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U.S. Securities and Exchange Commission

Speech by SEC Commissioner:
Open Meeting Statement: Proposals to Amend Rules for Disclosure of Executive Compensation


Commissioner Roel C. Campos

U.S. Securities and Exchange Commission

Washington, DC
January 17, 2006

First of all, I too would like to add my congratulations. First, I thank Chairman Cox for making these proposals a priority and urging our Division of Corporation Finance to speedily bring these proposals. I know that some of the most significant features of these proposals, such as the total compensation figure in the summary table, were items championed by you. Of course, I also must congratulate director Alan Beller, who now "rides off into the sunset" (having announced his retirement), leaving an impressive array of reform from the implementation of the Sarbanes Oxley Act to securities offering reform to the myriad other rule makings that he has shepherded through, including this last impressive rule proposal. Others include Paula Dubberly, David Lynn, Anne Krauskopf, Carolyn Sherman and Daniel Greenspan in the Division of Corporation Finance, Susan Nash and Brent Fields in the Division of Investment Management, Chester Spatt and Cindy Alexander in the Office of Economic Analysis, and David Frederickson in the Office of the General Counsel.

There is much to like in this comprehensive set of proposals, which sets forth a new disclosure regime for the compensation of named executive officers and directors of public companies.

Principally, these proposals, if ultimately adopted, will provide "one stop shopping" in the proxy statement for those interested in the pay of the top executives of public companies. In the past, I have often heard from investors that it is difficult to figure out from the current filings and disclosures what executives really earn. It has been extremely difficult to discover what type of deferred compensation or change in control pay or retirement benefits or perquisites have been negotiated. Indeed, we have all read with concern when it has been revealed that a particular executive earned millions of dollars upon retirement, or upon simply being dismissed, or when the company was sold or merged. It is troublesome that such pay arrangements in many cases may not have been known to shareholders and in some cases even understood by directors.

These proposals - through a combination of smart and succinct tables, valuation of stock options and other equity grants, lowering the threshold for reporting perks, and enhanced disclosure of retirement arrangements, third party relationships, and director compensation - provides the opportunity for shareholders to really figure out all that executives earn.

I hope these proposals ultimately will help eliminate "sneak compensation" and "compensation through inadvertence."

What they will not do is set a level of compensation. It is not the role of the SEC or any part of government for that matter to determine what executives' pay should be.

Much has been written and reported about the so called crisis of executive compensation. According to one compensation expert, the total compensation of the five best-paid officers of all publicly held companies amounted to 10 percent of all corporate earnings. It has also been reported that today the ratio of pay between what the CEO makes and the average worker of a public company is over 400 to one versus forty to one forty years ago. Some have asked, "Are executives today ten times better than they were forty years ago?" Others have expressed the view that payment for performance has been replaced by payment for pulse. Some have also warned that, as good as full disclosure is, it has a dark side in the area of executive compensation. It is the "me too" phenomenon. In other words, this disclosure of the details of pay will appear in compensation surveys and make other executives demand everything that someone else received, because, after all, he or she will argue, "I am as good as that other executive."

What seems clear is that simple shame for being overpaid and for unearned riches does not seem to exist very much any more.

At the end of the day, the SEC is not and will not pass judgments on the level of pay and whether it is too high. That judgment will continue to be made by directors and shareholders. These proposals should provide a useful tool to determine with precision and comparability what executives truly earn. It seems to me that shareholders will have no one to blame but themselves if executive pay continues to rocket upward in an unacceptable way.

These proposals do not and cannot create backbone for directors to make hard decisions about the correct level of pay for their executives and whether paying executives like rock stars is an appropriate use of shareholder assets.

It will continue to be difficult for directors to "just say no" to unearned and excessive pay. However, increasingly it may be the role of shareholder owners to expect their directors to impose limits and restraints and seek to replace directors who do not.

Like the Chairman and my fellow Commissioners, I look forward to comments from investors, business executives, directors, academics and other interested parties as to the specifics of these proposals and where they can be improved. Thank you again for this proposal, which I am happy to support.


Modified: 01/20/2006