Pfizer’s Attempt at Financial Clarity Gets Blurred

Regulators and investors have complained for years that corporate compensation reports are too long, too dense, too jargony and too opaque.

Pfizer, the pharmaceuticals giant, has taken that criticism to heart. With the blessing of the chairman of the Securities and Exchange Commission, Pfizer turned to outside communications and design consultants to give its 35-page proxy an extreme makeover.

The company reorganized and color-coded crucial sections. It turned paragraphs into bullet-points and created a new summary compensation table, adding photos of executives to a two-page chart.

Yesterday, Pfizer executives unveiled a mock-up — what they are describing as a “concept document” — at a conference in Washington.

But there is a problem. Pfizer’s most recent compensation report, the basis for the mock-up, is under review by the S.E.C for inadequate disclosure, according to people briefed on the situation.

Some agency officials were said to be uncomfortable holding the work as a model before Pfizer resolved questions about content. Just days before the mock-up was set for release, the S.E.C. staff would not give it unqualified approval. Pfizer executives quickly backpedaled on their ambitions. Regulators urged Pfizer to blur the report’s text, making it unreadable, and attach a disclaimer.

“This is a hypothetical document, and it will not look like this next year,” the disclaimer said, adding that the company would work with the S.E.C. on form and content to ensure that the final document met regulations.

The episode is a setback for Pfizer, which has been trying hard to reclaim the mantle as a governance leader but seems to stub its toe at every turn. Within the S.E.C., it is the latest flashpoint in a debate over the pay disclosure rules.

In one corner, the S.E.C. chairman, Christopher Cox, has been pushing companies to present compensation reports clearly and concisely. In the other, the agency’s staff — the corporate finance division, in particular — has been more concerned with substance than style.

Both are crucial. After a review of 350 proxies, S.E.C. officials stressed this week that analysis and presentation matter. But differences remain over their priorities.

Ever since the S.E.C.’s pay disclosure rules took effect earlier this year, the roots of this debate had been forming. Despite a wealth of data, investors complained that pay reports were bogged down by legalese. Crucial figures, meanwhile, were buried so deep that unearthing them required both an M.B.A. and an archaeology Ph.D.

This spring, Mr. Cox went on a plain English push.

Around the same time, William Lutz, a communications consultant and a former English professor at Rutgers, found the accessibility of the new compensation reports troubling. In the 1990s, Mr. Lutz led the S.E.C. effort to make mutual fund prospectuses easier to understand.

Mr. Lutz said he approached Mr. Cox about creating more reader-friendly reports, and received a go-ahead. This summer, he found a volunteer in Margaret M. Foran, Pfizer’s corporate secretary.

Pfizer executives saw it as an important initiative as well as way to restore the company’s tarnished image as a governance leader. At nearly 18,000 words, Pfizer’s 2006 proxy quickly became an example of disclosure run wild.

A year earlier, the company said its disclosure practices went above and beyond the rules. Even so, many investors criticized Pfizer after they learned about the nearly $200 million exit package for the former chairman and chief executive, Henry A. McKinnell — including $82 million in retirement benefits.

By August, Pfizer executives were actively trying to develop the new pay report. While Mr. Lutz worked on streamlining its structure, Gordon Akwera of Addison, a firm specializing in financial communications, joined the team to tweak the format.

Over the next month, the group made several crucial changes, mainly to the look. They reorganized the material into sections, moving from general to specific topics. They made it easier to navigate by using color, different font sizes and a two-column structure, based on Addison’s research. The biggest change was the creation of a total compensation table, where they pulled in additional information — details like performance targets and realized stock options — that had been buried in other charts.

Mr. Lutz said several S.E.C. officials reviewed early drafts, including Mr. Cox. “The chairman has been involved and provided encouragement,” Mr. Lutz said. “He wants to be able to say to companies: here is something to look at for good ideas for communicating better. We are trying to give him something to use.”

But S.E.C.’s corporate finance staff, which has overseen the changes in the pay disclosure rules, did not participate in the mock-up effort. “We were aware that they were working on it,” John W. White, the corporate finance division’s director, said. “The staff has not been involved at all in providing input into the presentation.”

In the last week or so, corporate finance staff members reviewed the document and did not like what they saw. “They are very unhappy,” Mr. Lutz said, recounting long calls with regulators who requested several pages of changes. “Communication is not their concern.”

Since then, the mock-up team has toned down expectations. Pfizer said that it would use concepts from the redesign but would make adjustments before filing next year’s proxy.

Mr. White, S.E.C.’s corporate finance director, lauded the effort and suggested that his staff had no qualms with the mock-up now that it had the disclaimer. Still, he left little doubt where he stood.

“Our review process, our comments and our focus is very much on the content,” he said. “But we enthusiastically support the chairman’s focus on plain English and presentation.”