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U.S. Securities and Exchange Commission

Chairman Schapiro Statement on Executive Compensation


Washington, D.C., June 10, 2009 — Securities and Exchange Commission Mary Schapiro today made the following statement regarding executive compensation:

“Debates over how much corporate executives are paid are not new. The large short term incentive compensation packages of the last few years — juxtaposed with the recent losses in shareholder value — have left many investors asking important questions — questions about their company’s compensation practices and whether some incentives are actually undermining shareholder value over the long term.

“At the SEC, our role has not been to set pay scales or cap compensation. Our role is to protect investors by ensuring that they have the information needed to make sound investment decisions, whether those decisions impact proxy voting or a decision to buy or sell a stock.

“Over the years, the manner and types of compensation have continually evolved and become increasingly complex. In response, the Commission has frequently revised its disclosure rules to keep pace with new developments in compensation practices.

“That is why the SEC is actively considering a package of new proxy disclosure rules that will provide further sunshine on compensation decisions. While these proposals would not dictate particular compensation decisions, they would lead companies to analyze how compensation impacts risk taking and the implications for long term corporate health of the behavior they are incenting.

“To achieve this, we will be considering several proposals requiring greater disclosure:

  • About how a company — and its board — manages risks.
  • About a company’s overall compensation approach. Incentive structures that rewarded short term risk taking without taking into account the potential long term effects on the company are widely believed to have contributed to the economic crisis.
  • About potential conflicts of interest by compensation consultants, including disclosure of relationships between the consultants and the company and their affiliates, so both compensation committees and investors will be better able to assess the advice the consultants provide.
  • And, about director nominees, including their experience and qualifications to serve on the board or on particular board committees — and about why a board has chosen its particular leadership structure.

“Knowing this kind of information can be of great benefit to investors, but even disclosure only takes us so far. If investors don’t like what they learn, they have two choices: sell their shares or use the proxy process to vote for change. Unfortunately, neither of these options is easy. Selling their stock deprives the investor of the upside value that change can bring. And, under current rules, shareholders who wish to nominate their own candidates must typically launch a costly proxy fight.

“It is for this reason that last month the SEC proposed rules that would enhance the ability of shareholders to exercise their legal rights to nominate directors on corporate boards. Of course, these proposals are just that — “proposals” — and we fully expect to receive many comments about them. I believe the meaningful ability of shareholders to nominate directors is intricately linked to the ability of shareholders to hold directors accountable for their compensation decisions.

“I firmly believe that better disclosure of compensation leads to more informed shareholders and in turn to more accountable corporate directors. This is the foundation of our capital markets.”

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Modified: 06/10/2009