Tuesday, October 10, 2006

Show Me The Money

Comments on the SEC’s proposed changes to rules governing disclosure of executive compensation are due within the next two weeks. A good number of comments had already been received when we first mentioned the proposed rule changes in our post “On the Calendar.” Several hundred comments have been received since.

Individual investors have weighed in with sometimes emotional pleas to either disclose all (shareholder rights) or disclose nothing (individual’s right to privacy).

Compensation consultants and legal experts seem to have homed in on the implementation aspects of the rule changes. There appear to be problems with definitions and calculation requirements that could render confusing if not misleading presentations.

Other respondents objected to the proposal to move the compensation report out of the purview of the board’s compensation committee and shift it to a report prepared by the management. This could have the effect of increasing the executive officer’s influence over compensation (his or her own included) and reducing the power of the directors. Indeed, most advocacy groups are arguing for greater board independence it would make the most sense to keep issues of executive compensation under the board, including reports to shareholders.

We expect more discussion after the October 23rd comment deadline and before the SEC takes action. Executive compensation is a flash point for many investors and the rule changes are extensive. It is clear from the comments received so far this more hammering and nailing that needs to be done before the new rules will be ready to fly.

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