Shelley Parratt of the SEC’s Corporation Finance Division will provide an update of the Commission’s disclosure program, including topics such as executive compensation disclosure, climate-change disclosure, and other proxy disclosure issues, as well as updates regarding the Comment Letter process.
These are my notes, live from the keynote:
(A standard SEC disclosure that these are her comments and not necessarily those of the SEC.)
The SEC is the investor’s advocate. Everything the SEC does should be subject to the question: “how does this help the investor?”
The SEC cannot review every filing. They are only required to review each of the 10,000 filers every third year. They need to allocate their limited resources.
Executive compensation is a very emotional topic. The SEC wanted to make the executive compensation information more transparent for investors. They are very focused on the compensation story a company is disclosing to its investors. Shareholders are frustrated by the length and complexity of the disclosures.
They are also very focused on information related to performance targets when that compensation is material. That is where the make the most comments to company filings. The targets are material. Not making the target is also material.
There are expecting more detailed discussion on why a director is qualified to serve on the board. The company needs to tell their shareholders why that person is the right person to be serving on the board.
The SEC does not want to advocate the leadership of the board of directors. They just want the company do disclose why they use a particular structure, why the CEO and Chairman have their roles and how the governance operates.
There is some pressure to allow non-GAAP information into filings. That has lead to the exclusion of useful information from filings. They want more communication and less compliance-oriented disclosure. Of course, the information cannot be misleading, whether it is GAAP or non-GAAP.
She addressed the SEC’s recent decision to require information on climate change. It’s clear that it is not an advocacy for changing business operations. The company just need to disclose information if it has a material affect on the company.
Then Shelley sat down with Compliance Week‘s Editor-in-Chief Matt Kelly.
There is lots of anxiety about what is the proper process and the proper disclosure for executive compensation that is tied to risk. She used the example of bonus based solely on sales. Using an example of car sales. Its very different of paying a commission when a car is sold than paying when the car is sold, but only if the financing is approved.
She said they have not gotten enough filings in and reviewed in this proxy season to evaluate the quality of disclosures under the new executive compensation and board leadership rules.