Video"The SEC seemed to think that people could say everything they needed to say in 1,500 words and say it in plain English," says Mark Borges, a principal at Mercer Human Resource Consulting who also writes a blog on CompensationStandards.com. "It's going to take a couple of years to get this right, because there is an instinctive reluctance to putting anything out there that is too far from what a company's peers are doing."
Some companies clearly rose to the occasion. Borges says that besides IBM's, Bank of America's, and Amazon.com's disclosures stood out as being particularly useful because the disclosures were clear and concise and written in something that came close to plain English. But their achievements were countered by far too many companies trying to avoid a detailed explanation of their performance-based compensation programs by clinging to the SEC's exemption on competitive information.
What's Next?
Now that the proxies are filed, it's apparent the SEC will have its hands full digesting the material. How the agency will react is unclear. During a speech on May 3 at the annual Ray Garrett Jr. Corporate and Securities Law Conference in Chicago, SEC Corporation Finance Division director John W. White suggested that there would be flexibility, given that this was the first year. But he also said the SEC would have few problems asking "tough questions" or even requiring companies with insufficient disclosure to make amended filings.
Going forward, CFO Flanigan has a few ideas for improvements, including adding a column detailing what an executive pays for his or her own equity awards as well as a greater focus on readability so that companies "do a better job of distilling the information into what's important." Many of the suggestions were contained in the April 23 letter Leggett & Platt sent to the SEC — one of many the agency is bound to receive as it studies the current disclosure dump and contemplates future changes. After all, this was a major change in terms of reporting requirements, and regulatory changes are rarely well received in most corporate suites. Still, although many companies claimed that the compensation numbers the SEC was expecting don't exist or that the information would enable their competitors to swoop in, most managed to cobble together something. Now they must wait to see if those numbers are deemed good enough.
Michelle Leder is the founder of Footnoted.org, a blog that looks at what companies bury in their SEC filings.
Will the Spotlight Boost CFO Pay?
Now that CFO pay has come out of the closet, so to speak, due to the new rules that require publicly traded companies to disclose the compensation of their "principal financial officer," some are beginning to wonder whether this is likely to lead to an escalation in CFO pay.
That's because various studies — including one done recently by Equilar Inc. — found that CFOs are rarely near the top earners at their companies. Indeed, up until the rule change, approximately 20 percent of the Fortune 500 didn't even disclose CFO pay, because the CFO wasn't one of the five highest-paid executives. The Equilar study found that total compensation for CFOs at Fortune 500 companies was about one-third the total compensation for CEOs, with the median CEO compensation at $8.1 million in 2006 compared with $2.6 million for the CFO.
"It's surprising to see how many CFOs still wouldn't make the [summary compensation] chart if it weren't for the new rules," says Mark Borges, a principal at Mercer Human Resource Consulting. "It will be interesting to see if the new rules will wind up driving CFO pay."
Clearly, CFOs have more responsibilities than ever before, the annual proxy statement being just one. How the new rules will affect CFO compensation is a story for next year. But there have already been a few examples of CFOs asking for — and receiving — some of the generous perks that CEOs have enjoyed for years. In early May, for example, Boston Scientific tapped former Zimmer Holdings CFO Sam Leno to serve as its CFO, replacing longtime CFO Larry Best. But it wasn't Leno's compensation that stood out. It was the fact that Boston Scientific agreed to purchase two of Leno's homes for a guaranteed $1.3 million each. — M.L.
A Season of Revelations
There were plenty of new disclosures during the proxy season of '07. New rules that required companies to provide greater disclosure on compensation, pensions, perks, and changes in control provisions were the reason that investors learned about the following for the very first time:
- Time Warner disclosed in its 2007 proxy that CFO Wayne Pace had been commuting between his home in Atlanta and the company's offices in New York. The company described the perk as part of the employment contract that Pace signed in the fall of 2001. Total cost: $512,000
- Drugmaker Schering-Plough disclosed purchasing personal security services for chairman and CEO Fred Hassan. Although the amount was smaller than the $156,000 spent in 2005, the reason was new: the company said its executives "have received threats of personal harm from animal-rights activists." Total cost: $134,000
- United Airlines, which like many legacy airlines faces regular tussles with its labor unions, disclosed that it reimbursed COO Peter McDonald for the cost of negotiating his new employment contract. Total cost: $82,056
- Wild Oats, which received a takeover offer from its larger competitor, Whole Foods, in February, disclosed that former CEO Perry Odak would receive nearly $2 million in severance and continue to collect his $500,000 annual salary for the next three years. There was also an unspecified discount at all Wild Oats stores. Total cost: $3.5 million (plus whatever he consumes in herbal teas)
- HSBC, the large bank with dual headquarters in London and Hong Kong, provided HSBC USA chief executive Martin Glynn with a $177,600 "rent allowance" and another $150,000 to cover the tax gross up on the free rent. Total cost: $327,600
Click here to see the 2007 proxy disclosures for the finance chiefs in the Fortune 10.
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