From Ms Bess Joffe.
Sir, Hermes notes with interest the Securities and Exchange Commission's post-proxy season hunt for further disclosure regarding executive compensation practices ("SEC's red letter day for top pay miscreants", September 4).
As responsible shareholders we agree with the Business Roundtable's assertion that the SEC should not require the disclosure of competitively sensitive information. Subjecting companies, in which our clients have holdings, to competitive disadvantage is clearly not in anybody's best interests, other than the companies' private rivals.
Disclosure of US executive compensation was vastly improved over the past proxy season, thanks to the new SEC rule that was in place. There is more to be done, however, in order to provide shareholders with adequate disclosure of the link between pay and performance.
Where performance measures are attached to equity-based compensation - not as frequent a feature as we believe they ought to be - we have seen some disclosure. But without disclosure of the relevant hurdle rates, it is impossible to evaluate whether executives are being compensated for achieving stretching goals.
To the extent that companies feel such disclosure would place them at a competitive disadvantage, we suggest retrospective disclosure, which would provide a window into how stretching goals were in past performance periods and thus an indication of future pay-for-performance scenarios at a particular company. This would give investors confidence that the compensation committee will continue to apply the company's resources cost-effectively to drive value for shareholders.
To us, it is pretty simple: companies should disclose the various types of equity-based compensation that are granted to executives, what performance measures are attached to which kind of awards, what the hurdle rates are for each grant, and how much these packages arelikely to cost us, the shareholders, who are ultimately signing the pay cheques.
Bess Joffe,
Manager,
Hermes,
London E1 8HZ
Sir, Hermes notes with interest the Securities and Exchange Commission's post-proxy season hunt for further disclosure regarding executive compensation practices ("SEC's red letter day for top pay miscreants", September 4).
As responsible shareholders we agree with the Business Roundtable's assertion that the SEC should not require the disclosure of competitively sensitive information. Subjecting companies, in which our clients have holdings, to competitive disadvantage is clearly not in anybody's best interests, other than the companies' private rivals.
Disclosure of US executive compensation was vastly improved over the past proxy season, thanks to the new SEC rule that was in place. There is more to be done, however, in order to provide shareholders with adequate disclosure of the link between pay and performance.
Where performance measures are attached to equity-based compensation - not as frequent a feature as we believe they ought to be - we have seen some disclosure. But without disclosure of the relevant hurdle rates, it is impossible to evaluate whether executives are being compensated for achieving stretching goals.
To the extent that companies feel such disclosure would place them at a competitive disadvantage, we suggest retrospective disclosure, which would provide a window into how stretching goals were in past performance periods and thus an indication of future pay-for-performance scenarios at a particular company. This would give investors confidence that the compensation committee will continue to apply the company's resources cost-effectively to drive value for shareholders.
To us, it is pretty simple: companies should disclose the various types of equity-based compensation that are granted to executives, what performance measures are attached to which kind of awards, what the hurdle rates are for each grant, and how much these packages arelikely to cost us, the shareholders, who are ultimately signing the pay cheques.
Bess Joffe,
Manager,
Hermes,
London E1 8HZ