouts. Internal Pay Equity disclosure requires that companies report the median annual total compensation of all employees (excluding the CEO), the annual total compensation of the CEO, and the ratio of the median employee compensation to that of the CEO. EGCs a have a permanent exemption to both.
• Gives more flexibility for issuing equity compensation without triggering some of the more onerous public reporting rules. Other private companies with 500 or more holders of any class of equity and total assets in excess of $10 million must register that class of equity. Companies were subject to the full reporting requirements under the Exchange Act. The new rule under the JOBS Act raises the regulation threshold from 500 to 2,000 equity holders and permits companies to exclude employees who received their securities from an equity plan from that calculation.

For more information on the JOBS Act and how it affects executive compensation reporting requirements, order the webinar recording of "Executive Compensation: How to Stay Competitive and Compliant Under the JOBS Act and Say on Pay." To register for a future webinar, visit http://catalog.blr.com/audio.

Deborah Lifshey, a Managing Director in the New York office of Pearl Meyer & Partners, specializes in advising clients on compensation matters from a legal perspective, including securities disclosure, taxation and corporate governance issues, as well as contract negotiations and reasonableness opinion letters.