Proxy details about executive pay produced bad PR last year, and now the SEC is asking for more.
by Carol Vinzant
The SEC has been leaning on corporate management to include, in the proxy, more detail about executive pay — particularly about the way executive-compensation packages are determined. This summer, the SEC faxed letters directly to CEOs — and is expected to make both the comment letters and company responses publicly available. “No one is getting a gold star,” says Richard Alpern, principal at compensation consultant Frederic W. Cook & Co.
The SEC’s philosophy is to push disclosure over regulation, and let investors punish the wasteful. Some practical tips from last year’s proxy gaffes:
Devil in the Details: Some of the more embarrassing corporate disclosures in 2007 came from companies’ own proxy statements, which included details about executive-compensation packages mandated by the SEC for the first time. The media had a field day with such line items as American Express CEO Ken Chenault’s $405,375 worth of personal jet travel and $132,019 worth of company-car use.
Trade Secrets: The new rules won’t tell you how you should set compensation; they just mandate methodology disclosure. The common issue the SEC is currently raising, according to an analysis of client letters by F.W. Cook, is a lack of details about performance goals in incentive plans. Companies may have legitimate reasons for keeping some methodology secret: An executive’s pay may be based on how well the company performs in a business sector the company does not break out on its balance sheet. But you will have to show how difficult it is for executives to reach their targets. And if they’ve consistently met or exceeded them and earned maximum bonuses, one result could be irate investors — and unwanted media attention.
Fuzzy Math: No company is required to use a peer benchmark, but those that do have to say which companies are considered peers, what target management sets within that group and whether it hits that target. Most companies aim to be in the middle, but some may have to admit they’re paying more than most of their peers. CL