SEC looking for comments on TARP comp

Posted by Marc Hodak on July 2, 2009 under Executive compensation | Be the First to Comment

Here is a sample of what it looks like they are considering:

– A written description of risks posed by their compensation policies

– Disclosure of potential conflicts in compensation consulting

– Disclosure of the market value of stock options at the time they are granted, instead of over the time period over which they are vested

I will be preparing my comments to SEC request 34-60218 over the next couple of weeks, but my preliminary comments:

– A discussion of the risks posed by compensation policies sounds good, but this is new territory for everyone who hasn’t thought systematically about this.  I’m afraid that the people requesting this have no idea what to look for, and the directors charged with providing such disclosure will have no idea what to say.

– Disclosure of compensation consulting conflicts is also a good idea, but it should not be in the form of simply disclosing what is paid to the consultants, as the unions and their congressmen are asking.  What does $$$ paid tell investors?  Too low?  Too high?  Too biased?  If this is really about conflicts rather than just how much I get paid to advise companies, you can get a much better idea by having companies disclose the fees earned by a given consultant for providing compensation advice as a percentage of overall fees for providing consulting services to the company.  It could just be a range, too, like > 50%, >100%, >1000%, or Towers Watson.

– The only beneficiaries to the proposed rule change for the way options are disclosed would be the press and union activists that are primarily behind this proposal.  The press would get a bigger number to report in the “total” columns.  (This figure is already being reported in another table; but someone is apparently too lazy to toggle down a few pages it.  Yeah it’s a big, hairy disclosure, but don’t blame me.)  This bigger number would make even less sense than the big number they get to report now.  If we’re not going to go with an economic measure of granted equity value in the total column (which the current disclosure rules don’t allow), we should just let the companies disclose enough for people who know how to use calculators to figure it out themselves, using whatever methodology they can sell to the only people to whom this really should matter–the investors.