Here’s an excerpt from this Cooley Alert penned by Ali Murata, Michael Bergmann, Brad Goldberg and Reid Hooper describing what went down during the SEC’s roundtable on executive pay disclosures that took place last Thursday:
“The SEC commissioners who spoke appeared uniform in their conviction that the existing rules are unduly complex, repetitive and overly inclusive, and have lost sight of their ultimate purpose of providing investors with appropriate information about corporate decision-making without imposing compliance costs out of proportion to the investor benefit, as they believe is presently the case.
That sentiment was generally echoed by the panelists. It is noteworthy, however, that at least some investor representatives on the panels called for more disclosure, and reminded the audience that the existing rules resulted from the financial crisis and the extensive loss of invested capital – circumstances they expect to recur at some point. That to us portends a brewing battle.
Particular scrutiny was focused on the (relatively) new pay versus performance (PvP), pay ratio and clawback rules, and also the treatment of executive security expenses and whether they should be disclosed as a perquisite or included in the summary compensation table at all. A recurring theme among representatives of issuers and their advisors, but not necessarily among those representing investors, was that the existing disclosure rules are cumbersome and costly and do not serve their intended purpose – a view seemingly not shared by investor representatives, some of whom, as noted, called for even more disclosure.
Because the PvP, pay ratio and clawback rules are rooted in Dodd-Frank statutory mandates and are now enshrined in SEC rules, change will take time and be cumbersome. By contrast, the SEC could more nimbly effect changes to the perquisite disclosure regime because the SEC’s existing guidance largely is not rooted in either statute or regulation. Accordingly, a dual-track approach may result, with some changes (for instance, in respect of perquisites) more quickly available.
Various stakeholders appeared aligned that disclosure requirements should not drive, but to some extent have driven, executive compensation decision-making. A somewhat common refrain was that director focus on compensation disclosure and the resulting proxy advisor recommendations has potentially driven compensation program complexity. Of course, the legitimacy of that view is a complicated question – one that is short-changed by a facile view.
It is noteworthy that no attention was paid by the SEC or the panels to the scaled disclosure requirements available to smaller reporting and emerging growth companies. We believe that critical thought is needed to isolate the rationale for that regime, and whether the justification for its application can inform the appropriate scope of disclosure for larger issuers.”
Authored by
Broc Romanek