(Sept. 1, 2008) — Forty executives on the Plastics News pay rankings this year got one-year cash incentive payouts for performance in 2007 of $200,000 or more. In 17 of those cases, their companies posted a negative one-year return to shareholders.
Of the 97 executives who got one-year bonuses, only 42 — or less than half — achieved a positive shareholder return.
That's hard enough to stomach on its own. But the explanations make the numbers even more difficult to digest.
In the proxy statements filed by the companies with the Securities & Exchange Commission, several companies said they used “discretion” to award executives for coming close to targets in a difficult year, or for “other” achievements.
Others talked about setting lower targets and lower thresholds for payout of bonuses for 2008 and beyond because of the difficult economic climate, and to make sure they can retain executives.
Even more companies are switching to general-performance targets. That way, if the executive team performs better than a peer group of companies, no matter how poorly that peer group does, the executives get a bonus.
Clearly, SEC's effort to reform executive compensation is not working. Last year, when SEC began to require companies to disclose the value of executive perquisites, companies axed things like country club memberships, but kept executives whole by increasing their base salaries.
SEC now requires companies to disclose more information about how they determine executive compensation. And it's true that companies are providing more information — this year, the average compensation and disclosure analysis increased from seven to 10 pages, not including tables and narratives, and the median number of words increased by 13 percent to nearly 5,400, according to a study by Pearl Meyer & Partners.
The statements from the plastics companies examined by Plastics News were even longer — 12-14 pages, plus just as many pages, if not more, of charts and tables and explanations accompanying that data.
But instead of the narratives getting clearer, many companies added more details but without disclosing the actual targets. Or they switched to team targets rather than individual targets for each executive.
More often, disclosure statements were filled with highly complicated, difficult-to-understand explanations or were written in such vague terms that they often created more confusion that clarity. According to Pearl Meyer, the readability index of disclosure statements climbed to the level of a college junior, far from the plain English mandate of SEC.
“It is not written for Joe Middle America, but for Wally Wall Street,” said Bill Coleman, senior vice president of compensation at salary.com in Waltham, Mass.
So the new rules aren't helping, as evidenced by the methods companies have used in the past two years to get around the rules, obfuscate investors and keep executive compensation rising.
Unless the compensation committees of the boards of directors take a tougher stand — and they haven't to date, despite all the attempts to tie pay to performance — executive compensation will continue to be a sore point with workers and the American public, as well as an image problem.