SEC proposes changes to compensatory offerings

The development of the gig economy has resulted in new work relationships, including ‘platform workers’ who provide services to a company through an internet- or technology-based platform (e.g. ride-sharing, delivery)

• These platform workers often do not fall within the scope of existing Rule 701 or Form S-8 definitions of individuals eligible to receive securities in a compensatory arrangement.
• The proposed rules would create a new category for platform workers in the scope of Rule 701 and Form S-8.
• The proposed rule would be a temporary provision that, for five years, would allow companies to compensate certain platform workers with securities in an arrangement meeting certain criteria, including:
  • compensation for bona fide services through a platform controlled by the company; and
  • compensation in securities cannot exceed 15% of a worker’s total compensation in a consecutive 12-month period or $75,000 during a consecutive 36-month period.

The proposed amendments to Rule 701 would revise:

• Additional disclosure requirements for offerings > $10 million, including how the threshold applies (only with respect to sales after the threshold has been met), the types of information required and how often it must be updated.
• Timing of when disclosures are required for certain types of derivative security offerings to new hires.
• Increase two of the three caps (limited to greatest of the three) on the overall amount of securities that a non-reporting issuer may sell during any 12-month period:
  • $1 million – raised to $2 million
  • 15% of total assets – raised to 25% of total assets
  • 15% of the outstanding amount of the class of securities being offered – unchanged
• Expand the exemption to include written compensatory benefit plans of the issuer’s subsidiaries – whether majority-owned or not.

The proposed amendments to Form S-8 would:

• Clarify that a single Form S-8 may be used for multiple plans and securities may be allocated among multiple plans on a single Form S-8.
• Permit issuers to file an automatically effective post-effective amendment in certain cases.
• Simplify the timing, calculation and payment method of fees for defined contribution plan offerings.
• Eliminate a disclosure requirement to describe the tax effects of plan participation on the company.

The proposed amendments impacting both Rule 701 and Form S-8 would:

• Extend the eligibility of consultants and advisors to participate in compensatory offerings from only natural persons (i.e. individuals) to include entities meeting specific ownership criteria.
• Extend the eligibility of former employees, including those of acquired entities, to participate in certain specified post-termination grants.