Statement Summary
The SEC held a roundtable on executive compensation to evaluate the effectiveness of its current disclosure requirements, which have evolved into a complex set of rules since the enactment of federal securities laws. The discussion emphasized the need for transparency and clarity in compensation disclosures to ensure they meet the objectives of investor protection, market efficiency, and capital formation. The panelists highlighted that existing rules can be difficult for average investors to understand, necessitating specialized legal and consultancy assistance for compliance. This roundtable aims to gather public feedback on potential amendments to improve disclosure requirements, encouraging stakeholders to submit their opinions to guide future rulemaking.
Original Statement
Good afternoon. Welcome to all of you attending in person or watching and listening online to today’s roundtable on executive compensation. I thank the very distinguished group of moderators and panelists who have assembled here today for volunteering their time to contribute their thoughts on this important topic.
As one of the enumerated disclosure items in Schedule A to the Securities Act of 1933, the requirement to provide executive compensation information is as old as the federal securities laws themselves. Over the past ninety years, the Commission has adopted numerous rules requiring more and more information about executive compensation. Some of these rules have come about from Congressional mandates, while others have not. I have been at the SEC in one role or another for a couple of these changes, including the 1992 rulemaking initiated by Chairman Richard Breeden that created the “summary compensation table” and the 2006 rulemaking that introduced “compensation discussion and analysis” and added other compensation tables.
Today, one might describe the Commission’s current disclosure requirements as a Frankenstein patchwork of rules. The volume and complexity of these rules may be just as scary to a law firm associate performing a “form check” of a proxy statement, as the monster was to Dr. Frankenstein himself when the monster opened its eyes.
The Commission amended Item 402 of Regulation S-K in 1992 to state specifically that “This Item [402] requires clear, concise and understandable disclosure of…compensation…” However, one could say that this well-intentioned, three-decade-old statement has become facetious with the passage of time in light of the lengthy narrative disclosure and numerous tables and charts that appear in today’s proxy statements.
Our rules must be grounded in achieving the Commission’s three-part mission: investor protection, fair, orderly and efficient markets, and capital formation. These rules should be cost-effective for companies to comply with and provide material information to investors in plain English. Most importantly, the information required to be disclosed should be material to the company and understandable to the Supreme Court’s objective reasonable investor. The outcome of our rules is not effective when companies require highly specialized lawyers and compensation consultants to prepare disclosure that the reasonable investor struggles to understand.
Today’s roundtable is one of the first steps in considering whether the current executive compensation disclosure requirements achieve these objectives, and if not, how the rules should be amended. In connection with this process, I previously asked the Commission staff to consider several questions in this area and for the public to provide their views on those questions. Thank you to those who have already submitted comment letters. For others who intend to submit a letter, please do so as soon as possible over the next several weeks, to provide the staff time to consider and incorporate your views into any potential rulemaking proposal.
Thank you to the staff of the Division of Corporation Finance, the Office of Support Operations, the Office of Information Technology, and the Office of Public Affairs for organizing this roundtable. I very much look forward to this afternoon’s discussion.
