Are You Exerting Discipline in Assessing Compensation Risk?
The SEC issued final rules in December 2009 that require public companies to provide narrative disclosures in their proxy filings of their compensation policies and practices that create risks that are “reasonably likely to have a material adverse effect.” The need to assess risks associated with compensation arrangements will be an annual, ongoing requirement, and will be particularly important as compensation plans and risk factors change from year to year.
This disclosure applies to all of your compensation arrangements, not just those covering your senior executives.
If you need assistance evaluating the risk of your compensation programs and policies, Buck’s Compensation Risk Assessment Framework can help. We’ll use this framework to help you:
- Inventory and assess your compensation practices and policies
- Identify risks that are reasonably likely to have a material adverse effect
- Prepare your proxy risk disclosures
We help you achieve the critical need of managing and mitigating adverse risks associated with your compensation arrangements without compromising the need to offer balanced incentives that appropriately reward, attract, and retain key contributors. Our consultants have expertise in designing compensation and reward programs that are best aligned with our clients’ business goals while limiting their exposure to risk. Further, we can help you avoid potential pitfalls when preparing proxy filings.
Lessons learned from 2010 proxy filing experience
Recent studies of 2010 proxy filings revealed that some companies remained silent, other companies included a statement about their risk findings, and still others also included a description of their assessment process.
The SEC has started to issue comment letters to companies that are silent about compensation risk in their proxy statements. The letters are requesting additional information on the company’s risk assessment process and how a determination was made that there are no risks that would rise to the “material adverse effect” threshold. Some companies have received letters from the SEC even if they included a statement in the proxy about their conclusion but did not describe the risk assessment process.
These 2010 experiences point to the need to include a level of discipline within the compensation risk assessment process as well as adequate disclosure in your company’s proxy filings – even if you didn’t uncover any risks. This is a disciplined, best-practice approach that can reduce potential exposure.
Read an overview of our Compensation Risk Assessment Framework for more details on the process and to see how our services can help.
Watch our on-demand Webcast from April 28, 2010, Executive Compensation in 2010: The Evolution Continues, which included an analysis of how some S&P 400 and 100 companies handled risk disclosure in their proxy filings this year, or download the presentation.
Check out Buck’s FYI® titled, SEC Finalizes Amendments to Enhance Compensation and Corporate Governance Disclosure, which further outlines the SEC’s revised disclosure rules and what they mean to you.
For more information
Contact Chris Young (212.330.1357 or ck.young@buckconsultants.com), Andy Mandel (212.330.1146 or andrew.mandel@buckconsultants.com), or your Buck account manager to learn more about our Compensation Risk Assessment Framework.