Last week SEC Chairman Cox said during a speech that some explanations of executive compensation were excessively long and "overlawyered". Many lawyers, however, that have put in long hours writing these new required "compensation discussion and analysis" sections took offense. They counter that the SEC's stringent requirements make it essential for companies to put ALL compensation data out there, no matter how many pages. While this may complicate things for the average investor, lawyers see it as a necessity in order to avoid being sued by the SEC or the plaintiffs' bar is any minor detail is omitted. So, where is the middle ground? Well, that remains to be seen. For now, investors will just have to learn to forge through the occasional 30-60 page proxy containing executive compensation documentation in order to find what it is that they really want.

SEC Chairman Cox gave an address to the 2007 Corporate Counsel Institute yesterday in which is outlined future changes and commentary on current SEC regulations. In particular, he focused on changes to the executive compensation disclosure rules. One of the primary goals of the new regulations was to prevent the "boilerplate" disclosures that have previously been the norm, and instead replace them with genuinely useful information about executive compensation. Here's where he noticed the problems...

"We're seeing examples of overlawyering that are leading to 30- and 40-page long executive compensation sections in proxy statements. We’re seeing companies including columns in the summary compensation tables even when there's nothing to report in those columns. This kind of slavish adherence to boilerplate disclosure is what we're trying to stamp out," said SEC Chairman Cox. "So while we're giving people some grace in getting used to the new rules, the plain English part of executive compensation will be increasingly strictly enforced in the coming year."

He then summarized, "Before I leave the topic of executive compensation, let me offer a word about the new Compensation Discussion and Analysis section. This new opportunity for a company to detail the objectives of its compensation program is what good disclosure is all about — and it's where inside counsel can play a vital role. The narrative in the CD&A should provide a qualitative look at the company's executive compensation policies, and shed light on the quantitative tabular data. This is your chance to plainly tell the company's compensation story. I urge you to take the opportunity and make the most of it."

Northwest Airlines (OTC:NWACQ) faced some sharp criticism Wednesday from the head of the pilots union, Dave Stevens, blasted company executives for taking excessive compensation, while the airline's projected profitability was largely achieved through deep employee pay cuts. "The pilots gave concessions to save Northwest Airlines, not to enrich the Northwest executives," said Mr. Stevens. "Management used an overly pessimistic plan to extract concessions." But just how much did they receive? Well, we'll know for sure before the company exits Chapter 11, because they will be required to disclose its management compensation plan. Mr. Steenland, CEO, said in a recent interview that top executives will receive equity in the restructured airline, while Stevens said he has resisted his efforts to grant stock or options to "front-line" employees who run the day-to-day operations.

The new SEC compensation rules state that companies have to now be clearer with where their money is administered, even if it involves benefit packages for their CEO’s. In short, shareholders want to know what the executives are making and spending – even if it involves their golf outings.

As for shareholders, they have a right to know what the CEO’s are spending their benefit packages on. Such packages may include golf club memberships, life insurance benefits, automobile and parking allowances, personal security, Internet allowances, and personal trips with the use of the corporate jet. Shareholders do spend a pretty penny on the leaders of their shares and companies. For example, Starbucks shareholders spent $1.23 million on perks last year. Perks for overall top US corporations are covered by a few good hundred thousand dollars per executive per year.

As if this wasn't enough, many companies actually provide extra money or a "gross up" benefit to cover the taxes associated with the perks. The issue arises when the shareholders and general public are unhappy with how much CEO’s are receiving yearly in perks and bonuses. However, the board members are the ones in control of the financial outcome of the perks and benefits for their CEO’s – they are approving such benefit packages. Traditionally, Boards have just approved these benefits under the table, but now that they are more apparent in filings, they may face increased investor scrutiny.

Blockbuster Inc.'s (NYSE:BBI) CEO John Antioco is set to fight back after the company dramatically cut his bonus check by about $5 million, exercising what is known as "negative discretion". The company's Board of Directors awarded Antioco a $2.28 million bonus, which comes in addition to his salary and deferred compensation amounting to about $2.5 million. Interestingly, the bonus also came with a provision saying that if Antioco protests, he is supposed to get nothing. Typically, these fights between management and the Board of Directors take place behind closed doors; however, since Antioco complained, the company was required to set aside a $4.5 million contingency (under FASB accounting rules) which was then reported in the company's SEC filings.

Why was Antioco's bonus reduced in the first place? Well, the Board of Directors argues that the company's profits have fell 28% in the fourth quarter due to higher costs for the launch of its "Total Access" program to combine ints online and in-store rental programs. Moreover, the company continues to struggle against its main competitor Netflix, which has now delivered over a billion DVDs. The company has also had problems with the CEO in the past, after Carl Icahn accused him of blackmailing shareholders by trying to collect a $50 million severance package after being removed forcefully from the company's Board. However, this payout was avoided when Icahn and the Board brought Antioco back onboard later. Consequently, many people believe it is actually Icahn behind the cut, trying to further motivate the CEO to increase free cash flows and unlock shareholder value. But either way, many people are hoping that other companies will follow in their footsteps and not be afraid to enforce change.

