October 31, 2007

Lessons Learned: The SEC’s Comment Letter Database

A few weeks back, I blogged about an executive compensation comment letter that the SEC Staff might have accidentally uploaded. I say “accidentally” because it was pulled off the EDGAR database a few hours after my blog was posted (but note that the comment letter continues to “live on” within the paid databases like Securities Mosaic and 10-K Wizard).

This episode serves as a lesson for companies to monitor their “filings” on the SEC’s website. Here I use the term “filings” pretty broadly, as it now includes content that the SEC Staff might upload (like comment letters) as well as third-party content (like third party tender offers).

[Keith Bishop notes: To someone who grew up in Nevada, October 31 is not Halloween but Nevada Day. We used to get the day off (which worked well with it also being Halloween). The story behind Nevada Day is actually somewhat interesting. Back in 1864, President Lincoln needed support for the 13th Amendment (abolishing slavery). Three more votes from Nevada would help ensure victory. The perceived need for prompt admission was so great that the entire Nevada Constitution (over 18,000 words) was sent by telegraph to Washington D.C. That’s a lot of dots and dashes.

President Lincoln proclaimed Nevada the 36th state on October 31, 1864. Nevada’s new Congressional delegation obliged by voting for the 13th Amendment. Alas, the Nevada Legislature has sacrificed tradition on the alter of convenience and moved observance to Nevada Day to the last Friday in October. NRS 236.015(1). Keith wrote a treatise on Nevada Law of Corporations & Business Organizations (now out of print).]

Compensation Arrangements for Private Equity Deals

Tune in tomorrow for this webcast – “Compensation Arrangements for Private Equity Deals” – to hear Jeremy Goldstein of Wachtell Lipton and Shawn Hamilton and Craig Rowley of the Hay Group discuss:

– What are the latest compensation trends and developments when companies are purchased by private equity funds?
– What compensation issues should a target board consider when it’s approached by a private equity fund?
– What type of due diligence should be conducted into a target’s compensation plans by a potential acquiror?
– How should elements of pay be re-balanced and re-mixed when going private?

Please print out these course materials before catching the program.

“We are Overpaid,” Say US Executives

Here is a recent article from the Financial Times about internal pay equity, etc.:

“Most US corporate leaders believe chief executives are overpaid and do not provide value for money for their com­panies, according to a study that will embolden critics of excessive compensation. The findings – to be published today by the National Association of Corporate Directors – are likely to strengthen calls by investors and politicians, including George W. Bush, US president, for restraint on executive pay at a time of growing income inequality in the US.

Top executives’ criticism of their peers’ compensation levels could also encourage activist investors and hedge funds to target underperforming companies with highly-paid leaders at shareholder meetings. Four out of six chief executives or company presidents polled by the NACD in July and August said the compensation of top executives was high relative to their performance.

Only 2.2 per cent of the nearly 70 chief executives and presidents involved in the survey said compensation was too low, while a third deemed it “just right”. Their views were backed up by outside directors, with more than 80 per cent of them saying chief executives were overpaid.

“There is an overall realisation that executive compensation is an area that boards and management are struggling with,” said Peter Gleason, chief operating officer of the NACD. The issue is particularly sensitive because the gap between rich and poor in America has reached its widest point in more than 60 years.

Figures released last week showed the share of national income claimed by the wealthiest 1 per cent of Americans had reached 21.2 per cent – a postwar record – partly because of booming company profits. Mr Bush last week told The Wall Street Journal that he thought some executive compensation was excessive and that some boards needed to improve their oversight of this.

Nearly 60 per cent of the directors polled by the NACD said the reason for excessive pay packages was the absence of objective ways to measure an executive’s performance. Nearly half criticised the use of options and equity awards that reward executives when the company’s share price goes up, rather than when its operations improve. Investors have become more vocal in attacking what they often call “pay for failure” – large severance packages awarded to ousted chief executives.”

– Broc Romanek