Form 8-K Item 5.02: Reporting Requirements
Navigate the reporting rules for Form 8-K Item 5.02, which governs disclosures related to a company's executive and board-level changes.
Publicly traded companies operate under a mandate of transparency, requiring them to inform investors of significant events as they happen. The primary mechanism for this real-time disclosure is the Securities and Exchange Commission (SEC) Form 8-K. This report is filed in response to a variety of specified events, ensuring that the market has timely access to information that could influence investment decisions. Within this framework, Item 5.02 addresses the composition and compensation of a company’s leadership.
Item 5.02 is triggered by changes involving a company’s directors and a select group of its most senior executives. It covers the departure of these individuals, their appointment, and any new or materially modified compensation arrangements. The purpose is to provide shareholders with a clear view of the stability and governance structures at the highest levels of the organization.
Departure of Directors and Certain Officers
A reporting obligation under Item 5.02 is triggered when a director or a specified officer departs from the company, and a filing must be made within four business days. The specified officers include:
- Principal executive officer (CEO) and president
- Principal financial officer (PFO)
- Principal accounting officer (PAO)
- Principal operating officer (COO)
- Any person performing similar functions
- Any “named executive officer” (NEO) from the most recent proxy statement
The nature of the departure dictates the specific disclosures. For a standard retirement, resignation, or removal, the company must disclose the fact of the departure and the effective date. The triggering event is the notice of the decision to depart, regardless of when the departure actually becomes effective, which ensures the market is informed promptly.
A more detailed disclosure is mandated when a director resigns or refuses to stand for re-election due to a disagreement with the company on its operations, policies, or practices. In this scenario, the company must report the departure and provide a brief description of the disagreement. The company is obligated to provide the departing director with a copy of its disclosure no later than the day it files the Form 8-K.
The director then has the opportunity to review the company’s description of the disagreement and provide their own written correspondence. If the director furnishes such a letter, the company must file it as an exhibit to the Form 8-K, ensuring both perspectives on the dispute are made public.
Appointment of Directors and Certain Officers
When a company appoints one of the specified officers or elects a new director outside of a shareholder vote, a Form 8-K filing is required. The company must report the individual’s name, the position they will hold, and the effective date of their appointment. A brief description of the new appointee’s business experience over the past five years is also necessary to provide context for their qualifications.
The disclosure must also cover any relationships or transactions between the new appointee and the company. This includes any family relationships between the new director or officer and any existing directors or executive officers. The filing must also detail any transactions involving the new appointee that would be reportable under Regulation S-K Item 404, which requires disclosure of transactions exceeding $120,000 in which the company is a participant and the related person has a material interest.
For newly elected directors, the company must also disclose the board committees on which they are expected to serve. If this information is not available at the time of the initial filing, the company must file an amendment to the Form 8-K once the committee assignments are made.
New Compensatory Arrangements
Item 5.02 requires disclosure when a company establishes or materially amends a compensatory plan or arrangement for its principal executive officer, principal financial officer, or other named executive officers. The purpose is to keep investors informed about material changes to how top management is compensated.
The reporting trigger covers a broad range of compensation actions, including the adoption of new employment agreements, severance plans, and significant bonus or equity-based incentive plans. Material amendments to existing arrangements also necessitate a filing. The disclosure must provide a brief description of the terms and conditions of the new or modified arrangement.
Companies are not required to report grants or awards made under an existing plan if the terms of the award are materially consistent with the previously disclosed terms of that plan. However, if a grant is made in connection with an officer’s appointment, it must be disclosed. This distinction prevents routine filings while ensuring significant awards are reported.
In situations where specific quantitative details, such as a target bonus amount, are not determinable at the time of the event, the company can omit that information from the initial Form 8-K. The company is then required to file an amendment within four business days of the information becoming calculable.