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Think Tank panelists assess new
compensation disclosure
May 23, 2007
Old-fashioned IR kept
investor response at level of 'concern, not outrage'
NEW YORK -- At the Corporate Secretary East Coast Think Tank yesterday,
producers and consumers of this year's proxy statements reported some
trouble handling the new compensation disclosure. With most proxies
expanding to over 100 pages and including some 15 new tables, there is a lot
more information to take in.
A corporate governance adviser on the Think Tank's executive compensation
panel said he welcomed the more detailed disclosure, particularly in the
area of severance and change-in-control payments. Still, he said he hadn't
acclimated. 'The topography of the old statement was comfortable for me,' he
said. 'It feels like I'm in a new country and I don't have the map yet.'
Some analysts resorting to last year's proxies to try to make sense of this
season's. But the same thing occurred, though on a lesser scale, with the
last round of SEC-mandated changes in compensation reporting in 1993. 'It
was a three-year cycle before the language was honed,' said a compensation
consultant who was also on the panel. 'I imagine it's going to be the same
with feedback from shareholders and the media as well.'
The SEC may have added to the confusion by making a last-minute rule change
in December 2006, changing the way it was asking companies to calculate
total pay for the new summary compensation table. It originally asked for
the full FAS 123R grant date fair value of stock awards and stock option
awards but switched to asking for only the portion of the grant date fair
value that was recognized as a cost on the year's financial statements. Some
complain that this presents a distorted picture of equity and total pay and
makes pay analysis over time and against peers difficult.
Corporate Secretaries at the Think Tank said they have been doing everything
the SEC asked for, but supplementing disclosure where they felt it was
warranted. An attendee from a Canadian company that voluntarily complies
with SEC standards said she's steering readers to tables showing what
represents true total compensation with visual cues. 'We highlighted the
columns we thought were important,' she said.
The panelists also assessed how well the new information was being
communicated. The compensation consultant said so far 'there has been
concern, not outrage' over executive pay.
That's probably owed to some good IR which involved tying pay to
performance, according to a panelist from a proxy solicitation firm: 'It has
been old tactics and messages selectively applied that have carried the day
here.'
Yet there have been flashpoints over some of the eye-popping sums handed out
in severance packages. 'Shareholders are asking, if [CEOs] haven't
performed, why are they walking away with the money they have?' said the
compensation consultant, who predicted fiercer negotiations on this point as
executives are hired now that investors have more information.
There were attendees whose companies faced down shareholder-led 'say on pay'
resolutions, including one that was voted down with just a 1 percent margin.
The issue, though, is far from dead, according to the proxy solicitation
panelist. 'I think we're going to get some version of say on pay whether
it's from Congress or pressure from investors,' he said.
Where it has been adopted, such as in the UK, 'the experience has been
mostly positive,' he said. 'There was only one compensation structure voted
down in a non-binding vote at Glaxo[SmithKline].'
It is still an open question whether more disclosure is a way to halt
soaring pay. One attendee reported that his company trimmed compensation for
some top executives ahead of disclosure as a way to blunt potential
criticism. But a panelist said the reported information just helps other
executives make deal points. 'Every time the government has tried to harness
pay, it has gone up,' said the compensation consultant.
by Anna Snider
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