Public companies are still failing to disclose enough executive compensation data in their filings, according to the Securities and Exchange Commission’s top disclosure cop, who hinted that greater disclosure requirements could be on the way.
Many companies’ compensation disclosure and analysis are sorely lacking in explanations of the targets or the peer groups they use to set executive compensation, a problem that the SEC pointed out last year but that has not been fixed, said John White, director of the SEC’s division of corporation finance. “Rather than moving forward toward better-quality disclosure, [many public companies] are merely treading water.”
Noting that the spotlight is on executive compensation, it is also possible that many companies could have additional requirements thrust upon them, as the Treasury Department’s asset-purchasing program gets under way, White said. That program curtails executive pay in several ways, including capping tax-deductible exec pay and limiting how much risk execs can take as part of their compensation.
Starting next year, the SEC plans to review the annual and quarterly reports, as well as form 8-K reports, from all of the largest financial institutions, for such CD&A disclosures.
“Would it be prudent for compensation committees, when establishing targets and creating incentives, not only to discuss how hard or how easy it is to meet the incentives, but also to consider the particular risks an executive might be incentivised to make to meet the target?” White asked. “To the extent that such considerations are or become a material part of a company’s compensation policies or decisions, a company would be required to discuss them as part of its CD&A.”