Emerging Growth Company (EGC) Exemption

An emerging growth company, or EGC, is a filing status created by the JOBS Act for companies that have recently completed an initial public offering and whose annual revenue falls below a threshold the SEC sets and adjusts periodically for inflation. It is a classification of the filer — a function of size and time since listing — rather than a judgment about the company’s pay practices, its board or its governance.

The status is claimed rather than granted case by case. A company that meets the tests reports as an EGC by marking the check box on the cover page of its registration statement and its periodic reports, and that box is where a reader confirms the status. From there, the status persists until it ends, and the company applies the reduced requirements the status allows.

EGC status is time-limited. It lasts up to five years after the initial public offering, but it can end earlier on any of three tests: the company’s revenue rising above the SEC’s threshold, the market value of its common equity held by non-affiliates exceeding a specified level as of a measurement date, or the company issuing more than a threshold amount of non-convertible debt over a trailing three-year period. A company does not choose its exit date, and it does not have to wait for the clock to run out.

The exemptions reach both compensation disclosure and the shareholder vote. An EGC provides fewer fiscal years in its Summary Compensation Table, reports on a scaled basis in the rest of its executive compensation disclosure, and is not required to provide the CEO pay ratio disclosure or the pay-versus-performance disclosure. It is also exempt from the say-on-pay vote entirely, along with the separate vote that would otherwise set how often that vote is held.

Outside compensation, an EGC is excused from the auditor attestation report on internal control over financial reporting that larger filers include in the annual report, though management is still required to assess and report on internal control. It files fewer years of audited financial statements, can submit its registration statement for confidential staff review before the offering, and receives extended transition periods for new accounting standards.

The say-on-pay exemption is the sharpest of these, because it removes the vote rather than changing its frequency. A company that is not an EGC must hold an advisory vote on executive compensation at least once every three years and must hold a separate vote at least once every six years on how often that vote should occur. An EGC is required to hold neither while its status lasts, and many such companies state the exemption expressly where the vote result would otherwise appear.

The status changes what a reader can compare, not just what a company reports. A proxy from an EGC carries fewer years in its pay tables and no advisory vote result, so a year-over-year or peer comparison against a company past the exemption is comparing two different disclosure regimes rather than two different pay programs. When the status ends, the removed obligations begin to apply on the schedule the SEC’s rules set, so the first proxy after an exit is typically the first that carries a say-on-pay result and the restored compensation disclosures.

Nothing prevents a qualifying EGC from following the fuller requirements anyway. The exemptions permit reduced disclosure and remove a voting requirement; they do not forbid a company from holding the vote or from providing more than the scaled disclosure calls for, and a company that does so is reporting voluntarily rather than under a lapsed exemption.

ONL is an emerging growth company today, which is why its say-on-pay listing reads "EGC — exempt" rather than a vote result: the JOBS Act does not require one until the exemption expires.