On Tuesday, the PCAOB issued a proposed auditing standard that would change how an auditor evaluated a client’s identification of, accounting for, and disclosure about its relationships and transactions with related parties. As noted in this Towers Watson alert, this proposal could bring added involvement of independent auditors into executive pay decisions. Under this proposal, a company’s auditor would have to review its client’s pay programs and determine if they might encourage excessive risk-taking.

I haven’t read the proposal yet myself, but it seems that going down that slippery slope, might it be possible that an auditor would say to a company, “too risky, we can’t sign off on the financials” – so auditors could possibly play a role of essentially pre-approving pay programs? Comments are due by May 15th.

Survey Results: Pay Ratios

We have posted the survey results regarding how companies are preparing now for the SEC’s upcoming pay disparity rulemaking, repeated below:

1. At our company, the board:

– Does not consider internal pay equity when setting the CEO’s compensation – 51.8%
– Does consider internal pay equity as a factor by comparing the CEO’s pay to all employees – 1.8%
– Does consider internal pay equity as a factor by comparing the CEO’s pay to other senior executives – 44.6%
– Does consider internal pay equity as a factor by comparing the CEO’s pay to a formula different than the two noted above – 1.8%

2. Ahead of the SEC’s mandated pay disparity disclosure rulemaking under Dodd-Frank, our company:
– Has not yet considered how we would comply with the rules – 58.9%
– Has begun considering the impact by assessing whether we could comply with the precise prescriptions in Dodd-Frank but we have not yet tested statistical sampling – 35.7%
– Has begun considering the impact by assessing whether we could comply with the precise prescriptions in Dodd-Frank including assessing whether we could use statistical sampling – 5.4%

3. As one of the companies that have assessed the impact of the SEC’s mandated pay disparity disclosure rulemaking, our company:
– Believes we could comply with the precise prescriptions in Dodd-Frank without too great a burden – 13.5%
– Believes we could comply with the precise prescriptions in Dodd-Frank but it would be too burdensome unless statistical sampling is allowed – 13.5%
– Believes we could comply with the precise prescriptions in Dodd-Frank but it would be burdensome even if statistical sampling is allowed – 45.9%
– Believes we wouldn’t be able to ever comply with the precise prescriptions in Dodd-Frank – 27.0%

4. In your own opinion, do you think that statistical sampling would have too high a potential for manipulation or material error:
– Yes – 38.2%
– No – 29.1%
– I don’t have an opinion – 32.7%

Please take a moment to participate in this “Quick Survey on Board Minutes & Auditors” – and this “Quick Survey on GRC Software.”

Transcript: “The Dynamics of Disclosure Claims”

We have posted the transcript for the recent DealLawyers.com webcast: “The Dynamics of Disclosure Claims.”

– Broc Romanek

I was very sad to learn that Ella Phelps passed away on Sunday after a long illness. Ella worked in Corp Fin as a secretary for 15 years – and then worked in the Office of Economic Analysis for another decade – before retiring last year. Ella was one of the secretaries in the banking group when I first started at the SEC out of law school in ’88.

And Ella ran the place. With her great wit, she was always entertaining us. Her desk geographically was in the center of the group – so you joked around constantly with Ella throughout the day. But more importantly, Ella spoke to all of our loved ones as this was in the era before voicemail (and computers) and she knew more about our personal lives than we did! For a while, I dated someone down in Chapel Hill and Ella – hailing from North Carolina – got to know her so well that they remained friends even after we broke up! I remember Ella telling many loving stories about her husband Charles and her two children, as well as her fabulous cooking adventures. She will be missed.

Here is a picture of Ella in the midst of a banking pod party in ’90. And here is a guest book where friends & family can post comments, as well as information about tomorrow’s viewing.

Warren Buffett’s Annual Letter to Shareholders

We now have the always fascinating annual shareholders’ letter from Warren Buffett, coming in at 21 pages. And this one includes some musings on his successor as noted in this WSJ article. Here are reactions to the letter from Ny Time’s DealBook and Kevin LaCroix’s analysis – and here is a Bloomberg article analyzing Buffett’s mea culpas.

Our March Eminders is Posted!

We have posted the March issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!

– Broc Romanek