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Do the New Proxies Make the Grade?
New Pearl Meyer & Partners survey finds firms rate their own disclosures more highly, but found new rules painful

NEW YORK, May 29, 2007—The first year of compliance with new executive pay disclosure requirements was painful, but companies believe they did a pretty good job, according to a survey of major public companies by independent compensation consultancy Pearl Meyer & Partners. Respondents on average rated the difficulty of putting together the new disclosures as a “4” on a 5-point scale (with 5 being "horribly painful"), compared to just 2.4 under the old rules, but nearly 75% of the companies graded their own public filings on high-level compensation programs as “above average” or better.

Under new SEC rules in effect for the 2007 proxy season, public companies’ annual filings not only must provide more detailed data on executive pay programs, but also explain their workings and rationale in a “plain English” narrative in a new section called the Compensation Discussion and Analysis (CD&A). The new Pearl Meyer & Partners survey of 128 mostly mid- to mega-cap public firms was directed primarily at internal human resource and legal departments, which the survey confirmed have mainly authored the 2007 filings.

“Given the complexity of the new proxy rules, this was a very successful first step and one that with additional thought and consideration will get much better,” said Joseph Rich, Chairman of Pearl Meyer & Partners. Rich noted that clearly communicating the intricate structure of high-level compensation packages is an enormous challenge for corporate Boards, who face growing shareholder scrutiny of executive pay packages.

On average, the companies' disclosures were written at the reading level of a college sophomore, with the CD&A narrative averaging 11 pages. Companies that most highly rated their own proxies generally used more pages and more words to explain programs, but also reported higher readability scores.

“Shorter does not always mean simpler -- it takes a certain amount of text to effectively communicate a firm’s executive compensation strategy and programs,” said Rich. “Interestingly, though respondents rated their own disclosures highly, they rated others as being much less clear, suggesting there is also somewhat of an explanation gap. The writers of disclosures naturally tend to 'hear' more in their own words, because they understand the programs, but the message may not come across nearly as clearly to the outside reader.”

Rich also noted that “Given the enormity of effort required to comply with the new requirements, it suggests there is probably no such thing as starting your disclosure process too early.”

About Pearl Meyer & Partners
Since 1989, Pearl Meyer & Partners (www.pearlmeyer.com) has served as a trusted independent advisor to Boards and their senior management in the areas of compensation governance, strategy and program design. The firm provides comprehensive solutions to complex compensation challenges for companies ranging from the Fortune 500 to not-for-profits as well as emerging high-growth companies. These organizations rely on Pearl Meyer & Partners to develop programs that align rewards with long-term business goals to create value for all stakeholders: shareholders, executives, and employees. The firm maintains offices in New York, Atlanta, Boston, Charlotte, Chicago, Houston and Los Angeles.

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