September 28, 2004

Another Crack at Freezing Severance Payments?

Last May, a panel of the Ninth U.S. Circuit Court of Appeals in San Francisco voted 2-1 to reject the SEC’s argument that $37.6 million in termination pay and bonuses to two top officials of Gemstar TV Guide International were extraordinary payments that must be frozen while the executives were under suspicion of cooking the company’s books. This was the SEC’s first attempt to use new Section 1103 of Sarbanes-Oxley to freeze termination payments that it felt was extraordinary.

On Friday, a majority of its 25 judges voted to grant the SEC’s request for a rehearing before an 11-judge panel. No date has yet been set for the rehearing.

The big battle is over what is deemed an “extraordinary payment” – something that some of our Executive Compensation Task Force members have addressed through their practice pointers on

During the October 20th conference, how to determine the appropriate level of severance pay will be discussed on the panel, “What is the Appropriate Amount of Compensation for CEOS,” as well as:

– What responsible ways (and yardsticks) can be used to structure each component of top executives’ compensation, including cash compensation, bonuses, stock compensation, retirement plans, severance and more
– What types and levels of compensation are now appropriate for CEO pay – and how to identify them
– What should be the role of surveys regarding CEO pay; including how to overcome the problems of defining peer groups
– How to critically evaluate survey data and avoid the pitfalls of benchmarking – red flags and nuggets
– How to implement internal pay equity methodology

The Future is Here – SEC Proposes Voluntary Use of XBRL

Yesterday, the SEC posted both a concept release and a proposing release regarding the voluntary tagging of EDGAR data to make the data more “fungible.” Fungible is probably the best way to describe XBRL – because it is derived from eXtensible Mark-up Language (known as “XML”), a coding language that allows for the creation of individual “tags” for specific elements in structured documents.

Using XBRL, each item in a financial statement is individually tagged based on a “taxonomy,” or agreed-upon system of classification. With the tags working behind the scenes, companies can create financial statements that investors can easily manipulate. In other words, investors will be able to more easily compare “apples” to “apples” when comparing the financials of different companies.

Even before this voluntary program – that the SEC hopes to launch early next year – Microsoft, Morgan Stanley and Reuters have made their financials available in XBRL. Here are some FAQs that I drafted about XBRL back on my old site.