Legal & Regulatory Compliance Flashcards

Under the SEC's Regulation S-K Item 402, which equity awards must be disclosed in the Summary Compensation Table?

Answer: The grant date fair value of stock and option awards granted during the fiscal year

Item 402 requires reporting the aggregate grant date fair value of stock and option awards (computed per ASC 718) granted during the fiscal year in the Summary Compensation Table.

ERISA Section 404(c) protects fiduciaries from liability for participant investment decisions when which condition is met?

Answer: Participants are given complete investment authority with adequate information and at least three choices

ERISA 404(c) relief requires that participants exercise independent control over assets, receive sufficient investment information, and have at least three diversified investment alternatives.

What is the purpose of a Rule 144 holding period for restricted securities received through equity compensation?

Answer: To establish a minimum period before unregistered securities can be resold publicly without registration

Rule 144's holding period (six months for reporting companies, one year for non-reporting) must be satisfied before restricted securities can be publicly resold without registration.

Which SEC rule provides a safe harbor from short-swing profit liability under Section 16(b) for tax-withholding transactions in connection with equity awards?

Answer: Rule 16b-3(e)

Rule 16b-3(e) exempts from Section 16(b) liability dispositions of equity securities to the issuer in connection with tax withholding obligations arising from equity compensation awards.

Under ASC 718, the expense for a stock option award with graded vesting can be recognized using which two acceptable methods?

Answer: Straight-line and accelerated methods

ASC 718 permits companies to recognize expense for graded-vesting awards using either the straight-line method over the total vesting period or the accelerated (tranche-by-tranche) method.

Proxy advisory firms such as ISS evaluate equity compensation plans using an 'Equity Plan Scorecard' that weighs factors in which three main categories?

Answer: Grant practices, plan features, and dilution/burn rate

ISS's Equity Plan Scorecard evaluates plans across three pillars: plan cost (SVT/dilution), plan features (problematic provisions), and grant practices (burn rate, CEO pay equity).

Which Internal Revenue Code section governs the tax treatment of nonqualified deferred compensation plans, imposing a 20% additional tax on violations?

Answer: IRC Section 409A

IRC Section 409A governs nonqualified deferred compensation and imposes a 20% additional tax plus interest charges when plan requirements for deferral elections or distribution timing are violated.