After reviewing how companies have complied with new pay disclosure rules, the Securities and Exchange Commission is asking some firms to provide more information on their executive compensation practices.
According to news reports, the commission plans to send letters to about 300 companies; the SEC faxed the first set of letters in late August. Schering-Plough, Coca-Cola, Bristol-Myers Squibb, and Prudential Financial were among the companies receiving inquiries, The Wall Street Journal reported.
"If you were to look at the Fortune 100, you can probably assume that one-third of the companies--maybe more--got these letters," attorney Mark Borges, who works with Mercer Human Resource Consulting, told the Associated Press on Aug. 31.
The letters vary by company; some include requests for a detailed analysis of why CEO pay is "significantly higher" than that of other top executives, a list of firms the company uses to benchmark its executive pay, or the specific performance targets for executive bonuses, according to news reports.
"The narrative explaining the reasons behind [pay] packages could stand some improvement," SEC spokesman John Nester told the Associated Press.
Because this is the first year that companies have complied with the SEC's sweeping new pay disclosure rules, the agency said that it would follow up with additional questions, if necessary. Nester told the Journal that the compensation disclosures by many companies were vague and inflated with "legalese."
Some SEC observers say that the information the commission is asking for will only add to the considerable bulk of some companies' compensation disclosures. "These new requirements may make pay disclosure even wordier and more complex," Ronald Mueller, a partner with the law firm Gibson, Dunn & Crutcher told The Wall Street Journal.
However, SEC Chairman Christopher Cox has argued on several occasions that the size of the compensation sections in proxy statements would decrease if companies used "plain English" to tell investors how they decide on executive pay packages. A narrative full of legal jargon only makes the section longer, not clearer, Cox said in a speech in late March.
The agency is giving most companies a Sept. 21 deadline to provide the additional information, according to the Journal, and the SEC plans to send out another batch of letters soon. Company-agency correspondence is usually made public via the SEC's Web site 45 days after an issue is considered closed. The agency plans to issue a report on pay disclosure later this year.