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A poll by consultants Watson Wyatt Worldwide found only 42 per cent of companies plan to disclose on their 2008 proxy the specific goals used in their executive compensation plans for the 2007 fiscal year. Thirty-one per cent of companies have no plans to reveal the goals. The remaining 27 per cent are unsure.

The Securities and Exchange Commission (SEC) adopted new disclosure rules, effective for the 2007 proxy season, as part of an effort to provide investors with a clearer picture of how a corporation’s executives are compensated.

The rules request companies disclose their performance goals, unless providing them would result in competitive harm.

Challenge performance goals 

The findings are based on a Watson Wyatt poll of legal, compensation and HR executives at 135 large, publicly traded companies.

“Setting sufficiently challenging performance goals and appropriate corporate performance metrics is an extremely important part of the executive pay process,” said Ira Kay, global director of executive compensation consulting at Watson Wyatt.

“The SEC has put significant pressure on companies to disclose their goals so that shareholders can determine if programs are paying for performance. Companies are still struggling, however, with the decision of whether to disclose this information,” he adds.

In addition to demonstrating their reluctance to disclose performance goals, most companies (68 per cent) do not plan to change their approach to goal setting.

A small but growing number of companies (21 per cent) intend to modify their compensation programmes in response to the SEC rules, however, a big increase from just 5 per cent in a similar 2006 poll.

Sixty-three per cent of companies have no plans to make changes. The remaining 17 per cent are unsure. Also, most companies (89 per cent) say they will alter the compensation discussion and analysis section of their proxy.

Rethink 

The poll also found that a majority of companies continue to believe the rules will not improve company performance.

Most of the companies (77 per cent) polled say the disclosure rules will not have much effect on corporate performance, a slight increase from last year.

The number of companies that think the rules will improve performance nearly doubled, however, from 11 per cent in 2006 to 21 per cent in 2007.

Kay said that while the rules may not have a large impact on overall corporate performance, they are causing companies to rethink and, in some cases, adjust their executive compensation programmes.

He added that as the scrutiny of severance, change-in-control provisions and large executive pensions intensifies, companies are likely to continue their focus on more shareholder-friendly ‘core’ pay elements such as performance-vested shares, stock options and short-term incentives with difficult but attainable performance goals.

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Related links

• Information on the SEC’s executive compensation proxy disclosure rules
• Watson Wyatt