Supporting Statement Release No 33-9330

SUPPORTING STATEMENT FOR FINAL RULES
UNDER THE SECURITIES ACT OF 1933 AND THE SECURITIES EXCHANGE
ACT OF 1934
This submission, pursuant to the Paperwork Reduction Act of 1995, 44 U.S.C.
§3501, et seq., consists of this supporting statement and the following attachments:
A. Statutory Authority
B. Adopting Release (Release No. 33-9330)
A.

JUSTIFICATION

1.

CIRCUMSTANCES MAKING THE COLLECTION OF INFORMATION
NECESSARY

On June 20, 2012, the Securities and Exchange Commission (the “Commission”)
adopted new Rule 10C-1 under Securities Exchange Act of 1934 (the “Exchange Act”),
and amendments to Item 4071 of Regulation S-K2 to implement Section 952 of the DoddFrank Act Wall Street Reform and Consumer Protection Act of 2010, which added
Section 10C to the Exchange Act. Section 10C requires the Commission to adopt rules
directing the national securities exchanges and national securities associations
(collectively, the “exchanges”) to adopt listing standards with respect to compensation
committees and compensation advisers. Section 10C also requires the Commission to
adopt new disclosure rules concerning the use of compensation consultants and related
conflicts of interest. The titles for the collection of information are:

2.



Regulation 14A and Schedule 14A (OMB Control No. 3235-0059);



Regulation 14C and Schedule 14C (OMB Control No. 3235-0057); and



Regulation S-K (OMB Control No. 3235-0071).3
PURPOSE AND USE OF THE INFORMATION COLLECTION

The purpose of the information collection is to implement Section 10C of the
Exchange Act. The rule amendments will require issuers to provide certain disclosures in
their proxy or information statements regarding their use of compensation consultants
and how they address compensation consultant conflicts of interest.
1

17 CFR 229.407.

2

17 CFR 229.10 et al.

3

The paperwork burden from Regulation S-K is imposed through the forms and schedules that are subject
to the disclosure requirements in Regulation S-K and is reflected in the analysis of these documents. To
avoid a Paperwork Reduction Act inventory reflecting duplicative burdens, for administrative convenience
we estimate the burden imposed by Regulation S-K to be a total of one hour.

3.

CONSIDERATION GIVEN TO INFORMATION TECHNOLOGY

The collection of information requirements of the amendments will be set forth in
Schedules 14A and 14C. These schedules are filed electronically with the Commission
using the Commission’s Electronic Data Gathering, Analysis and Retrieval system.
4.

DUPLICATION OF INFORMATION

We are not aware of any rules that substantially duplicate, overlap, or conflict
with the amendments.
5.

REDUCING THE BURDEN ON SMALL ENTITIES

Exchange Act Rule 10C-1 directs the exchanges to prohibit the listing of the
equity securities of any issuer that does not comply with Section 10C’s compensation
committee and compensation adviser requirements. Rule 10C-1 will not impose any
reporting or recordkeeping obligations on the exchanges, or any issuers with equity
securities listed on an exchange. In addition, smaller reporting companies are exempted
from the requirements of the rule. We do not believe the new rule will have a significant
impact on small entities because the listing requirements will apply only to issuers that
have equity securities listed on an exchange and that are not smaller reporting companies.
The substantial majority of small entities are not listed on an exchange but are quoted on
the OTC Bulletin Board or the OTC Markets Group. Rule 10C-1 will not apply to the
OTC Bulletin Board or the OTC Markets Group. Furthermore, Rule 10C-1 provides the
exchanges the express authority to exempt particular categories of issuers from the
requirements of Section 10C taking into account the potential impact of the requirements
on smaller issuers.
We anticipate that the amendments to Regulation S-K will increase the burdens
and costs for all companies that would be subject to the proposed amendments. Item 407
of Regulation S-K already requires reporting companies to discuss the role played by
compensation consultants in determining or recommending the amount or form of
executive and director compensation, including the nature and scope of their assignment
and the material elements of the instructions or directions governing their performance
under the engagement. The amendments to Item 407 will require disclosure of whether a
compensation consultant’s work has raised a conflict of interest, the nature of the
conflict, and how the conflict is being managed. The amendments will increase costs for
reporting companies to the extent that a company uses a compensation consultant in
determining executive or director compensation. Although the preparation and review of
the required disclosures will likely involve multiple parties, issuers (including small
entities) should not have to incur significant additional costs given the incremental nature
of the newly required disclosure.

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6.

CONSEQUENCES OF NOT CONDUCTING COLLECTION

Regulation S-K and Schedules 14A and 14C set forth the disclosure requirements
for proxy and information statements filed by companies to help investors make informed
investment and voting decisions. Less frequent collection would deprive investors of
access to information that is important to their voting and investment decisions.
7.

SPECIAL CIRCUMSTANCES
Not applicable.

8.

