I participated in Panel 2 of the SEC’s roundtable on executive compensation disclosure requirements, and we had an interesting discussion of how the latest iteration of the executive compensation disclosure rules came to be, how investors use the information, the challenges that issuers face when preparing the disclosures and observations on things that could change.

I focused on the executive compensation rules that were adopted after the 2006 amendments, which I referred to as “the rules that everybody loves to hate.” I mentioned that a consistent theme with many of those Dodd-Frank Act requirements that were adopted by the SEC after an extended period of time is that largely the world had moved on with respect to the issue that the legislative directive was seeking to address, so the Commission had the difficult task of adopting rules against a backdrop of practices that had been in place for some time through private ordering. I note that the one Dodd-Frank Act provision that probably had the most meaningful impact on executive compensation disclosure was Say-on-Pay, because it ushered in sort of a golden age of engagement between companies, not just on executive compensation by also on a wide range of other important governance topics. This engagement inevitably led to more disclosure, as companies have tried to address the many hot button issues that investors are focusing on, and I think that has contributed to much longer executive compensation disclosures that go well beyond just compliance with the SEC rules. So when we talk about the length and complexity of executive compensation disclosures, there is a certain element where even if the SEC disclosure rules were to be revisited to reduce some of the disclosure burdens, that does not necessarily mean that disclosures will automatically become shorter because of the desire to meet investor expectations for transparency. I then discussed the Dodd-Frank Act rules that most frequently came up during the course of the afternoon – CEO pay ratio, pay-versus-performance and clawback – highlighting the key areas of concern with those requirements.

Our panel also focused on a couple of “hot button” executive compensation topics, including perquisites and named executive officers. The treatment of executive security as a perquisite dominated the conversation over the course of the afternoon, and I talked about why the Commission provided the guidance that it did on executive security in the 2006 adopting release. The SEC has a long history of grappling with the question of whether providing executive security arrangements constitute a reportable perquisite under the SEC’s executive compensation disclosure rules. Prior to the 2006 executive compensation disclosure rule changes and the 2006 interpretive guidance, companies would sometimes argue that all security arrangements were necessary benefits provided to executives and not perquisites, bolstered by “security studies” undertaken to support the determination of whether the benefit must be taxed as income to the executive. I noted that the SEC decided to draw a line in the sand in 2006 that the tax outcome does not necessarily have any bearing on the disclosure outcome under Item 402 of Regulation S-K, creating very different outcomes for benefits like personal security and personal use of corporate aircraft.

On the topic of named executive officers, I explained how we got to the current lineup of the CEO, CFO and three highest paid executive officers, and we discussed what should be the lineup of NEOs, including how investors consider the compensation of executive officers other than the CEO – not surprisingly, the investor representatives believe that the information about the other NEOs is important.

My panel and the other two panels were all very interesting and it was great to get the varying perspectives of each of the panelists. The group certainly raised a number of important issues for the Commissioners and the Staff to consider as they decide their next steps (if any) with respect to the executive compensation disclosure rules.

– Dave Lynn