The Securities and Exchange Commission has been reviewing the latest round of annual proxy statements from companies and is asking a whole lot of questions, particularly when it comes to executive pay, says Brent Longnecker, a Houston-area compensation consultant whose firm collects data for the Chronicle’s annual executive pay survey. (The list is pretty heavy with energy companies, BTW).
This was the first year companies had to provide the SEC with a greater level of detail into how they determined bonuses, what executives’ severance packages would be like if they were fired or there was a merger, and what kinds of perks the executives receive.
Pay consultant Brent Longnecker.
The SEC regularly asks companies questions about their filings, particularly after new rules are issued, to determine if changes are needed. Longnecker says companies that received the letters have been given until Sept. 21 to respond.
According to Longnecker some of the issues in the letters include:
* a lot of the questions appear to have been “answered” already in the …. filings, which is very disturbing
* some questions appear to be around data that is highly sensitive and would not be good from a competitive perspective if shared; and
* some of the information appears to be geared toward possibly setting up even more rules for the 2008 proxy season.
In a speech this month to the American Bar Association, John W. White, the SEC’s director of corporate finance, said the level of questions from his staff is pretty extensive and he understands it’s a lot to throw at companies. He also gave some indication of some of the issues they are most interested in:
As to what we are looking for — we are looking for analysis, particularly on the different components of compensation and on change of control and termination payments. We also are looking at performance targets. Is the description adequate? We’re seeing a lot of really vague disclosure in this area about “individual performance goals and targets” without further discussion.
Also, if targets were withheld under the confidential treatment standards, what is the justification? This would be the obvious place for further disclosure if there isn’t support for withholding the targets. If the targets were properly withheld, is the alternative disclosure about the difficulty of achieving them adequate? We also will be issuing a lot of comments seeking clearer disclosure where benchmarking is used and seeking clarification on who makes compensation decisions, including the CEO’s and others’ roles in the decisionmaking process.