Disclosing Executive Comp: Fried Telephone Books

Oct 17, 2008

Fried telephone book cartoonPhred Dvorak recently wrote an excellent article on executive compensation disclosures in public company proxy statements (WSJ, 3/21/08). Her main theme was that in the face of SEC requirements for fuller disclosure of executive compensation, companies have provided so much additional verbiage that normal humans can no longer make any sense of the disclosures. Amen.

As a proud member of the normal-human race, I wonder if anyone asked the following questions before the SEC published their guidelines:

  1. How much is enough? Most of us would of course like to know what the execs’ target bonuses were, compared to base salary, and what percentage of those targets they received (“earned” might be presumptuous here), compared to perceived company performance. How much more than that is really useful to investors?
  2. How much would stockholders want to see disclosed? Most bonus plans depend at least partly on performance against highly confidential targets like profits and sales. Do stockholders really want those published for their companies, even after the fact?
  3. How skilled are the proxy writers? The more complex and complete the information being disclosed, the more important it is to use clear, straightforward English. If that were a critical need, would you depend on a bunch of lawyers and beancounters suddenly to turn into Ernest Hemingway?
  4. At what point do executives start to quote from Johnny Paycheck? [For you youngsters, he’s the country singer whose biggest hit was “Take This Job and Shove It.”] At some point, that family catering business, or any other occupation that’s below everyone’s radar, looks mighty attractive.

Of course, the SEC staff probably has an issue with Question #3 as well, and the disclosure regulations were probably never translated from the original Sanskrit (OK, maybe it was Aramaic). And as a result, public companies have engaged in the time-honored practice of “malicious compliance”: for centuries, bureaucrats and soldiers have dealt with ridiculous orders simply by following them. To the letter.

Which brings me back to the delightful cartoon by Charles Barsotti, which I have waited over 30 years to use. The SEC has ordered fried telephone books from American public companies, who served them right up. Bon appétit!

“Painting with Numbers” is my effort to get people talking about financial statements and other numbers in ways that we can all understand. I welcome your interest and your feedback.

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