The clock is ticking for companies to comply with the first Dodd-Frank requirement concerning executive compensation. When they start sending out their 2011 proxies this spring, companies must include an explanation of how top executive officers' pay tracks with the company's performance. Companies are free to use whatever calculations and formulas they want, since the Securities and Exchange Commission will not publish a rule setting out metrics for this disclosure until after 2011 proxies are mailed. But the choice is fraught with risks because Dodd-Frank also mandates that companies give shareholders a nonbinding "say on pay" resolution in 2011.
"From our perspective, each company will need to do some analysis on their own, and they need to start doing that now, because different methodologies lead to different results," says Steve Seelig, executive compensation counsel at Towers Watson Research Center.
On the pay side, companies might use the figure in the summary compensation table of the proxy, although Seelig does not think this is what Congress was after. Using the compensation listed on executives' W-2 forms is a better option, Seelig says, but he favors using "pay realizable," which is the value of all compensation, including increases or decreases in equity value, plus income from cashing in options.
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