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El Paso May Not Omit Proposal to Amend Bylaws on Executive Compensation

The Division of Corporation Finance did not agree with the view of El Paso Corp. that it could omit from its proxy materials a shareholder proposal submitted by Lucian Bebchuk, a Harvard law professor and the author of numerous papers on executive compensation. Bebchuk is seeking to amend the company's by-laws to require additional information on executive compensation (SEC No-Action Letters Ind. & Summaries (WSB) #0306200625 (March 6, 2006)). His proposal would require disclosure in El Paso 's proxy statements of the estimated monetary value of benefits in which named executive officers had any vested rights as of the last day of the reported period under any pension, retirement or deferred compensation plan, including any supplemental executive retirement plan established by El Paso.

In his proposal, Bebchuk, who owns 450 El Paso common shares, said it is essential that shareholders have information about the total amount and makeup of the top executives' compensation. More transparent information will allow shareholders to better assess the compensation decisions of the board, he explained. Bebchuk's proposal would add a new section to the company's by-laws by to require the new disclosure.

El Paso sought to omit the proposal under 1934 Act rule 14a-8(i)(10) as having been substantially implemented. The company said that it provides all of the compensation-related disclosures in Bebchuk's proposal in the executive compensation, compensation committee, and report on executive compensation and benefit plans sections of its annual proxy statement. El Paso said that its current policies, practices and procedures compare favorably with the disclosure guidelines in Bebchuk's proposal.

The New York firm of Grant & Eisenhofer P.A., responding on behalf of Bebchuk, argued that the proposal has not been substantially implemented. The firm pointed out that Bebchuk's proposal does not request that El Paso demonstrate that it has made specified disclosures in the past, nor does it request that the company implement voluntary disclosure guidelines, principles or policies. It seeks to amend the by-laws to establish a binding requirement that would apply to future proxy statements.

The firm added that El Paso's corporate governance guidances are entirely silent on the issue of executive compensation disclosure. Its compensation committee charter states only that the compensation committee will prepare and provide a report to shareholders on executive compensation for inclusion in the annual proxy statement in accordance with the SEC's rules and regulations.

Bebchuk's proposal would require specific executive compensation disclosures that are not currently required by applicable law, according to the firm. The SEC's recently proposed rules on executive compensation cite an article by Bebchuk noting that the disclosure he proposed in the by-law amendment is not required by applicable law. The firm also noted that shareholders possess the authority to legally enact the by-law under the Delaware General Corporation Law. Unlike a resolution or policy, a by-law validly enacted by the shareholders cannot be repealed or ignored by a board.

The firm refuted El Paso's assertions that it currently provides all of the compensation-related disclosures that the proposal would require. In its 2005 proxy statement, El Paso included information that did not reflect the balance that any individual may have vested in the retirement savings plan. The firm said that it is impossible for shareholders to determine or to estimate the balance of the executives' vested interests.

The staff advised that it did not believe that El Paso could omit the proposal from its proxy materials in reliance on rule 14a-8(i)(10).