A significant number of large U.S. companies don’t plan to reveal performance goals for their executive pay programs in their 2008 proxy statement, according to a Watson Wyatt poll.
It found only 42% of firms will disclose on their proxy what the specific goals that were used in their executive compensation plans for the 2007 fiscal year while 31% of companies have no plans to reveal the goals and the remaining 27% are unsure.
Effective for the 2007 proxy season, the Securities and Exchange Commission (SEC) adopted new disclosure rules in an effort to give investors a clearer picture of how a corporation’s executives are compensated. The rules request companies to disclose their performance goals, unless providing them would result in competitive harm.
“The SEC has put significant pressure on companies to disclose their goals so that shareholders can determine if programs are paying for performance,” says Ira Kay, Watson Wyatt’s global director of executive compensation consulting. “However, companies are still struggling with the decision of whether to disclose this information.”
The poll also found that a majority of companies continue to think the rules will not improve their performance. Most, 77%, say the disclosure rules will not have much effect on corporate performance, a slight increase from last year. However, the number of companies that believe the rules will improve performance nearly doubled to 21% in 2007 from 11% last year.
“As the scrutiny of severance, change-in-control provisions and large executive pensions intensifies,” adds Kay, “companies are likely to continue their focus on more shareholder-friendly ‘core’ pay elements such as performance-vested shares, stock options and short-term incentives with difficult but attainable performance goals.”
The poll results are based on a poll of legal, compensation and human resources executives as 135 large, publicly traded companies.
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