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New Director of Corporation Finance Offers Advice on Compensation Disclosure

John White, the new director of the SEC's Division of Corporation Finance, provided his views on the proposed executive compensation disclosure rules at Stanford University's recent executive compensation conference. He urged public companies not to wait for the rules to be implemented to begin to prepare for the potential new disclosure. Companies should make sure they know the relevant information about their executives' compensation, he advised, and that their disclosure controls and procedures are capable of complying with the new requirements.

White outlined the areas in which, if he were still in private practice, he would urge his corporate clients to prepare for the possibility of additional disclosure next year about events occurring this year. As companies consider what they may have to disclose under the proposed "Compensation Discussion and Analysis," White said they may not like what they find. Some companies may conclude that changes should be made now. He suggested that companies take the time before final rules are adopted to step back, consider and review their executive compensation, and prepare for future disclosure obligations.

The proposed disclosure of executives' total compensation may have the most profound effect if adopted, according to White. He suggested that companies and their compensation committees should know now the total compensation of all of their senior executives. If a company in the past has not been able to quickly and easily determine total compensation, White said it is a good time to start. As companies review their processes for setting compensation, some may decide to reshape them in light of the proposed rules, he said. For example, if executive officers have a role in setting compensation, that may have to be disclosed, so some companies may wish to change that role, White explained.

White said he would also advise his clients to learn what perks the company is paying since it may have to identify each perk that a named executive received, along with the value of the perks that meet a certain threshold. He also would advise companies to ensure they are tracking the compensation of all of the executives whose compensation may have to be disclosed. White said companies should know the amounts of compensation that have been deferred, the amount that is payable upon an executive's retirement or severance, and whether any non-executive employees make more money than the least-paid of the named executives based on total compensation.

White encouraged companies to start thinking about whether their disclosure controls and procedures should be revised or updated to handle the new disclosure requirements if they are adopted. Companies must consider who will collect and aggregate the information. He also suggested that, in looking to the future, companies may want to consider preparations for presenting the executive compensation information in any tagged data format that may be developed. White said that companies also should be sure that their CEOs and CFOs are prepared to certify the disclosure that is required for their periodic filings.

Companies should treat the SEC's proposal as a wake-up call, according to White. The proposal provides the opportunity to reassess what companies know and how they would present that information if the rules were final. Companies have the benefit of looking at what may lie ahead, he said.