Make Executive Compensation Disclosure Easy . . .

Do the Right Thing

The Rules

In August, 2006, the Securities and Exchange Commission finalized and adopted changes to rules requiring the disclosure of executive and director compensation, related person transactions, director independence and other corporate governance matters, and security ownership of officers and directors. The changes affect disclosure in proxy statements, annual reports and registration statements, and the current reporting of compensation arrangements.

The Motivation

The previous SEC proxy disclosure rules were formulated in 1992. Over the past 14 years, significant changes in executive compensation techniques and strategies have been made, causing for an overhaul in executive compensation disclosure practices.

The new rules will address three main problems with the current disclosure: transparency, board accountability, and shareholder oversight. They are meant to give the average investor a clearer view of a company’s policies, practices, and decision-making processes with regard to compensation.

The Impact

The issue has attracted more comments than any other in the Commission’s history, providing evidence of an intense interest in executive compensation disclosure and underlining the importance of improved communication between executives and stakeholders. Because more than 50% of Americans own stock, the rules provide investors with a more complete picture of the total compensation earned by a firm’s CEO and four other highest-paid executives.

These regulations have been put into place to ensure that compensation is disclosed comprehensively and transparently and that executives’ work is rewarded properly. Regulations are designed to provide shareholders with a better map of where their money is going, not to judge or limit the amount of money chief executives receive. Although it isn’t the SEC’s role to address the appropriateness of pay levels, it is the government’s job to make sure that markets operate efficiently. Efficient markets require a free flow of relevant, consistent, and reliable information, which includes knowledge of how, how much, and why senior executives are compensated as the paid agents of shareholders.

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For more information concerning SEC’s new policies and how they’ll affect you, contact us at info@delvesgroup.com or (312) 441-9710.