The July 6 deadline is fast approaching for commenting on the SEC’s Pay for Performance Rule, and corporations have begun to file letters in opposition to the proposal. Shareholders and citizens need to do likewise.
The rule requires a new data table to be included in proxy statements that illustrates how closely pay aligns with 3 and 5 year total shareholder returns (TSR).
There are real concerns about whether TSR is the best metric to use. As we’ve noted before, there’s very little evidence that it aligns with what the highest paid executive has done, and considerable evidence that it is influenced by market forces. Still TSR is something like Churchill’s definition of democracy, “the worst . . . except all the others that have been tried.”
Also, shareholders will now be easily able to ascertain what equity compensation is worth on the vesting date. This and other data points are already buried in SEC filings and used by advisory firms use to track the alignment between pay and performance. But unless you subscribe to those or other financial data services it is time consuming, at a minimum, to translate all the data. We applaud the SEC’s step forward here.
The rule is imperfect, but it is a step in the right direction, and it is important that shareholders take the time to comment on it.
The full document of the rules includes 54 separate questions that investors are invited to weigh in on, and As You Sow anticipates filing a letter that addresses some of these very specific and often arcane topics. Yet, a simple email comment in favor of the over-arching rule – perhaps with an opinion on executive compensation in general – has never been easier to do.
Simply send an email to: email@example.com. In the subject line list the file number, S7-07-15. The SEC now posts all comments on-line, though commenters can choose to remain anonymous. While many letters already submitted are from corporate lawyers, there are also profound emails from individuals who write in favor of the rule. For example, Desmonde Printz writes: “Disclosure is not a cure-all, but the more light the better. And the uniformity of the rule makes it meaningful.”
Sometimes two short sentences say more than pages of legal “jiggery-pokery.”