First year wisdom for next year's disclosure: a checklist to help boards master their 2008 executive compensation disclosures under the new SEC rules.

• Author: Doubleday, Diane
• Position: FINANCIAL OVERSIGHT

NOW THAT THE first proxy season under the SEC's new executive compensation disclosure rules has ended, it is time for companies to assess their experience with the new requirements and analyze how they will affect future compensation decisions.

Despite their many challenges, the new rules had several positive effects on the executive compensation-setting process, including:

* Most compensation committees were very engaged in preparing the Compensation Discussion and Analysis (CD & A), explaining the rationale for each pay element.

* The process of preparing the CD & A strengthened the relationships between the finance, human resources, and legal departments.

* The expanded tables provided detailed information on pay levels allowing better assessment of a company's pay-for-performance strategy.

* The rigor of preparing the disclosure forced compensation committees to develop a better understanding of their companies' executive pay programs.

In preparing their disclosure for 2008, compensation committees should consider this list of 10 disclosure tips, based on lessons learned during the first proxy season under the new SEC rules and the SEC staff's initial round of comments on the proxy statements filed during 2007. While the decision to address some of these items will depend on how material they are to a fair understanding of the compensation program, the staff's comments strongly suggest that the items listed below are central to a comprehensive set of disclosures.

1. Share performance targets

   In 2007, less than half of companies disclosed the specific performance targets used in their incentive compensation plans. Companies that did not disclose their targets must be prepared to demonstrate that disclosure would result in competitive harm and must state how difficult it would be to achieve the undisclosed targets. Many companies overlooked this latter requirement and, even when addressed, provided only vague statements, such as "challenging but achievable" or "intended to encourage superior performance." If targets are not disclosed, companies should consider discussing their historical performance against target in detail.

2. Identify benchmarks and peer groups

   Companies should identify any benchmarks or peer groups they use for pay comparisons. While most companies identified their benchmarks, the disclosure varied dramatically--with some providing detailed lists of their indices, peer groups, and benchmarks, and others making only...