Initial Comp Policy Risk Disclosures Found Lacking

August 9, 2010 ( – While 67% of the companies studied by Buck Consultants reported a compensation risk assessment according to new requirements, no adverse risks were disclosed.

A Buck news release about its study of proxy statements filed after February 28, 2010 that included the compensation risk assessment mandated by the Securities and Exchange Commission (SEC) said the companies did not explain the rationale for their judgment.

The study also found that disclosures and coverage lacked consistency and that Board and Compensation Committee role was limited to oversight.

“Corporate boards and their compensation committees have almost universally left day-to-day risk management in the hands of management,” Buck commented in the news release.

Buck researchers posed two questions based on their results:

  • If companies do not apply a consistent approach towards risk assessment and disclosures, can investors truly benefit from the SEC’s requirement to provide narrative disclosures where compensation practices and policies create risks that are reasonably likely to have a material adverse effect?
  • Is the lack of overall consistency within proxy disclosures creating confusion and thus achieving the opposite effect of what had been intended by the SEC?

Buck asserted that additional corporate disclosure would be consistent with the SEC and other stakeholders’ intent with the new rule.

“Over time,” Buck concluded, “we would expect to see a greater degree of disclosure about plan design, as well as processes that have helped companies and their boards determine that there are no material adverse risks within their compensation plans. Although this level of disclosure is not technically required, it would be consistent with the SEC’s comment letters and requests for additional information and with the continuous scrutiny and media attention being placed on executive pay.”