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Goal Disclosure Spotty Under New SEC Rules

May 31, 2007
Related Topics: Corporate Culture, Compensation Design and Communication, Latest News
The Securities and Exchange Commission may be disappointed when it sees how companies are interpreting its new rules on disclosing executive compensation.

Under the rules, the SEC requests that companies disclose what performance goals they use to determine executives’ incentive pay in an effort to understand how the company’s compensation practices are aligned with performance.

However, the rules do allow companies to leave out this information from their proxy filings if they feel it would put them at a competitive disadvantage.

As a result, companies are all over the map on disclosure. A recent Watson Wyatt Worldwide study found that 46 percent of 100 large companies that have filed proxies have not disclosed these goals, and analysts believe the number is growing as more filings come in. The SEC is expected in coming months to issue clarified guidance on its expectations, analysts say.

Experts fall on both sides of the debate about whether disclosing performance goals puts companies at a competitive disadvantage. On one hand, compensation consultants argue that performance targets should change every year, so disclosing what they were the past year shouldn’t mean anything for the upcoming year.

On the other, some companies could say that by disclosing their targets, they are giving competitors a sense of their business strategy, says Bill Coleman, senior vice president and chief compensation officer at

Even with further guidance on the issue, Coleman expects that next year there will be more of a standard approach to disclosing performance targets.

“Companies that disclosed more this year will cut back on their clarity, while those that didn’t disclose anything will address it,” he says. “There will be a general regression to the mean.”

Jessica Marquez

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