March 7, 2006

The SEC’s Compensation Proposals: Our Comments and Critical Fixes

Last week, Jesse Brill submitted a comment letter to the SEC regarding the executive compensation disclosure proposals. Jesse’s comments are embedded in the Jan-Feb 2006 issue of The Corporate Counsel, which was mailed over the weekend (and a copy of this issue is posted on We hope you will read these 8 pages as “food for thought” as you consider what issues you intend to comment upon.

Meet Our Compensation Consultants: Ratchet, Ratchet and Bingo

In this year’s 23-page letter to shareholders, Warren Buffett takes his annual swing at excessive CEO pay. My three favorite quotes from this year’s letter:

1. “The deck is stacked against investors when it comes to the CEO’s pay. Outlandish ‘goodies’ are showered upon CEOs simply because of a corporate version of the argument we all used when children: ‘But, Mom, all the other kids have one.'”

2. “The upshot is that a mediocre-or-worse CEO – aided by his handpicked VP of human relations and a consultant from the ever-accommodating firm of Ratchet, Ratchet and Bingo – all too often receives gobs of money from an ill-designed compensation arrangement.”

3. “Comp committees should adopt the attitude of Hank Greenberg, the Detroit slugger and a boyhood hero of mine. Hank’s son, Steve, at one time was a player’s agent. Representing an outfielder in negotiations with a major league club, Steve sounded out his dad about the size of the signing bonus he should ask for. Hank, a true pay-for-performance guy, got straight to the point, ‘What did he hit last year?’ When Steve answered ‘.246,’ Hank’s comeback was immediate: ‘Ask for a uniform.'”

New Disclosure Requirement? How Much You Got Paid to Draft Those Compensation Disclosures

Got a chuckle reading Evelyn Y. Davis’ comment letter to the SEC regarding the executive compensation disclosure proposals. If you don’t know about Evelyn, here is some background information.

Evelyn asks the SEC to require disclosure of “all outside legal fees.” Not sure how that would work within the SEC’s proposed framework nor am I sure what that would accomplish (do shareholders really want to know how much companies pay each vendor they work with?). She appears incensed that one company paid $800 million in legal fees in a one year period – I agree that sounds more than a tad bit high.

Why Rules Can’t Stop Executive Greed

This NY Times article from Sunday is among the best I have seen on the complexities of pay-for-performance metrics. It also addresses the importance of boards taking charge to tackle the perils of excessive executive compensation. I recognize that shareholders have a role here, but the burden truly does rest on the board’s shoulders.