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The Astron Road Show

You have three opportunities to meet with the Astron team in the next two weeks!

First, National Director Jennifer Loftus will speak at the Central New York SHRM monthly meeting, September 25, in Syracuse, NY. Jennifer will present on Exploring Compensation Beyond the ‘Base’-ics. The presentation will cover a variety of topics, including variable compensation trends, a panel discussion on total rewards statements, and a review of the 2007 CNY SHRM Compensation Survey prepared by Astron Solutions.

On September 27th, National Director Michael Maciekowich will present at the Claremont RVHRA SHRM chapter meeting, White River Junction, VT. Mike will share his insights on Total Rewards Tools that Span the Generations.

September 30th and October 1st, Jennifer Loftus and Automation Expert Brendan Williams will exhibit at the national ASHHRA conference, Anaheim, CA. Brendan and Jennifer will be in booth 610. Please be sure to stop by, say hello, and explore our web-based component modular talent management system!

Impact of SEC Revised Executive Compensation Disclosure Rules on Human Resources

In 2006, the U.S. Securities and Exchange Commission (SEC) unveiled new rules for disclosing executive compensation. The new rules are to provide clarity into elements of compensation already disclosed. The following are the most significant changes:

The Summary Compensation Table of a company’s proxy will now have a column that adds up and displays the total compensation an executive received for the previous year.

Change in Pension Value and Non-Qualified Deferred Compensation: This column in the Summary Compensation Table shows the increase in actuarial value to the executive officer of all defined-benefit pension plans and earnings on non-qualified deferred compensation plans.

All Other: This column captures compensation that does not fit in any other column of the Summary Compensation Table, such as perquisites and other personal items (for example, aircraft usage, car service, club memberships). Each item of compensation included in All Other that exceeds $10,000 will now be separately identified and quantified in a footnote.

Pension Benefits: The new rules require companies to disclose the present value of accumulated pension benefits, showing the total lump sum amount of money an executive would receive in retirement.

Severance Benefits: Companies must disclose any termination or change-in-control agreements with executives. They must disclose the specific circumstances that will trigger payment and the estimated total payments and benefits provided for each circumstance.

In addition, the new "Compensation Discussion and Analysis" section consists of a narrative disclosure that provides context to the compensation decisions of the company and a general overview of the material principles and objectives underlying the company’s executive compensation policies and decisions. Specifically, the “Compensation Discussion and Analysis” section should address the objectives and implementation of the company’s executive compensation programs. The section is intended to provide meaningful analysis of the information contained in the tables and disclosed elsewhere. Companies are urged to avoid boilerplate language or information in a “laundry list.” Companies are instead encouraged to be comprehensive and to reflect the organization’s individual circumstances.

The Securities and Exchange Commission revised rules vastly expanded disclosure from most public companies this year on pay for their top executives. In the last week of August, the agency faxed companies with a request for more clarification. The information requested included the following:

Explain why the chief executive's pay was "significantly higher" than the rest of the company's highest-paid executives.

Identify the companies your company uses to benchmark executive pay. Add disclosure addressing how you target each element of compensation against the other companies.

Provide analysis about how you determine the amount and, where applicable, the formula for each element to pay.

Provide an analysis of how you arrived at and why you paid each particular level and form of compensation for 2006.

At the end of January, 2007, the SEC issued interpretive guidance to aid companies in complying with the new rules. They are based on questions the SEC received since the adoption of the new rules. This guidance includes the following insights:

Begin gathering data and preparing tables and analysis as soon as possible. The time allocated to the compliance process is taking longer than companies had anticipated.

Understand the roles and delegation of responsibilities of finance, legal, human resources, and the compensation committee.

Document where all the data is collected from since most companies house executive compensation data in various locations. In addition, document the calculations and valuations used as some require judgment calls.

Be prepared for strong reactions from other company employees who are now able to see the detail of their company’s executive compensation packages.

Establish effective communication between senior management and the compensation committee, especially in determining the rationale between the various executive compensation practices and the executive compensation strategy.

The following is an example of a request recently received by a client regarding their executive compensation program:

1. Disclosure of the organization’s instructions to the consultant as it related to the annual review of executive compensation.
2. A general overview of the nature and scope of the consultant’s assignment.
3. Provide a detailed analysis of how individual executive total compensation was arrived at and why executives were paid each of the particular levels and forms of compensation.

The SEC will focus on these disclosure rules for years to come. Human Resource and Compensation professionals must be prepared to address these new requirements. We recommend that all organizations, especially those that are publicly traded, take a lesson from non-profit organizations, which have been under the microscope of the IRS for many years. The IRS has recommended specific responsibilities for non-profit compensation committees including:

Annually evaluate the performance of, and if appropriate, recommend to the full Board adjustments to the compensation of the key “disqualified” positions.

Adopt and report to the Board the executive compensation philosophy and parameters defining the market(s) to be focused on and the position (percentile) of the market to set base and total compensation levels;

Review the executive compensation plan to ensure alignment with the organization’s strategic and long-range objectives;

Review and recommend incentive payouts based on funding and goal attainment;

Keep abreast of executive compensation trends nationally, regionally, and locally;

Approve any executive employment contracts including interim consulting agreements for vacant executive positions.

Reader Poll Archive

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Coming next time in Astronology

Astron Road Show

Executive Compensation Part 2 – Who is a “Disqualified Person”?

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ISSN Number 1549-0467