(The news featured below is a selection from the news covered in SEC Today, which is distributed to subscribers of SEC Today.)

House Chair Seeks Information From Executive Compensation Consultants

Against the backdrop of the SEC's new executive compensation disclosure regime, Rep. Henry Waxman (D-CA), chair of the House Oversight and Government Reform Committee, has asked six executive compensation consulting firms to provide information on the services they provide to public companies. The information must be provided by May 29, 2007.

In seeking the data, Waxman noted that shareholders have expressed concern that a compensation consultant's ongoing business relationships with a company could compromise the independence of the advice that the consultant provides to the company's board about executive compensation. Little is known about the extent of this practice, he said, since the SEC does not require companies to disclose whether executive compensation consultants perform other services for management.

The new executive compensation disclosure rules require companies to disclose the identity of compensation consultants and any role that they play in determining or recommending the amount or form of compensation. Companies must also disclose whether compensation consultants are directly engaged by the compensation committee or any other person. The nature and scope of their assignment must be disclosed, including the material elements of the instructions given to the consultants with respect to the performance of their duties under the engagement.

While the SEC views the involvement of compensation consultants and their interaction with the compensation committee to be disclosable material information, it was persuaded to drop the idea of requiring disclosure of the identity of any corporate executives that the consultants contacted in carrying out their duties. Disclosure is not required if an employee of a consulting firm met with management to work on non-compensation matters.

The Oversight Committee is conducting a preliminary inquiry into executive compensation practices, including the role played by executive pay consultants. Recent press reports and company disclosures have raised questions about the independence of the advice companies receive from executive compensation consultants. In some cases, the firms that provide executive pay advice to a company's board also perform other types of services for company management, such as employee benefit plan and pension plan consulting. The fees received for these other services can be substantial, reportedly reaching hundreds of millions of dollars in some cases. 

The committee asked the compensation consultants for each of the largest 250 companies to identify the companies for which their firm provided both executive compensation consulting services as well as other types of services. After identifying the company, the firms must describe the nature of the executive compensation consulting services, as well as the total revenues received annually for providing executive compensation consulting services. Waxman asked the firms to describe the nature of all other services, other than executive compensation consulting, provided to the client company and the total revenues received annually for providing these other services. In responding to these requests, the consulting firms should include information regarding affiliated companies, such as a corporate parent or subsidiary.

James Hamilton