Make no mistake. There is more information for shareholders, employees and others to digest about executive compensation because of new disclosure rules from the Securities and Exchange Commission that went into effect for this year's proxy reports.
But whether the information is better, or there is just more of it, is debatable.
The new rules open windows into severance, retirement and change-in-control packages, according to compensation experts. But the disclosures also mislead investors about stock grant awards and do not provide information on targets that executives had to hit to cash in on their firms' pay-for-performance incentives, they said.
``The SEC goal was to create a lot of transparency around pay and to stop pay for failure,'' said Ron Bottano, managing director for Executive Compensation Advisors, a Korn/Ferry International company in Los Angeles. ``But it is our view that it has led to a lot of complexity. The new discussions around pay are too long, too dense and housed in sentences too complex.''
Other executive compensation consultants seem to share that view.
Pearl Meyer & Partners analyzed a sampling of SEC's required Compensation Disclosure and Analysis reports in proxy statements and found them to be an average of 7,500 words, about 11 pages long - 20 when you add in the tables - and written at the reading level of a college sophomore.
Equilar Inc., a compensation research firm in Redwood City, Calif., said it was seeing CDAs of 12,000 words, some 50 pages in length.
``More data doesn't mean more information or more understandable information,'' said Bill Coleman, senior vice president of compensation at Waltham, Mass.-based Salary.com. ``The average disclosure is three to four times as many pages as it used to be. Less is more. To have a better summary of the information is what we need.''
Andrew Goldstein, in the Chicago office of Watson Wyatt, agreed. ``The sophisticated investor community can wade through them. But for an individual investor, it is awfully complex,'' said Goldstein, a central division practice leader.
Also, too many companies dance around too many issues and talk about measures used to determine performance-based compensation without disclosing the actual targets, compensation experts said.
``I think the companies did a good job of explaining how compensation programs are structured, but less of a good job of explaining how pay is connected to performance,'' said Goldstein. ``They did not say what someone did to achieve a reward.''
Disclosures at publicly held plastics companies paralleled what occurred across the entire business community. Many firms claimed in proxies that their annual compensation plans were discretionary, eliminating any need to discuss them. Others said the specific target information was proprietary - exempting them from disclosing it.
A few more were just fuzzy. For example, Tupperware Brands Corp.'s annual incentive program lists 15 performance measures it could use. Additionally, it also could consider the financial results of certain geographic or business unit areas in its assessments. For long-term incentives, Tupperware states its earnings-per-share measure includes ``a net income goal within the range of goals used for the annual incentive plan, converted to EPS using the number of diluted shares as of the start of the program.''
``The target cash flow goal is equal to the cumulative three-year EPS goal, converted into a dollar amount using the diluted shares of the company as of the beginning of the program.''
AptarGroup, which achieved record net sales and EPS as well as its 41st-consecutive year of sales growth, said its three top executives - Carl Siebel, Peter Pfeiffer and Stephen Hagge - were paid bonuses of $760,000, $480,000 and $435,000, respectively, to reward short-term performance.
But Aptar's bonuses were termed ``discretionary,'' as determined by the compensation committee after reviewing the executive's ``overall performance, strategic actions implemented and individual leadership achievements.'' The company added that the cash bonus program for its other named officers ``does not establish performance targets, but rather allows for a reward that is contingent on certain financial metrics'' - with profit growth and return on capital weighted the most.
By contrast, Bemis Co. Inc., Newell Rubbermaid Inc. and Pactiv Corp. are among companies that disclosed their specific targets.
``The 2006 target levels were $1.11 for EPS and $140 million for free cash flow,'' Pactiv stated in its proxy's CDA. ``The company exceeded its EPS goal by approximately 50 [percent] and its free cash flow goal by approximately 100 percent.''
For performance-based cash incentives, Bemis said its EPS target was 106 percent of the previous year's EPS. ``If our EPS is less than 90 percent of the previous year's EPS, no award is paid,'' Bemis' CDA said. ``At 114 percent EPS achievement, the plan would pay two times the normal award. Named executive officers can also earn an additional 10 percent of normal award if annual sales increase by 8 percent over the previous year. For 2007, the committee has approved the same EPS growth targets.''
Newell Rubbermaid, which performed well enough to attain maximum payout levels for three of the four corporate measures used to determine incentive compensation, was even more specific. The company delineated these specific corporate targets: $1.60 EPS, 1 percent internal sales growth, $200 million in cash flow, and a total shareholder return (TSR) that ranked 12th or better in the group of 24 companies it chose as peer or custom comparators for 2006.
``The company exceeded its target in EPS, internal sales growth and cash flow by considerable margins,'' Newell Rubbermaid wrote. It finished ninth in TSR, above its target, with 25.7 percent.
Reporting the actual value that stock awards and grants increase from year to year - as SEC now requires firms to do - is misleading, said the dozen compensation experts interviewed. All agreed that the SEC should let firms report values on the grant date for awards granted during the reporting period.
``The option and stock awards are given a dollar value, but it doesn't reflect the awards given to an executive in that year,'' said Equilar research manager Alexander Cwirko-Godycki. ``It only recognizes the portion of any outstanding equity awards that vests in that year. It gives us an accounting perspective, but it doesn't necessarily reflect the extent'' of the equity award - which often is spread over three to five years, he added.
If an executive is retiring and exercises all his or her equity awards at once, for example, ``the pay package could look outstanding or out of line, or both,'' Cwirko-Godycki said. ``The compensation table is not the best source to compare pay packages across companies,'' he said.
What's more, reported stock values in a given reporting year can be negative, leading to this anomaly: Summary compensation tables in 2007 proxies showed one in 33 executives as having negative compensation, said James Reda, founder and managing director of James F. Reda & Associates LLC, a New York compensation firm.
Some plastics companies weighed in on that debate in their CDAs, with Newell Rubbermaid stating matter-of-factly that what the SEC asked it to disclose regarding options, stocks and retirement benefits was not a ``meaningful measure'' of those items.
``The amounts reported for stock and stock option awards consist of the amount recognized by the company as compensation cost in 2006'' under accounting rules, said Newell Rubbermaid's CDA. ``The compensation cost includes amounts attributable to equity grants made in prior years and thus varies significantly based on the length of an individual's tenure with the company.''
Similarly, the company said, year-to-year changes in accrued retirement are misleading because ``the increase in any year is so strongly influenced by the age and years of service of the individual executive.''