Will proxies come earlier this year?

December 17, 2009

Yesterday, by a 4 to 1 vote, the SEC approved a series of changes to the way companies have to disclose compensation. For those of us who already bemoan a 20-plus page Compensation Discussion and Analysis section that often says next-to-nothing, but takes a lot of words to do so, here’s hope that the new rules will actually provide some additional clarity.

We admit that we haven’t read the entire 129-page document, but here’s a summary of some of the key changes that take effect for all proxies filed after Feb. 28, 2010:

  • The background and qualifications of directors and nominees.
  • Legal actions involving a company’s executive officers, directors and nominees.
  • The consideration of diversity in the process by which candidates for director are considered for nomination.
  • Board leadership structure and the board’s role in risk oversight.
  • Stock and option awards to company executives and directors.
  • Potential conflicts of interests of compensation consultants.

Given some of the things that we’ve footnoted about directors recently (see this interview yesterday on Reuters for more details on this subject), we’re particularly interested in some of the new requirements for disclosure on directors, including any other public company boards that they sit on and any enforcement actions dating back 10 years.

We also think that the current stock option disclosure in the summary compensation chart doesn’t present a real picture of total compensation because of the odd way the SEC requires options to be counted as an accounting expense. That changes come March 1. The Center on Executive Compensation, a lobbying group that represents large companies on issues of pay, was generally supportive of the changes, but thought that there should be more to separate current compensation from long-term compensation.

But we have to wonder given some of these changes: will companies try to rush their proxies to avoid the new disclosure rules? Because the SEC set a calendar cut-off as opposed to a cut-off that was based on the end of a company’s fiscal year, it’s certainly a real possibility. While companies that are on a calendar year normally have until early May to get their proxy statements in (the requirement is 120 days from the end of the fiscal year), it certainly seems within the realm of possibility that some companies may be tempted to get them in by Feb. 28 to avoid the additional disclosure.

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Tomorrow, we’ll open up voting for “footnote of the year”. We’re working on finalizing our list today for the worst of the worst, so if you have any suggestions for finalists, drop us a note. Last year, A. Schulman (SHLM) “won” for its fishing lodge disclosure. The year before, it was Qwest (Q) and its disclosure on private jet usage for a high school student, so there’s some tough competition out there!

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