January 17, 2006

Executive Compensation Disclosure at the Forefront

Hats off to Joe Nocera of the NY Times for his uplifting column on Saturday, during which he tackles the tough issue of what boards should be doing now to rein in excessive pay. Noting that mere disclosure won’t fix many of the existing problems, Joe becomes the first reporter to identify that internal pay equity is a viable solution to many of today’s ills (quoting Fred Cook repeatedly in the process).

Hopefully, many boards will now take this opportunity to implement many of the practices for which we have provided practical guidance – on – in an effort to get back to responsible pay practices. Otherwise, shareholders are going to have their own “Holy Cow” moment when enhanced disclosures are made this proxy season (or next year, for those companies that don’t have the backbone to follow the SEC’s proposals this season).

Getting responsible isn’t difficult – just use these “four tools” (that we fleshed out in the September-October issue of The Corporate Counsel):

1. Tallying ALL Components
2. Internal Pay Equity
3. Accumulated Gains Table
4. Hold Until Retirement

You will also want to make sure that your CEO and directors have read the recently posted 8-page summary of the important guidance that came out of the “2nd Annual Executive Compensation Conference” – as well as learn from the experts during our three upcoming proxy disclosure webcasts.

SEC Upgrades Enforcement Investigation of IBM’s Option Expensing Disclosures

Last Thursday, IBM issued this brief press release to announce that the SEC has upgraded its probe of IBM’s April 2005 disclosure related to how it is expensing stock options. In June, IBM previously announced that the SEC was informally looking at the matter after questions arose when IBM said on April 5 that it would begin accounting for the expense of stock options before the deadline in a hastily arranged conference call. Here is how a recent NY Times article described what happened:

“During the call, IBM Chief Financial Officer Mark Loughridge told analysts to “update” their models to reflect the new expense for the just-elapsed first quarter. A chart distributed with the call suggested that analysts lower their earnings-per-share estimates to 90 cents from $1.04, a drop of 14 cents. They did just that.

But when IBM put out its first-quarter financials nine days later, it reported earnings of 84 cents a share – and the new options cost contributed only 10 cents of expense. Some analysts complained that IBM had played up the impact of the options expensing in order to lower estimates ahead of a disappointing quarter.”

In his blog, Mike Melbinger has been warning companies that the issues and assumptions relating to a company’s implementation of FAS 123R were very important – and would be scrutinized. Learn more about how to disclose option expensing in press releases and SEC filings in this NASPP webcast – “Drafting the New Option Expensing Disclosures” – on January 25th, which will feature SEC Corp Fin Chief Accountant Carol Stacey, Ron Mueller and Keith Higgins. If you are not yet a member, try a No-Risk Trial to the NASPP today!

Alan Dye on the Latest Section 16 Developments

Don’t forget tomorrow’s popular webcast – “Alan Dye on the Latest Section 16 Developments.” Renew your membership or try a no-risk trial to catch this important program.