According to the Wall Street Journal and other sources, the Securities and Exchange Commission has been sending out comment letters covering companies’ compliance with the SEC’s new executive compensation disclosure rules. Presumably to underscore the importance the SEC attaches to these disclosure requirements, the letters were addressed to each company’s Chief Executive Officer. A significant number of companies received the SEC staff comments in the last week of August, with as many as 300 companies expected to receive SEC staff comments over the next few weeks. In the SEC staff comment letters, companies were typically asked to:

Disclose specific performance targets and benchmarks for performance-based plans or provide a detailed explanation as to why disclosing targets would cause competitive harm. 

  • Clarify whether the board or compensation committee exercised positive or negative discretion to increase or decrease awards under performance target plans. 
  • Identify companies that comprise peer groups and survey sources for “benchmarking” purposes. 
  • Analyze the reasons for the significant disparity in the amount of compensation awarded to the CEO vs. other named executive officers. 
  • Describe how the company decides what multiples of pay to provide under various circumstances (e.g. change in control, other severance) and to what pay elements those multiples are applied (e.g. salary, bonus, benefits). 
  • Discuss how the different elements of compensation are determined and whether the amounts paid under one element affects amounts paid under others.
  • Discuss the role of executive officers in determining or recommending the amount or form of executive and director compensation, including how much input the CEO had in developing compensation packages and whether the CEO had the ability to call or attend compensation committee meetings and/or meet with the committee’s compensation consultant.
  • • Provide a description of the nature and scope of the compensation consultant’s assignment, including the material elements of the instructions or directions given to the consultant with respect to the performance of its duties under the engagement.

Companies are generally given one month to respond to the comment letters. The comment letters require the provision of additional information to the SEC as to some matters but as to most matters appear to permit disclosure in the company’s next proxy statement.

The SEC plans to issue a more general release later this year that will summarize its key observations on companies’ proxy disclosures under the new SEC rules. (Wall Street Journal, B1, 8/31/07)