What does the SEC want? MORE!

Posted by Marc Hodak on January 29, 2008 under Executive compensation | Comments are off for this article

The SEC asked for more information, more details about that extra information, and in plain English, in its major revamp of disclosure laws last year. Oh yea, and with civil and criminal penalties for false or misleading statements. No, this wasn’t called the Compensation Attorney’s Full Employment Act, but it could have been.

So far, the SEC is unhappy with what it’s gotten. Last year it sent out letters to 350 companies complaining that they weren’t providing what the regulators wanted.

A majority of the companies have now received second letters, according to an SEC official, and of 26 companies whose cases were closed, 21 were chided for not giving enough information about the role of individual performance in their pay decisions.

A sample of the level of detail they’re asking for:

[Boston Scientific] said it gave CEO James Tobin a 3% raise after reviewing “whether the company had met or exceeded quarterly sales and earnings targets, the performance of our Taxus stent system, our product-development initiatives and business integrations, as well as other matters.”

The SEC wasn’t satisfied and asked for “substantive analysis and insight” into how the board’s compensation committee determined specific pay, according to its Sept. 26 letter.

Maybe this is closer to what they are looking for:

“The board, in deliberating Mr. Tobin’s salary increase reviewed their quarterly sales targets of $2,055 million, $2,064 million, $2,074 million, and $2,083 million, respectively. The company, in fact, achieved $2,065 million, $2,086 million, $2,070 million, and $2,047 million, respectively. Despite two quarterly shortfalls, the Board felt it needed to give Mr. Tobin a five percent increase anyway, to remain competitive. When one director questioned the retention risk associated with giving Mr. Tobin less than five percent, one of the directors replied that he bumped into Mr. Tobin at O’Hare just a few weeks earlier, where Mr. Tobin looked uncomfortable and mumbled something about visiting his widowed sister-in-law in Skokie. It was noted by this director that Mr. Tobin was wearing his Ermenegildo Zegna suit as he walked away.

“Another director loudly noted, ‘That’s his closer suit,’ referring to Mr. Tobin’s sartorial preferences in prior negotiations. There was then a brief discussion around why Mr. Tobin would take a commercial flight to O’Hare at this time of year when he apparently had plenty of time left on the corporate jet. One director pointedly commented, ‘Sister-in-law, my ass. Skokie is on the way to Deerfield. I’ll bet those bastards at Baxter called him up again for a friendly chat.’

“By now, the board was agitated at the prospect of their CEO negotiating a competing offer with a peer company behind their back. This agitation was followed by a motion to rescind the proposed five percent raise, and replace it with a proposal to dock him five percent the next year. Cooler heads quickly prevailed, noting that Mr. Tobin was probably well worth keeping around, despite the current downturn. The chairman of the Compensation Committee noted that some kind of raise was likely necessary to keep Mr. Tobin from ‘looking,’ if not ‘walking.’ The Board was split among two factions on this point. One faction was in favor of at least five or six percent while another wanted to give Mr. Tobin nothing or, in the case of one director, an amount indicated by a finger gesture understood by the other members to mean less than nothing. After some more back-and-forth, they compromised on a three percent figure, considering that an anticipated 12 and 18 percent increases, respectively, in the Blazer TM and Ultra ICE TM catheter lines could justify a little extra bonus to make up for the potentially competitive shortfall in salary.

And, I wonder what the shareholders would do with all that information? Oh, yea. This has nothing to do with the shareholders.