A Bit Anxious

“Stepping up its campaign to shed light on the mysteries of executive pay, the Securities and Exchange Commission has sent letters to nearly 300 companies across America critiquing disclosures in this year's proxy statements and demanding more information.

“The SEC's requests could set up a confrontation over details the agency wants that companies say are competitive and should remain secret. The federal securities regulator, for example, wants to know more about the targets and benchmarks companies use when they tie pay to performance.

“The SEC's letters, which were faxed to chief executive officers, have caused much consternation -- and some complaints...

"’CEOs aren't used to getting communications from the SEC,’ said one attorney. ‘They're a bit anxious.’ In forwarding his letter to a colleague, one annoyed chief scrawled in the margin: ‘What the hell is this?’

"’The letters are intended to help issuers better explain why they've paid executives what they've paid them,’ said John Nester, an SEC spokesman. The agency is giving most companies until Sept. 21 to either respond or provide reasons why they can't; the letters will be made public later this year. The SEC will send out another batch soon…

“One question that has generated a lot of concern relates to performance targets. Under the SEC's rule, if a company ties executive pay to performance, it must disclose the targets, or if disclosing them would result in competitive harm, explain how difficult it is to meet them. Now, the SEC is asking companies to document why the targets should be treated as confidential and excluded…

“The SEC is also asking companies to discuss whether they expect executives to meet future targets. Typical wording: ‘If disclosure of the performance-related factors would cause competitive harm, please discuss further how difficult it will be for the named executive officer or how likely it will be for you to achieve the target levels or other factors.’

“Moreover, the SEC is asking companies to name specific competitors used to create industry benchmarks for pay. It also wants additional information about the role played by the chief executive in setting his own compensation or that of other employees...

“Some letters posed highly technical questions, even though SEC officials had previously encouraged companies to simplify their often wordy proxies. ‘With comments asking companies to expand their disclosures and to provide additional discussion, the result in many cases will be longer, not necessarily more concise or readable’ proxy statements, said Ronald Mueller, a partner who specializes in executive pay at law firm Gibson, Dunn & Crutcher.”

(“SEC Asks Firms to Detail Top Executives' Pay.” Kara Scannell and Joann S. Lublin. Wall Street Journal: August 31, 2007. pg. B.1)

TRANSPARENCY? Can executives accurately assess these concerns? How well are we able to look forward? Will their confessions be valid, accurate and thus reliable? Will they be actionable? While transparency may appear to be enhanced, will we have real confidence in the process?