The SEC's 2007 final executive compensation disclosure rules provide for enhanced disclosure of executive and director compensation, related-person transactions, director independence, and other corporate governance matters. As the final SEC rule states, the intent is "to provide investors with a clearer and more complete picture of the compensation earned by a company’s principal executive officer, principal financial officer and highest paid executive officers and members of its board of directors. In addition, they are intended to provide better information about key financial relationships among companies and their executive officers, directors, significant shareholders and their respective immediate family members.” With a goal of transparency, perhaps organizations should strive to provide customized narratives of how they derived “pay for performance” compensation plans and how they ultimately will provide shareholder value.
Do You Know?
The purpose of the Compensation, Discussion and Analysis (CD&A) is to provide investors with the information needed to understand a company’s compensation policies and decisions regarding the named executive officers. This information is reflected in the compensation tables. Per the final rule, the CD&A is expected to include:
- The objectives of the company’s compensation program
- What the compensation program is designed to reward
- Each element of compensation
- Why the company chooses to pay each element
- How the company determines the amount for each element to pay
- How each compensation element and the company’s decisions regarding that element fit into the overall compensation objectives and affect decisions regarding other elements.