Corporate Governance

Compensation Disclosures Continue to Fall Short

By Fei-Lu Qian

As it has been nearly one year since the SEC implemented its executive compensation disclosure rules, the CFA Centre for Financial Market Integrity recently sent a letter to the SEC expressing its dissatisfaction with the way ?the Rules were interpreted and applied by reporting companies? because of the complexity and lack of transparency with the Rules. In the letter, the Centre makes 10 recommendations in how the Rules can help companies not to ignore or misunderstand the purpose of the Rules.

The Centre?s first recommendation encourages the SEC to continue with the Rules? mandate in forcing a company to use plain language so that investors could fully understand a company?s executive compensation process. Instead of providing investors with an open and honest communication of compensation practices, the Centre argues that reporting companies have already reverted back to complex legal boilerplate language by ?using incomplete, overly complex, and legalized explanations? to avoid full disclosure.

Also, in order to achieve the Rules? goal which is to enhance communication and information between a company and its investors, the Centre suggests the SEC continue to remind companies about the importance ?of their compensation committees to actively participate in the review and preparation of the? Compensation Discussion and Analysis section.

Full post as published by PomTalk on January 09, 2008 (boomark / email).