The SEC’s campaign to ensure more disclosure of executive pay seems to be bringing more confusion than clarity this proxy season, CNBC's Mary Thompson reports.
The new Compensation, Discussion and Analysis (CD&A) section, which averages about 5,000 words or nine pages, is meant to help shareholders. But experts say sifting through the new data is challenging and investors still don’t get all the information they need.
“Even for a sophisticated investor or a compensation consultant or one who does this for a living, it’s extremely difficult to wade through this and put together the pieces that really make sense,” said compensation consultant Jack Dolmat-Connel, who gave high marks for CD&As from CNBC's parent General Electric and insurer Aflac, but said the one from Conoco Phillips was not as clear.
Dolmat-Connel also said many firms did not clearly describe how they determined performance-linked bonuses.
Even SEC chairman Christopher Cox acknowledged in a March speech that companies failed to meet the SEC's guidelines for writing the descriptions and reasonings behind executive pay in plain English, Thompson said. Companies had to read more than 400 pages of guidelines issued by the SEC.
Equilar CEO David Chun, who analyzes executive pay, expects the SEC to tweak the guidelines for next year.
“I think if they took more of a tabular approach to certain sections or of a term sheet approach, that would certainly make it much more digestible and allow investors to hone in on key elements one needs to focus on,” Chun said.
That includes the final pay number and how it stacks up against the pay of an executive's peers at other companies, Thompson said. Experts also suggest looking at how an executive may be paid during a management shift and their retirement savings and payouts.
Interestingly, the final number for some executives’ pay was negative, because the firms used an accounting rule that measures pay as an expense to the company, rather than simply providing what the CEO took home, Thompson said.
But the CD&A has little to do with the actual numbers, said Larry Bossidy, former chairman and CEO of Honeywell.
“The first intention here was to try to get more visibility on compensation. That’s been done,” he said. “At the end of the day, a lot of these CEOs are paid correctly in terms of the performance of their company and their stock. There are some outliers who are not paid appropriately, and unless those board of directors come to their senses and deal with it and get some help from institutional investors, that is going to continue.”