I do some of my best reading while eating breakfast. This morning, I came across a Bloomberg article referring to a recent speech by SEC Chairman Christopher Cox in which he described his frustration with companies still using jargon in their proxy statements, which include disclosure about executive compensation and ownership in the company.
Still struggling
Supposedly, this year's proxy statements were to be the first to meet the Securities and Exchange Commission requirement of using plain English to explain executive compensation. But Cox found that in many cases, companies still don't seem to get it, with some companies filing descriptions of executive compensation that are up to 40 pages long. The SEC's vision here was for a few pages, so clearly companies have more work to do. I can certainly see situations when compensation disclosure would go more than a few pages, but anything longer than 10 pages makes me wonder if the company is trying to deter investors from reading the disclosure entirely.
The truth is that most investors don't read company SEC filings. Part of the reason is that they're a bear to read, and people naturally don't want to spend their free time reading things that require pulling out dictionaries and other reference materials. As an investor who does my own homework and generally enjoys reading most proxy statements, I can attest to the fact that some of them still make my eyes glaze over.
Worst offenders
The Bloomberg article highlighted General Electric (NYSE:GE), SunTrust (NYSE:STI), and Income Investor selection Eli Lilly (NYSE:LLY) as having particularly difficult-to-read disclosures on executive compensation. I find it interesting that the companies singled out aren't fly-by-night operations or foreign companies that might lose some clarity in translation. These companies are stalwarts. They have real businesses with real earnings.
The SEC plans to continue tightening up on this issue and improving the tools investors have to analyze the data. In the speech, Cox also demonstrated tools that allow investors to parse data and look at it in different ways once the documents are properly encoded. The SEC hopes to launch these new features in June for at least a couple hundred companies.
Improving the readability of proxy statements and new tools that allow for quick and easy analysis are things this Fool wholeheartedly endorses. I can't wait to give them a spin myself.
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At the time of publication, Nathan Parmelee did not own shares in any of the companies mentioned. He's on his way to read a 10-K right now. The Motley Fool has an ironclad disclosure policy.
