SEC Pushes Harder On Exec Pay

August 31, 2007 by Douglas A. McIntyre

Almost 300 CEOs are getting letters from the SEC. They include the heads of American Express (AXP), GE (GE) and Coca-Cola (KO). The agency wants more details on how their compensation is determined. This even includes details on specifi work done by pay consultants who work for board comp committees.

According to The Wall Street Journal: "The letters are intended to help issuers better explain why they’ve paid executives what they’ve paid them," said John Nester, an SEC spokesman The paper goes on to write: "Some letters posed highly technical questions, even though SEC officials had previously encouraged companies to simplify their often wordy proxies."

The issues here are not immensely complex, but they could be time consuming. The entire process which goes into setting pay for the senior management at a company may take several months and a number of board members and consultants.

But, there is a way around this. The SEC could ask that the audit firms that verify financials also supply all of the necessary information on management pay. Audit firms have the expertise to examine complex and detailed issues and they are responsible to a company’s audit committee. Thus, the compensation committtee would set pay, and the auditors would report the factors that go into the calculations.

That way, no one can borrow the company plane without the audit firm knowing it.

Douglas A. McIntyre

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