As reported last week, the SEC is voting today on a proposal to expand executive compensation disclosure. The proposed regulation will not be available for several days, but here are some possible areas of focus according to the W$J:
1. Pay for performance: requiring boards to explain in more detail the bases for executive compensation decisions.
2. Compensation consultants: who hires them (the compensation committee or management) and how are they paid (strictly for a compensation opinion or for other consulting work)?
3. Detail on stock options for each executive: in many instances, the current disclosures are too sparse to calculate the value of stock options.
4. Deferred compensation: current disclosures often obscure the details of a 401(k) or other deferred compensation mechanism.
5. Retirement benefits: again, current disclosures are sometimes unclear, and the SEC may mandate easy-to-read tables.
6. Perks: companies now disclose perquisites that exceed $50,000, but the proposal will lower that threshold to $10,000.
These all are issues on which disclosure might be improved, but will improved disclosure make a difference? If "making a difference" in your world means that executive compensation would decline, the answer is "no."
These issues are not the barrier to lower executive compensation. (Notice that the problem in most instances is not the complete absence of disclosure, but the inadequacy of disclosure. It's not like we will be shining light into many corners we have never seen or suspected.) The barrier may be agency costs, or it may be that the market for executives is operating smoothly. In any event, these proposed disclosure changes do not adjust the fundamental structure of decision making about executive compensation and seem unlikely to bring change.
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1. Posted by William Henderson on January 17, 2006 @ 18:23 | Permalink
Gordon, My friend Bruce MacEwen at Adam Smith sketches out a compelling case for how these new rules will only exacerbate the existing largess. As Bruce notes, disclosure has the intended consequence of spawning benchmarking and an epic sense of entitlement rather than embarassment. Consider this post:
http://www.bmacewen.com/blog/archives/2006/01/proxy_statement.html
2. Posted by Gordon Smith on January 17, 2006 @ 19:33 | Permalink
Hi Bill, He may be right. I made the same point here last week.
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