Add Moody's to list of 'total pay' critics

Apr 27, 2007

Governance analysts say SEC reporting requirements obscure decisions behind incentives

NEW YORK -- This week Moody's Investor Service's corporate governance team joins the list of consumers of the new SEC executive pay disclosure with complaints.

Though managing director Mark Watson says 'the intent of the rule changes is exactly right - it's a much richer picture,' the disclosure is not necessarily coming in the most usable form.

This year's proxy statements do come packed with fresh information, especially on areas previously hidden like severance and change-in-control payments. But some see particular problems with how the SEC is asking for pension and stock option data.

In both cases, the SEC has moved from a 'more desirable' value approach to a 'much less desirable' cost approach when calculating total pay, according to a Moody's special comment entitled 'A user's guide to the SEC's new rules for reporting executive pay'.

This method is less useful for investors since it gives the information a backward-looking cast and obscures the compensation committee's decision-making on appropriate incentives for the near and longer term, the paper says.

SEC corporation finance chief John White recently said there were plans to evaluate a large number of disclosures in the 2007 proxy season with a view to determining whether more guidance or even rules changes were necessary.

Watson says there should be more time for public comment on December's last-minute rule changes on reporting stock and stock option awards in the summary compensation table. There is also the 'Katie Couric question' involving whether the SEC should have removed a proposed requirement for reporting of non-executive compensation if it exceeds that of the highest paid executives, he says.

Though Watson would welcome the information in a more usable form, if the rules are revised again, 'you'd have three years of odd proxies.' That makes it hard to track trends, at least in the short term. 'There are already a lot of areas where you can't map same to same,' he says. 'It's a lot of apples to pears.'

by Anna Snider
 

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