U.S. companies are taking a wait-and-see approach to proposed new rules requiring better disclosure of executive pay programs, but they are likely to change those plans when the rules are adopted, according to a survey by Watson Wyatt Worldwide.
The consulting firm polled 112 compensation and human resource executives at publicly traded companies and found that 70% of companies do not plan to change their compensation programs in response to the SEC's proposal to require increased disclosure of the programs on proxy statements.
"The thing that surprised me was that companies think it won't change their compensation plans and won't improve their corporate governance," Ira Kay, global director of compensation consulting at Watson Wyatt, said in a telephone interview. "We believe the heightened disclosure on severance and pensions will in fact put pressure on companies to rethink these programs."
He added that increased disclosure requirements will raise the level and "quality of discussion" about compensation at corporate board compensation committees, "which in and of itself from a business judgment standpoint is an improvement in corporate governance."
Any changes to severance and pensions stemming from the proposed rules will likely take the form of less generous packages, Mr. Kay said, adding that they could also shake up the executive labor force.
"There is a case to be made that the labor market for executives is quite efficient - that's what we believe," he said. "Putting more constraints and more risk into these executive positions could cause turnover or other performance-types of problems."
If approved, the rules would take effect for 2007 proxy filings.