Speech new executive comp proposal by new corp fin director

By:  Cydney Posner

Yesterday, John White, the new director of Corp Fin, gave a speech at the Executive Compensation Conference held at the new Rock Center for Corporate Governance at Stanford University. Having been at the SEC for only 14 days, White was able to give the standard SEC disclaimer (that he was not speaking for the Commission) with more than a little credibility. In fact, his speech adopted the perspective of a private practitioner advising his clients in light of the prospect of the new executive compensation rules.

Although the rules are not yet final, White suggested that, if he were still in private practice, he would be urging his clients to do two things: to make sure, first, that the company actually knows the relevant information related to executive compensation, and second, that the right disclosure is made as a consequence of revised disclosure controls and procedures.

Under the category of "knowing the company," White stressed that the new CD&A will require companies to tell their "compensation stories" in more detail than in the past. Accordingly, it would be wise to take the time now to understand what that story will be and, if it's not one that the company would be pleased or comfortable to disclose, to make appropriate changes now, while companies still have the opportunity: "companies may be well-served by preparing to tell their compensation stories tomorrow, and thus really learning the processes and procedures behind their compensation programs today. And by thinking about the story they'd like to tell, some companies may, perhaps, even decide to reshape their processes now."

Among the specifics identified by White is the importance of determining total compensation, whether through the use of tally sheets or otherwise. If the proposal were adopted, which executives would be included the table would be determined by total comp, requiring the company to have a handle on the amount of total comp paid to a broader group than in the past. In addition, the proposals would require companies to disclose considerably more information about their compensation programs and their compensation committees, including the committees' composition, processes and procedures. Again, White advises companies to think about the story their current practices would tell and, if necessary, reshape those practices now. Similarly, White advises companies to evaluate and consider the optics to investors of the roles their executives play in the compensation process, the roles that consultants play, the extent of perks, the level of deferred comp, share pledges and retirement benefits.

With regard to process, the proposal would require the collection of a substantial volume of information not previously required. White would have advised his corporate clients to "start thinking now about how their disclosure controls and procedures will need to be revised and updated to handle any new executive compensation disclosure requirements that may be adopted." The specific disclosure control issues he identified are:

• "Who will collect and aggregate these different types of information, which may not fit neatly with information collected to meet existing disclosure requirements?
• Who will be responsible for
  • maintaining the information?
  • for analyzing it?
  • for ensuring that the company's compensation story (that's the new CD&A) is told correctly (this may be more than having the technical executive compensation group, who puts the compensation packages together, generate accurate numbers)?
• Are existing disclosure committees properly positioned for the task? Do they include the right people?
• And, looking to the future, what could be done to prepare to present executive compensation information in any tagged data format that is appropriately developed and becomes available in the future?"