If you work with the proxy statement or other communications on executive pay, you should read the Nov. 9 speech by Shelley Parratt, deputy director of the SEC Division of Corporation Finance, to the 4th Annual Proxy Disclosure Conference.
Parratt calls on companies to improve the quality of their Compensation Disclosure & Analysis sections – giving clearer, more specific analysis and better explanation of performance targets. She suggests starting over with a blank page, if necessary.
Mostly, Parratt’s comments offer a philosophy for disclosure on compensation. She notes that companies tend to respond with good disclosure once the SEC reviews their proxies – but don’t pay much attention if the SEC doesn’t come calling. Going forward, tangling with the SEC on the CD&A could hurt corporate reputations:
Any company that waits until it receives staff comments to comply with the disclosure requirements should be prepared to amend its filings if we raise material comments. Now is the time to engage in a rigorous analysis to develop meaningful, coherent and comprehensive executive compensation disclosure.
While the SEC staff may appear to serve as your editor from time to time, the CD&A is your story to tell, not ours. Read our guidance. Read the publicly-available comment letters. Take a fresh look at the disclosure requirements. Pay attention to what the market is looking for. Your disclosure will be better if you do.
Concern about pay levels isn’t limited to SEC officials and politicians with a polulist bent. Even the biggest investors can get upset about compensation – as in today’s Wall Street Journal story on mutual funds that are big holders of Goldman Sachs:
Some of the largest shareholders in Goldman Sachs Group Inc. have urged the Wall Street firm to reduce the size of its bonus pool, arguing that it should pass along more of its blockbuster earnings to investors…
For a lively take on the potential for more asset managers turning activist on pay, watch the Yahoo! “Tech Ticker” commentary by Aaron Task and Henry Blodget.
Take-home message for the 2010 proxy season: Write the CD&A as if you’re sitting across the table explaining your pay policies to one of those concerned investors.
(Thanks to the panelists at the Kansas City NIRI meeting Nov. 17 for calling this SEC staffer’s speech to our attention.)