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Executive compensation disclosures under increased scrutiny

Public companies were required to substantially increase the information about executive compensation included in their most recent proxy statements. In particular, the U.S. Securities and Exchange Commission (SEC) added a “Compensation Discussion and Analysis” (CD&A) to the required disclosures for public companies, other than small business issuers. Most companies struggled to determine exactly what the SEC was expecting to see in the CD&A.

The SEC did not wait long to inform many companies about their shortcomings in the CD&A. Over the past few months, the SEC has reviewed hundreds of proxy statements and issued comment letters to many companies. The SEC recently issued “Staff Observations in the Review of Executive Compensation Disclosure” for the benefit of all public companies.

The primary themes that emerged from the SEC’s proxy statement review were:

  • The CD&A should focus on “how and why” the company makes specific compensation decisions. The SEC cautioned that companies should not simply make the CD&A longer and more technical. Rather, the focus should be on “helping the reader understand the basis and the context for granting different types and amounts of executive compensation.”
  • The CD&A should be presented in a way that the reader can understand the disclosure. The SEC suggested techniques such as providing an executive compensation summary or creating tables and charts designed to explain the company’s particular compensation program.

There is no doubt that the SEC will insist on understandable and full disclosure. It is also clear that the SEC will not tolerate boiler-plate disclosure and is looking for disclosure that is tailored to each company’s executive compensation program.§

  • Partner

    June is a member of the Business Services Department. Her practice focuses on U.S. and state securities laws compliance, Sarbanes-Oxley Act and corporate governance issues, and financial institution regulatory matters. She ...



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