Talent Management - July 2008 - (Page 27)

SEC Compliance: The Top Five Actions to Take Agatha Gilmore It’s been two years since the SEC altered regulations regarding the disclosure of executive compensation. Corporations work to meet the new requirements, but many still struggle with implementation and the resulting implications of the changes. For this reason, compensation consulting ﬁrm DolmatConnell & Partners devised a list of the immediate actions organizations should take to not only comply with SEC regulations, but to connect and communicate better with employees and investors. “Your shareholders, the media, the employees are all stakeholders in the process these days,” said CEO Jack Dolmat-Connell. “We tell our clients two things. Assume this is going to end up on the front page of the business section in the newspaper or in a magazine. Can it pass that sniff test? Also, assume your employees are going to read your proxy statements. How are they likely to react?” Dolmat-Connell highlights the top ﬁve actions organizations should take to improve disclosure and acceptance of executive compensation: 1. Speak plain English. For many years, the SEC has provided organizations with comments on disclosure ﬁlings to help them improve or enhance the ﬁlings. Two threads emerged from such letters, Dolmat-Connell said. “By and large, they say: ‘One, this wasn’t terribly clear, and two, you talked about the “whats” a whole heck of a lot. But you didn’t talk about the “whys” and the “hows” very much,’” he said. Organizations should address and explain the reasons behind their executive compensation packages as clearly and concisely as possible. The SEC’s A Plain English Handbook at www.sec.gov/ news/extra/handbook.htm should help. 2. Clearly deﬁne the compensation program. Many companies, particularly smaller ones, either do not have or do not clearly deﬁne their executive compensation philosophies, Dolmat-Connell said. “[If a company does have a philosophy], it often talks about, ‘Our desire is to attract and retain and motivate key executive talent and be competitive.’ That’s all ﬁne and good, but what does that really mean in the design of your program?” he said. “It’s about the company’s business strategy, culture, ﬁnancials, performance, shareholder base, etc., and really developing an equation that looks at all the factors.” 3. Enlist independent consultants. Many executive compensation consultants play additional roles in the organization they’re helping, such as selling employee beneﬁts or actuarial services, Dolmat-Connell said. “Investors are really looking these days as to whether your exec comp consultant is independent and what is their role in the process, and as a result, it’s one of the things HR executives really need to focus on,” he said. 4. Tally up the total compensation of senior executives. The new SEC rules require organizations to identify the most highly compensated executives and disclose their total compensation packages based on one number that reﬂects cash, equity and perquisite/beneﬁts. Previously, only cash was the determining factor. That means organizations must take a hard look at noncash beneﬁts and model compensation over several years using several performance scenarios, Dolmat-Connell said. “That’s where you get tripped up on severance and change of control agreements,” he said. “[Typically, compensation committees] don’t look and see what happens if the stock price goes up 20, 40, 100 percent — Nor do they look at what happens if the stock price goes down 20, 40, 75 percent. That scenario modeling would give both C-suite executives and compensation committees much greater insight into how these plans are really going to work rather than a value at a particular point in time.” 5. Quantify executive perquisite and post-employment compensation. The media hype around post-employment compensation has put perks and severance packages under a microscope, DolmatConnell said. “Severance agreements which lead to pay for nonperformance is really what it is,” he said. “Companies have to carefully consider, ‘Why is it we’re giving severance agreements?’ Think about, ‘Do we introduce caps on these?’ A lot of boards are really looking at issues like that.” talent management magazine www.talentmgt.com 27 http://www.sec.gov/news/extra/handbook.htm http://www.sec.gov/news/extra/handbook.htm http://www.talentmgt.com

Table of Contents Feed for the Digital Edition of Talent Management - July 2008

Talent Management - July 2008 Editor’s Letter Human Performance Leading Edge Learning Connections Guest Editorial Passive Candidate Recruiting: Evolving with a Changing Workforce How Do They Feel? Sec Regulations and Executive Compensation Performance Management: A Retail Perspective Train the Non-Trainer Management-Go-Round: Developing Future Leaders Netflix Creates Its Own Script for Talent Management Intuit Spotlights Strategic Importance of Global Employee Recognition Make HR a Profit Center: Automate Technology to Gather Tax Credit Data Offshoring and the Impact on Talent Management Advertisers’ Index Editorial Resources Full Potential

Talent Management - July 2008

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