Risk & Compliance

Pay-disclosure Policies Slow to Change

''While some companies recognize their disclosures are inadequate,'' says one observer, ''most want to see what the final rules entail and how othe...
Stephen TaubMarch 14, 2006

Only 48 percent of companies intend to change their compensation disclosure this year, and only 9 percent plan changes in the compensation program itself, according to a survey by Watson Wyatt Worldwide.

The consultancy polled 112 large-company compensation and human-resources executives last month, following January’s Securities and Exchange Commission proposal designed to improve the disclosure of executive compensation by publicly traded companies.

One of the most significant changes would affect chief financial officers. Under the SEC proposal, companies would be required to disclose annual compensation for the CEO, the CFO, the next three highest-paid executives, and board members. Under current rules, companies must disclose the compensation of the five highest-earning executives, but the CFO’s pay need not be included if it does not rank in the top five.

The proposal is subject to a 60-day comment period, which ends this month, but even if the new rules are then quickly adopted, they would come too late to apply to proxies filed for the current annual meeting season.

“We believe many companies are taking a wait-and-see approach to the proposed rules,” said Ira Kay, global director of compensation consulting at Watson Wyatt, in a statement. “While some companies recognize their disclosures are inadequate, most want to see what the final rules entail and how other companies respond.”

Inadequate, indeed: 82 percent of survey respondents said that under the existing SEC rules, they believe their current disclosures do not provide all that the proposed SEC rules call for. Further, 61 percent think that the proposed rules will not improve corporate governance.

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