April 6, 2005
Securities and Exchange Commission
Dear Securities and Exchange Commission,
I am writing to urge the Securities and Exchange Commission to act on its proposed rule making on executive compensation disclosure. As a business school professor who teaches about issues of corporate governance, I believe that this rule is long overdue. Research has demonstrated that the link between excutive compensation and corporate performance is very weak, with compensation often going up even when performance is declining. Shareholders, employees and the public deserve full information on compensation in order to fairly consider the actions that they should take.
The newly proposed rules will make this crucial information more accessible to shareholders and the public. The new requirements to disclose total compensation figures, pensions and detailed compensation breakdowns will make it clear exactly how much top executives are earning and why.
I believe that CEO pay should be set by independent directors. Under the proposed rule, a director could secretly do $120,000 in business with a company, an amount that is more than four times the average worker's annual pay of $27,460. Shareholders should be told if directors have potential conflicts of interest, no matter what the amount.
I also urge the SEC to require that companies disclose pay-for-performance data. In order for investors to understand how pay and performance match up, companies need to explain more clearly what level of performance is necessary for a particular level of pay. I urge the SEC to require companies to disclose both the performance criteria and the performance targets they use when setting executive pay.