“Companies are extremely worried about this issue. Some are in agony about what to do,” said Kay. “They obviously don’t want to be in violation, but they’re worried about competitive harm and whether they can in fact explain the business case for that in their proxy.”
Meanwhile, despite the SEC’s stated intention to enforce its compensation-disclosure rules more vigorously this year, the commission is under fire for not doing enough. In a year-end letter to John White, director of the SEC’s Division of Corporation Finance, two top officials of the CFA Institute’s Centre for Financial Market Integrity said they were “highly disappointed in the inconsistent and overly complex implementation of the rules exhibited by many companies.”
The CFA Institute, whose 92,500 members are financial analysts and other finance professionals, said companies were using “endless and complex legal boiler-plate” and avoiding full disclosure “by inappropriate claims that compensation metrics are proprietary.”
The new rules, the letter stressed, require companies to use plain language to show investors “the full picture of an issuer’s executive compensation process.” Saying this mandate is being ignored by many companies, the CFA offered 10 proposals for improving the situation.
Even beyond the disclosure debate, executive pay is clearly a topic that is heating up. On Thursday, a diverse network of institutional investors announced the filing of shareholder resolutions at more than 90 U.S. corporations as part of the 2008 proxy season, aiming to give shareholders an advisory vote on executive compensation packages.
The investor network, launched last year, comprises public pension funds, labor funds, asset managers, individual investors, foundations, and religious investors. It is organized by the American Federation of State, County and Municipal Employees (AFSCME) and Walden Asset Management.
“Shareholders want CEOs to be paid for their long-term performance,” said AFSCME president Gerald McEntee. “We are in the middle of a subprime-mortgage crisis where some failing CEOs are walking away with hundreds of millions of dollars. That makes no sense, and we think giving shareholders a vote on CEO pay will help to stop it.”
In other results from the Watson Wyatt survey, most companies (68 percent) do not plan to change their approach to goal setting. However, the 21 percent who said they expect to modify their compensation programs in response to the SEC rules represented a big jump from the 5 percent who said so in a similar 2006 poll.
The poll also found that most companies — 77 percent — believe the disclosure rules will not have much effect on corporate performance.