New SEC Compensation Disclosure Rules: Impact on Smaller Companies - blog.wallerlaw.com - July 31, 2008
Thursday, July 31, 2008Two proxy seasons have now come and gone since the SEC introduced
new compensation disclosure rules, including the requirement of a
compensation discussion and analysis (CD&A). Our bulletin
summarizes our general observation of this process. Notwithstanding
this regulatory effort to curb abuses, executive compensation continues
to grab news headlines. For example, a recent article in USA Today
shouts “CEO Pay Climbs Despite Companies’ Struggles.”
This article ranks the top ten paid CEOs in 2007, beginning at $34.1
million for Occidental Petroleum all the way up to $83.1 for Merrill
Lynch. These numbers include cash and the value of non-cash items (such
as stock options) disclosed in annual reports and proxies.
The news stories all focus on companies in the Fortune 100 or 250.
What is reported there has very little or nothing to do with the world
of compensation in smaller companies. Typical pay for CEOs of small-cap
and mid-cap companies is a small fraction of those pay levels. Indeed,
some small-cap companies would consider the CEO compensation at
large-cap firm to be a worthy annual revenue goal.
The compensation buzz is similar to the effect of Sarbanes-Oxley on
smaller companies. The rules are pretty much one-size-fits-all, whether
the company has $100 million or $150 billion in revenue. For the
smaller company, the cost and complexity of compliance is out of
proportion – and the worst part of it. Many executive perks that are
common in larger companies, such as supplemental retirement plans and
corporate jets, are hard to find in a smaller company. CEOs in most
companies are paid modestly in comparison to their colleagues in the
Fortune 500. Yet the ferocity of the disclosure rules falls on all
equally.
Many companies have previously enjoyed a fairly informal
compensation process. This is to be expected when the CEO is a founder
and the board members are from the venture capital firms that initially
invested in the enterprise. The new disclosure rules have forced
development of formal compensation processes, as well as discovery and
articulation of past compensation decisions. Our perspective is that
mid-cap and smaller companies were generally not doing the sorts of
things that were targeted in the SEC’s compensation disclosure rules.
This is borne out by the results. For smaller companies, very little in
the way of “hidden” compensation has come to light under CD&A and
new compensation disclosures.
Note: this experience could be relevant to those
who are urging adoption of shareholder approval of executive pay, or
“say on pay.” While the shareholders of Merrill Lynch may have views
about paying their CEO $83 million, it seems unlikely that the
shareholders of a mid-cap company are going to focus as much on the $3
million paid to its CEO.
Thursday, July 31, 2008 4:38:21 PM (Central Standard Time, UTC-06:00)
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SEC Updates Rules Regarding Web, Blog Posts - www.pcmag.com - July, 31, 2008
07.31.08
Total posts: 1
by Chloe Albanesius
With
major technology mergers dominating the news in 2008, having up-to-date
information on the investor relations Web sites of companies like Microsoft, Yahoo,
or Google can help reporters on deadlines as well as shareholders
wondering whether their life savings are about to chewed up and spit
out by Carl Icahn.
Federal guidelines for what type of information companies can
provide on their official Web sites, however, have not been updated
since 2000, so the Securities and Exchange Commission (SEC) on Wednesday voted unanimously to modernize its rules to fit in with an increasingly digital economy.
Under the revamped rules, which have not yet been released in their
entirety, information posted on a company Web site does not necessarily
have to comply with Sarbanes-Oxley rules relating to a company's
disclosure controls and procedures.
The rules also provides clarity on how companies can: provide access to historical or archived data
without it being considered reissued or republished every time it is
accessed; link to third party information or Web sites without having
to "adopt" that content for liability purposes; use summary information
in the context of the securities laws' antifraud provisions.
Meanwhile, Web sites no longer have to include a "printer friendly"
version of all their documents so sites can include more interactive
and dynamic features.
There are some restrictions, however. Antifraud provisions will
apply to statements made by a company or a company representative on
blogs and message boards. A company "cannot require investors to waive
protections under the federal securities laws as a condition to enter
or participate in a blog or electronic shareholder forum," the SEC said.
"The Internet has changed a lot since 2000, which is last time
commission provided comprehensive guidance on this topic, the use of
the Internet in electronic media," SEC chairman Christopher Cox said
during a Wednesday meeting. "Back then, the idea of the web as a social
network was still being developed – and Web sites such MySpace,
YouTube, LinkedIn and Facebook didn't even exist."
"Today, company web sites are being shaped by market's desire for
highly current and interactive information," Cox continued. "We
recognize that allowing companies to present data in formats different
from those dictated by our forms or more technologically advanced than
Edgar can be especially helpful to investors."
The SEC decided to take up the issue after a February 2008 report
from the SEC's Advisory Committee on Improvements to Financial
Reporting said that current rules were limiting company activity on the
Web.
"One of the key benefits of the Internet is that companies can make
information available to investors quickly and in a cost-effective
manner," Cox said.
Indeed, Icahn recently launched a blog of him own, on which he
provided as much detail about his proxy fight for Yahoo as he was
allowed. Icahn, who agreed to give up his proxy fight in exchange for a
seat on Yahoo's board, used his blog Wednesday to say that he would not attend the company's Friday shareholder meeting so as not to cause a media frenzy.