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Cox Applauds Successes in Executive Compensation Disclosure

SEC Chairman Christopher Cox provided the keynote address at the recent Center for Plain Language Symposium where he challenged the drafters of SEC documents to avoid cutting and pasting boilerplate disclosure. Cox argued that it is less risky to describe all of the material information associated with a given company, starting from scratch, than to mirror boilerplate language that may not fit a company's current situation.

When the SEC adopted new executive compensation disclosure, Cox said the staff recognized that companies would not have any examples to follow. While that may have posed a challenge to companies, he said it also presented an enormous opportunity to draft plain English disclosure from scratch. Based on the staff reviews of 350 proxy statements, Cox said that most companies met or exceeded expectations.

While the new disclosure reflected a great deal of effort by companies in drafting this year's proxy statements, Cox said there are specific areas where they can improve. He reviewed the two principal themes in the staff comment letters, one of which related to substance and the other to the manner of presentation.

The staff noted that a number of companies could have done a better job of explaining how the levels of compensation were determined and why that amount should be paid. Companies can provide more informative analysis, while still keeping the disclosure short, according to Cox. The Compensation Disclosure and Analysis section should focus on key facts and figures. Cox believes the use of plain English alone would shorten many companies' CD&A.

Cox added that shorter disclosure alone is not a sufficient measure of quality or usefulness to investors. Some decision-making processes may require more disclosure than others, and may require tables or charts to help illustrate the information. It is not the number of pages that counts, he said, but the quality, readability and usefulness of the information.

Presentation matters too, Cox said. He said that some of the best examples found by the staff included a layered approach with the CD&A at the top, and more tabular information that followed. Many companies used graphics effectively too, Cox added. The staff found the graphics very useful in many instances. Cox applauded the creativity that some companies brought to their presentation of executive compensation information.

The staff has not commented formally on some of the more innovative design formats, according to Cox, but has been impressed by the use of tables to provide change-in-control and termination payments. The staff also liked the use of bar graphs and break-out talking points in the CD&A. The rules do not prohibit custom presentations, Cox noted, but the creative elements cannot be displayed more prominently than the required information. Cox thanked the industry for its efforts and enthusiasm in meeting the disclosure challenges posed by the new rules.