Rappaport Sees SEC Compensation Disclosure Rules Affecting Boardroom Behavior
2 May 2008
Linda E. Rappaport

New SEC disclosure rules are changing the way that companies report executive compensation and will “continue to impact behavior in the boardroom,” Linda Rappaport, leader of Shearman & Sterling’s Executive Compensation & Employee Benefits practice, told the audience in a panel discussion on the latest trends in executive pay. The event, held at the Harvard Club of New York City, featured the findings from The Wall Street Journal/Hay Group 2007 CEO Compensation Study, which analyzes various forms of CEO pay from 200 companies with revenue of at least $5 billion in fiscal year 2007.

Rappaport was joined on the panel by Joann Lublin, management news editor for The Wall Street Journal. A prominent and influential business writer, Lublin has worked on the annual survey of CEO compensation for 15 years and has developed and contributed to the paper’s coverage of management and career issues. Irv Becker, Hay Group’s national practice leader for executive compensation, served as panel moderator and presented some of the study’s key findings.

According to this year’s study, the median net increase in CEO income for 2007 was 7.9 percent, with total compensation, including salary, incentives, options, and other factors, averaging around $10 million. The study indicates that the way companies are paying CEOs is shifting, as performance-based plans have overtaken stock options as the most popular form of long-term incentive compensation. Like Shearman & Sterling’s 2007 Corporate Governance Survey, which included an annual report on executive and director compensation practices, TheWall Street Journal/Hay Group study suggests that recent regulatory actions have fueled changes in executive compensation.

Companies have become much more attuned to the SEC’s preferences in their proxy statements, Rappaport observed, and “we are seeing better compliance with the spirit of the [SEC] rules.” Increasingly, when disclosing executive compensation, companies are attempting to use “plain English” and to explain the factors and decisions behind the numbers, Rappaport added.

Lublin observed that the SEC’s regulatory changes, along with pressure from shareholders and attention from the media and government, have combined to leave corporate compensation committees “in a fishbowl.” In an environment of increased scrutiny, she observed, companies are turning more frequently to consultants and attorneys for advice on how to structure their executives’ compensation packages.

Becker noted that the study shows companies “taking a portfolio approach to long-term incentives,” providing a blend of options, restricted stock, and performance awards.