CONSULTATIONS WITH PERSONS OUTSIDE THE AGENCY

The Commission has issued a proposing release soliciting comment on the new
collection of information requirements and associated paperwork burdens. In response to
the solicitation for comment in the proposing release, registrants, investors, and other
interested parities provided comments on the proposing release. The Commission
considered all comments received prior to publishing the finale rule as required by 5 CFR
1320.11(f). The comments are available at http://www.sec.gov/comments/s7-1311/s71311.shtml.
9.

PAYMENT OR GIFT TO RESPONDENTS
Not applicable.

10.

CONFIDENTIALITY
Not applicable.

11.

SENSITIVE QUESTIONS
Not applicable.

12. and 13.

ESTIMATES OF HOUR AND COST BURDENS

We have revised the PRA burden and cost estimates for the amendments that
were originally submitted to the OMB in connection with the proposed rules. In response
to comments on the proposals, we have made modifications to the amendments that will
reduce the compliance burden on issuers. We derived our new burden hour and cost
estimates by estimating the total amount of time it would take a company to prepare and
review the information collections contained in the final rules. This estimate represents
the average burden for all companies.
The final rule amendments to Item 407 of Regulation S-K will require additional
disclosure in proxy or information statements filed on Schedule 14A or Schedule 14C of
whether the work of a compensation consultant that has played any role in determining or

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recommending the amount or form of executive and director compensation, with certain
exceptions, has raised a conflict of interest, and, if so, the nature of the conflict and how
the conflict is being addressed.
In deriving our estimates, we assumed that the burden hours of the amendments
would be comparable to the burden hours related to similar disclosure requirements under
existing reporting requirements. These estimates include the time and the cost of
collecting the required information, preparing and reviewing responsive disclosure, and
retaining records. We estimate that the amendments would impose an average of two
incremental burden hours per issuer. Our estimates, as well as their reasonableness, were
presented to the public for consideration, and we received no alternative burden hour or
cost estimates in response.
The table below shows the total annual compliance burden, in hours and in costs,
of the collection of information pursuant to the final amendments to Item 407 of
Regulation S-K. For convenience, the estimated hour and cost burdens in the table have
been rounded to the nearest whole number. The burden estimates were calculated by
multiplying the estimated number of responses by the estimated average amount of time
it would take an issuer to prepare and review the adopted disclosure requirements. The
portion of the burden carried by outside professionals is reflected as a cost, while the
portion of the burden carried by the issuer internally is reflected in hours. For purposes
of the PRA, we estimate that 75% of the burden of preparation of Schedules 14A and
14C is carried by the issuer internally and that 25% of the burden of preparation is carried
by outside professionals retained by the issuer at an average cost of $400 per hour. There
is no change to the estimated burden of the collections of information under Regulation
S-K because the burdens that this regulation imposes are reflected in our burden
estimates for Schedules 14A and 14C.
Table 1.

Estimated incremental paperwork burden under the final rules for
Schedules 14A and 14C.
Number of
responses
(A)

Sch. 14A

7,300

Sch. 14C

680

Total

14.

7,980

Incremental
burden
hours/form
(B)
2
2

Total
incremental
burden hours
(C)=(A)*(B)
14,600

Internal
company time
(D)
10,950

External
professional
time
(E)
3,650

Professional
costs
(F)=(E)*$400
$1,460,000

1,360

1,020

340

$ 136,000

15,960

11,970

3,990

$1,596,000

COSTS TO FEDERAL GOVERNMENT
The estimated cost of preparing the amendments was approximately $150,000.

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15.

REASON FOR CHANGE IN BURDEN

We anticipate that the amendments will increase the burdens and costs for U.S.
companies. The amendments will require issuers to disclose whether the work of a
compensation consultant that has played any role in determining or recommending the
amount or form of executive and director compensation, with certain exceptions, has
raised a conflict of interest, and, if so, the nature of the conflict and how the conflict is
being addressed.
Table 2 below illustrates the changes in cost and hour burdens from the burden
estimates currently approved by OMB. Columns (A) and (B) represent the most recent
burden estimates submitted to OMB. Columns (C) and (D) represent the new burden
estimates under the proposed amendments. Columns (E) and (F) represent the program
change, which encompasses the change in the burden estimates attributable to the
proposed amendments.
Table 2:4

Sch. 14A
Sch. 14C

16.

Current Burden
Burden
Cost
Hours
(A)
(B)
703,636
$84,204,277
65,764
$7,816,549

New Burden
Burden
Costs
Hours
(C)
(D)
714,586
$85,664,277
66,784
$7,952,549

Program Change
Burden
Cost
Hours
(E)
(F)
10,950
$1,460,000
1,020
$136,000

INFORMATION COLLECTION PLANNED FOR STATISTICAL
PURPOSES
Not applicable.

17.

DISPLAY OF OMB APPROVAL DATE
Not applicable.

18.

EXCEPTIONS TO CERTIFICATION FOR PAPERWORK REDUCTION
ACT SUBMISSIONS
Not applicable.

B.

STATISTICAL METHODS
Not applicable.

4

Figures in Table 2 have been rounded to the nearest whole number.

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