Lurching toward disclosure

Posted by Marc Hodak on May 15, 2008 under Executive compensation | Be the First to Comment

David Chun made a great find among an early filer this proxy season.

Many companies are under increasing pressure by the SEC to disclose specific metrics and targets. Issuers (companies) are resisting, claiming that their metrics and targets are confidential information, which disclosure might compromise their competitive position. This is often (but not always) a difficult proposition to defend, especially if your company is allegedly paying bonuses based on EPS targets and is already providing earnings guidance to the investor community.

Well, Equilar, David’s firm, turned up the proxy of AEP, where they provide an explicit EPS guidance range, and disclose how their senior executive bonuses are tied to that very same range. That seems pretty straightforward.

Unfortunately, when the SEC asked for more disclosure, they were thinking that all comp plans would be as simple as AEP’s. But tying senior executive bonuses only to EPS, while simple, is not necessarily optimal. Many companies have more involved bonus plans. Some of this complexity is functional and value-enhancing, some of it is simply obscurantism. Who is going to decide which is which? The SEC’s enforcement division? Developing.