April 3, 2006
Ms. Nancy M. Morris
U.S. Securities Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549 March 31, 2006
Re: Proposed Changes Annual Proxy requirements, File # S7-03-06
Dear Ms. Morris,
Please permit me to share some comments on the proposed rule changes pertaining to the reporting of compensation for directors and officers of public companies.
I commend the Commission on its active stance in reviewing the Proxy requirements and find most of the recommendations to be well considered and beneficial to investors. However, I do not think the proposed changes to the requirements regarding the presentation of a companys total return stock performance will have the intended effect of making the data and its correlation to executive pay clear and obvious to investors.
The current presentation of a graph showing a companys 5 year total return versus its industry peers and a market index should be enhanced, not dispensed with. Time weighted total returns, as defined by the CFA Institute, are far and away the best factual measure of how much financial return (or lack thereof) a company and its executives have delivered to shareholders over a given period. That said, the presentation of total return information is infinitely easier to understand in the context of a chart or graph than it is in text or in tabular form. A picture is worth a thousand words in the case of showing a companys total return versus industry peers and the broader stock market. Textual descriptions of the same facts would be lengthy and potentially subject to potential obfuscation and distortion. The current performance graph requirement provides a straight forward, factual, presentation of the most important metric for investors in evaluating the recent and historical performance of a company and its management team.
Presentation of a companys Total Return versus its industry and the broader stock market is also critical for providing a context within which to evaluate executive compensation. The ability to assess the pay for performance component of an executives pay, bonus, and stock plan is virtually impossible without knowing the context of how the company did versus its industry and the broader stock market. The five year Total Return performance graph succinctly delivers the necessary context for a shareholder to use in evaluating executive compensation details. Compensation details without the total return benchmark comparisons is only half a story.
Thank you for your consideration of my comments. I wish you every success in determining the optimum balance of reporting requirements for U.S. listed public companies.