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
Salary.com.
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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