Motorola Inc. (NYSE:MOT) shareholders are also proposing new measures at the company's next annual meeting aimed at giving them a say in executive compensation. The news comes after MOT revealed Friday that CEO Edward Zander received $11.9 million in total pay for 2006, which included a $350,999 bill for personal use of the company aircraft. The new proposal calls for Motorola to adopt a policy enabling shareholders to cast advisory-only votes on executive compensation. These votes, while advisory-only, would likely sway the Board of Directors in the event of overcompensation - since the Board is supposed to act on behalf of shareholders not management. Another proposal on the table is aimed at recouping "unearned management bonuses" that would return any bonuses or incentive payments given out to executives if it's later "reasonably determined" that certain performance targets weren't met. Combined, shareholders are hoping that these new proposals will enable them to keep a tighter leash on executive compensation.

Northrop Grumman (NYSE:NOC) shareholders may get a say on executive compensation after the SEC denied the company's request to block the proposal from this years proxy shortlist. The proposal was first submitted by the Service Employees International Union, who reasoned that shareholders need ways to provide input to corporate boards regarding executive pay packages. Northrop sought to exclude the SEIU proposal from its proxy, saying that they believed it would be confusing and misleading for shareholders. However, the SEC disagreed and the measure will now be up for vote. The so-called "say on pay" policy would give shareholders an "advisory-only" vote on executive compensation packages, which could end up influencing the Board of Directors - who are hired to act on behalf of shareholders. Many are hoping that this decision paves the way for similar proposals in other companies where executive compensation can get out of hand.

Berkshire Hathaway's (NYSE:BRK) Warren Buffet offered his views on executive compensation in his annual letter to shareholders. In the letter, he explains how Berkshire comes up with their compensation and expressed his disappointment with pay consultants who have allowed such excessive compensation to take over. Buffet insists that the solution to the problem would be for a few large institutional shareholders to team up and take on the problem by taking a fresh new prospective.

Here's what the Oracle of Omaha had to say:

Berkshire employs many different incentive arrangements, with their terms depending on such elements as the economic potential or capital intensity of a CEO’s business. Whatever the compensation arrangement, though, I try to keep it both simple and fair.

When we use incentives – and these can be large – they are always tied to the operating results for which a given CEO has authority. We issue no lottery tickets that carry payoffs unrelated to business performance. If a CEO bats .300, he gets paid for being a .300 hitter, even if circumstances outside of his
control cause Berkshire to perform poorly. And if he bats .150, he doesn’t get a payoff just because the successes of others have enabled Berkshire to prosper mightily. An example: We now own $61 billion of equities at Berkshire, whose value can easily rise or fall by 10% in a given year. Why in the world should the pay of our operating executives be affected by such $6 billion swings, however important the gain or loss may be for shareholders?

You’ve read loads about CEOs who have received astronomical compensation for mediocre results. Much less well-advertised is the fact that America’s CEOs also generally live the good life. Many, it should be emphasized, are exceptionally able, and almost all work far more than 40 hours a week. But they are usually treated like royalty in the process. (And we’re certainly going to keep it that way at Berkshire. Though Charlie still favors sackcloth and ashes, I prefer to be spoiled rotten. Berkshire owns The Pampered Chef; our wonderful office group has made me The Pampered Chief.)

CEO perks at one company are quickly copied elsewhere. “All the other kids have one” may seem a thought too juvenile to use as a rationale in the boardroom. But consultants employ precisely this argument, phrased more elegantly of course, when they make recommendations to comp committees. Irrational and excessive comp practices will not be materially changed by disclosure or by “independent” comp committee members. Indeed, I think it’s likely that the reason I was rejected for service on so many comp committees was that I was regarded as too independent. Compensation reform will only occur if the largest institutional shareholders – it would only take a few – demand a fresh look at the whole system. The consultants’ present drill of deftly selecting “peer” companies to compare with their clients will only perpetuate present excesses.

Rep. Barney Frank proposed additional legislation aimed at providing shareholders with additional powers when it comes to executive compensation. The Massachusetts Democrat's proposed bill would give shareholders a chance to cast a nonbinding confidence or no-confidence vote on executive pay plans, allowing them either to ratify or disapprove of them. Similar provisions are already present in Britain, Sweden, and Australia where pay packages are rarely voted down but rather kept pay in check through fear of shareholder retribution. While no Republicans have yet endorsed the representative's bill, the Democrat-controlled Congress could pass the provision as soon as April. Given recent shareholder concerns over executive compensation, it would not be surprising to see this bill passed quickly into law.