The SEC and executive compensation: a little regulatory chicken soup

The WSJ says the SEC is about to announce its expected move to drastically increase executive compensation disclosure. Among other things, the Journal says, the SEC will require clear explanation of the “goals and objectives” and factors weighed in determining pay, more detail on golden parachutes, and clearer disclosure of executive equity rewards.

This, of course, is a silly waste of time. Despite all the noise generated in the press and by Bebchuk & Fried about overpaid executives, this is one of the least important issues in corporate governance. What really matters to shareholders and society is what the executives are doing or not doing for their money. Anyway, there’s not much shareholders can realistically, or should, do about executive pay, even with disclosure. It’s a management, not a shareholder, issue. The proposal may even increase executive pay. As the WSJ story points out, more disclosure assists in benchmarking, which has a potential ratcheting effect. Keep in mind that, as the WSJ indicates, the Business Roundtable seems to be on board.

If we really wanted to do something about corporate governance, including executive pay, one approach would be to fix takeover law. But as I responded to Henry Manne on that issue, I don’t think that’s feasible either. I have proposed a move toward more partnership-type forms of governance, but I'm not completely sanguine even about that.

Having said all that, I will now add that this disclosure move is the exact right thing for the SEC to be doing. As I’ve said, in my response to Manne linked above:

By focusing on executive compensation disclosure, Cox manages to get a big pile of political capital from the pro-regulatory populists, while at the same time causing relatively little harm compared to many other things he could be doing. . . . .[D]isclosing executive compensation is probably . . .not going to be hugely costly. If it deters abuses, that's not so bad. Meanwhile, maybe Cox can use the political capital he gains from this move to meaningfully shrink regulation.

I also pointed out, discussing Cox's plans for executive compensation disclosure:

Executive compensation disclosure, whatever one thinks of the SEC function, is at least what they’re supposed to do. As Cox said in the interview: "The market is capable of disciplining excessive compensation, provided that the market has adequate information." I'd rather see disclosure regulation than misguided attempts at substantive controls. And maybe cleaning up loopholes will reduce firms' perverse incentives to shape compensation just to avoid disclosure.

This is a bit like former FTC Chair Tim Muris’ brilliant “do not call” rule – a very popular regulation that kept pro-regulatory mavins off the FTC's back as it didn't regulate in other ways that would have been far more costly.

So let’s hope the next few years are spent debating the details of executive pay. Just focus on this: It’s way better than Regulation FD and shareholder nomination of directors. Look at it as regulatory chicken soup: it won't do any good, but it least it can't hurt. That, in my view, is about the best one can hope for from the SEC in the current political environment.

Update: Peter Lattman is worried that the disclosures will make us feel poorer.

Comments

[Robert Schwartz]

Just what I wanted, more paper to throw away.