The SEC is considering a rule that would make companies tell investors how much money they pay compensation consultants — if those same consultants work on other company projects. Those jobs can include actuary work, setting up employee 401(k) plans, succession planning and annual pay for mid-level managers. It says CEO pay packages may be compromised when the same consulting firm hired by the board also provides other services to the company. The MarketWatch report said this is akin to 2002 when accounting scandals claimed the corporate lives of Enron and Worldcom. In the wake of those bankruptcies, federal regulations stipulated companies reveal how much they paid accounting firms for routine bookkeeping compared to non-audit services. Under the SEC’s proposal, shareholders would find the fee amounts in the company’s proxy statement. The information would include fees paid to structure senior management pay packages and the fees for other services. Non-pay services would be described, too. The central issue is the amount of money consulting firms make for providing non-executive pay advice to corporate management: It can be up top 10 times greater than CEO pay work. This, according to a December 2007 congressional report, creates a potential conflict of interest when the consulting firm also works with compensation committee. The SEC is seeking public comment on the measure by Tuesday before it decides whether to issue a final rule. That could come before the end of the year.
SEC Mulls Consultant Rule Change for CEO Pay Packages
The central issue is the amount of money consulting firms make for providing non-executive pay advice to corporate management: It can be up top 10 times greater than CEO pay work.
September 14, 2009