IR therefore I AM

Executive compensation is an issue that is going to be with us for a long
time and one that is bound to generate considerable debate (not to mention
legislation and rule changes that will keep corporate attorneys running their
meters over time).

Recently, Shelley Parratt, Deputy Director of the SEC’s Division of Corporation
Finance, delivered a speech at the 4th Annual Proxy Disclosure Conference regarding
the current state of executive compensation disclosure under the SEC’s rules
and what the SEC expects to see by way of disclosure for the upcoming proxy
season.

Parratt indicated that the SEC believes that many companies now understand
the executive compensation disclosure rules, but are hesitant to conform their
disclosures to common SEC comment themes until they receive specific comments
requesting enhanced disclosure. She urged companies to be more
proactive, reporting that the SEC is planning to take a stronger position in
its comment process and require amendment to materially deficient filings.  She
expects companies and their advisors to understand the rules and apply them
thoroughly. So, any company that waits until it receives staff comments to
comply with the disclosure requirements should be prepared to amend its filings
if it does not materially comply with the rules.

In its review of 2009 executive compensation disclosures, the SEC observed
that companies still need to include detailed and enhanced disclosure surrounding
their analysis of how and why they made particular compensation decisions and
what the particular elements of compensation are designed to reward. Parratt
noted that there was too much discussion of the framework in which decisions
are made and not enough insight into the reasons behind compensation policies
and decisions. Therefore, for the upcoming 2010 proxy season, companies should
present a thorough analysis of their compensation decisions, avoiding
boilerplate and unnecessary information and instead providing the specific
details of the actual decisions that were made.

In addition, the SEC observed that there continues to be a need to provide
enhanced disclosure surrounding performance targets and benchmarking. In fact,
the SEC issues more comments on performance targets than any other executive
compensation disclosure item and expects specific qualitative and quantitative
(if applicable) disclosure of material performance targets, unless it would
cause substantial competitive harm. Parratt commented that while a company
must first determine whether the performance targets are material to its compensation
policies and decisions, a performance target not being met or being disregarded
is not a dispositive factor in this analysis. With respect to competitive harm,
Parratt stated that companies need to conduct the same analysis that they would
for a formal confidential treatment request. She also remarked that it is more
difficult to persuade the SEC of the merits of a competitive harm argument
after the amounts have been disclosed by the company, especially in the context
of publicly reported company-wide financial results for which the SEC has “yet
to see any persuasive analyses explaining how competitors could pull together
sufficiently-specific information about a company’s future operations and strategy…to
cause the company competitive harm.” Parratt emphasized the need to provide
meaningful degree of difficulty disclosure when targets are not disclosed for
competitive harm reasons.

Parratt also indicated that in drafting 2010 compensation disclosure, one
area companies should focus on is their benchmarking process, including specific
disclosure of the peer group, how they were selected, and how actual awards
compared to the benchmark.

Given Parratt’s speech, observers believe that companies should focus on proactively
conforming their compensation disclosures to the SEC’s stated areas of focus
in order to avoid the prospect of amending their filings in the face of SEC
comments.