SEC Relaxes Threshold for Qualifying as a Smaller Reporting Company

By Thomas M. Haines, Managing Director


The Securities and Exchange Commission (SEC) on Thursday June 28, 2018 voted to ease the thresholds for qualifying for “smaller reporting company” (SRC) status. Under the new rules, SRCs are defined as companies with less than $250 million in publicly traded shares (up from $75 million), or less than $100 million in revenues for the previous fiscal year (up from $50 million) and less than $700 million in publicly traded shares. The SEC estimates that nearly 1,000 companies will meet these relaxed thresholds.

Among other benefits, SRCs are subject to relaxed executive and director compensation proxy disclosure rules. For example, SRCs are subject to an abbreviated summary compensation table and narrative that includes the CEO and two most highly compensated executive officers serving at the end of the last completed fiscal year, and up to two additional individuals who would have met that definition but were not serving as executive officers at fiscal year-end. In addition, information is required for only the last two completed fiscal years and no disclosure is required for the change in actuarial pension plan value. SRCs are also required to disclose an outstanding equity awards at fiscal year-end table, a director compensation table and narrative, and narrative regarding retirement benefits and material terms of severance and change-in-control agreements. Importantly, SRCs are not required to disclose the following:

  • Compensation discussion and analysis
  • Compensation committee report
  • Grants of plan-based awards table
  • Option exercises and stock vested table
  • Non-qualified deferred compensation table
  • Pension benefits table
  • Stock performance graph
  • Compensation policies and practices as they relate to risk management
  • CEO pay ratio

However, SRCs are subject to the say-on-pay, say-when-on-pay, and say-on-parachute pay non-binding shareholder votes.

SRCs are not to be confused with emerging growth companies (EGCs), which are defined generally as companies that have undergone an initial public offering (IPO) and have gross annual revenues of less than $1 billion. EGCs are subject to the same scaled disclosures applicable to SRCs discussed above for up to 5 years. EGCs and are also exempt from the say-on-pay, say-when-on-pay, say-on-parachute pay, proposed pay versus performance, and CEO pay ratio requirements for so long as an emerging growth company.

Portrait of Thomas M. Haines, Managing DirectorThomas M. Haines
Managing Director

Thomas M. Haines has over 27 years of board-level consulting experience in the design and implementation of executive and outside director compensation programs. His consulting experience extends over a broad range of company sizes and industries. He is also a technical expert in the areas of federal tax and securities laws and U.S. accounting standards as they pertain to executive compensation, and is a frequent speaker and writer on these topics.