Companies resist more pay disclosures

By Martha Graybow

NEW YORK (Reuters) - Regulators are demanding more data and specifics from corporate America on executive pay plans, setting up a potential battle with companies who say this material should remain secret.

Already, public companies must reveal more details on their top managers' pay and perks under new disclosure rules that went into effect this year.

Now, after reviewing batches of the new disclosures contained in annual corporate proxy statements sent to investors, the U.S. Securities and Exchange Commission wants more information from as many as 300 companies, in particular the specific benchmarks used when tying pay to performance.

Investor advocates also say companies should provide more explanations on these targets, such as the earnings and revenue goals that executives need to hit to get lucrative bonuses, so that shareholders can get a better picture of CEO performance.

Companies, however, fear they will be forced to reveal specific dollar figures used in setting CEO goals -- figures that can be advantageous to competitors, ultimately hurting the companies' own shareholders.

"The degree of specificity that the SEC is seeking is really counterproductive," said Frank Placenti, a partner at law firm Squire Sanders & Dempsey LLP who advises companies on governance matters. "People want to know that the board has been thoughtful and has not just been tools of the management team. They don't really need to know the specific profit targets."

The SEC recently sent comment letters on this year's pay disclosures to an array of companies, including General Electric (GE.N: 株価, 企業情報, レポート) and Coca-Cola (KO.N: 株価, 企業情報, レポート), and plans to soon issue a report summing up its overall thoughts on how companies have complied with the new rules.

SEC spokesman John Nester said the agency does not want to cause competitive harm through its new rules but believes that more can be disclosed without putting companies in jeopardy.

"There are ways that you can describe the incentive process without giving away company secrets," he said.

Many companies do not release specific executive pay goals. According to an analysis of 100 proxy statements this year by consulting firm Watson Wyatt Worldwide Inc (WW.N: 株価, 企業情報, レポート), 46 percent did not disclose goals on which 2006 pay rewards were based. Similarly, 45 percent did not disclose the goals for long-term incentives.

The new SEC disclosure standards were intended to shed more light on the hot-button issue of executive pay, even as critics said an 11th-hour rule change by the agency on how stock option grants are reported made it difficult to discern how much an executive actually took home in the year.

The new disclosures force companies to provide details such as a summary table of how much an executive was paid based on salary, bonuses, perks, stock options and other pay, as well as a detailed statement about why these managers earned what they did.

Executive pay became a major political issue last year following exit packages valued at around $200 million each for former Home Depot Inc (HD.N: 株価, 企業情報, レポート) Chief Executive Robert Nardelli and ex-Pfizer Inc (PFE.N: 株価, 企業情報, レポート) chief Hank McKinnell. Both left amid shareholder criticism of their job performance.

Meanwhile, investor activists are on a big push to force companies to hold non-binding investor votes on executive pay.

Even before the recent batch of letters, the SEC had criticized some companies' pay disclosures, saying they were too long and hard to understand for the average investor.

The goal of the new disclosure rules, SEC Chairman Christopher Cox said in a speech earlier this year, was to put the pay information in plain English and "replace boilerplate with potboilers."

But many companies still haven't done a good enough job making these reports clear to those who did not go to law school, shareholder proponents say.

The pay statements "have tended to be very wordy, heavily lawyered, and lacking clarity, on average, in areas where shareholders are most interested," said Howard Sherman, chief executive of GovernanceMetrics International, a corporate governance ratings firm.

"But given the amount of scrutiny on this issue and the fact that it was the first time, it would have been shocking to see anything else," he said.

Conversely, though, providing more disclosures about performance targets and other aspects of executive pay that the SEC is now seeking could make these documents even fatter, says Michael Melbinger, a partner at law firm Winston & Strawn LLP.

"Based on these comments, I think the proxies are going to be longer next year," he said. "If we have to describe the 10 individual performance goals we have for the CEO, and the 10 we gave to the CFO, they are going to be longer."

(Reporting by Martha Graybow)