With executive pay under an increasingly harsh spotlight, more large companies are attempting to link pay with performance by requiring executives to build stakes in their firms through stock ownership guidelines and holding requirements, according to an analysis of Fortune 250 companies by compensation research firm Equilar Inc.

Of 237 public Fortune 250 companies, 200 (84 percent) disclosed stock ownership policies last year, consistent with the 82 percent that did so in 2008, according to Equilar, which looked at companies’ 2009 proxy filings and in some cases, data from company Websites.

Among the 200 companies with ownership policies, about 53 percent disclosed ownership guidelines only, while about 5 percent (9 companies) disclosed holding requirements only. The remainder disclosed both ownership guidelines and holding requirements for their executives—a 17 percent increase from 2008.

The report also shows that companies are increasingly requiring executives to sustain significant equity ownership throughout their terms. Among 95 companies disclosing holding requirements, 65 percent require executives to retain shares before guidelines are met, and 47 percent use general holding requirements.

Stock ownership guidelines that define ownership targets as a multiple of base salary are still the far most commonly used design model, employed by 82 percent of companies. The second most common design models use a fixed number of shares (13 percent), and about 3 percent use a combination of both.

The median base salary multiple for CEOs is five times the base salary, while target ownership levels for CEOs ranged from two times base salary to 15 times base salary.

Stock options are least likely to be counted toward meeting executive ownership guidelines. Among companies with ownership guidelines, about 11 percent allow options to be applied toward ownership targets, compared with 33 percent that explicitly exclude them. On the other hand, share equivalents and plan shares are both counted toward the guidelines at over 40 percent of companies disclosing a definition of stock.

In 2009, more Fortune 250 companies began to disclose information regarding guideline compliance, hardship provisions, anti-hedging policies, and retirement clauses in their executive stock ownership policies.

Among the 200 companies with ownership policies, 73 percent disclosed the compliance status of their executives in 2009. Roughly 16 percent disclosed non-compliance penalties for not obtaining the required level of ownership by the end of the target time frame, such as reduction or elimination of annual equity compensation, increased stock retention requirements, and mandatory investment of a percentage of bonuses into company stock. Twenty-seven companies disclosed hardship provisions for executives in 2009, compared to 28 in 2008 and 16 in 2007.

The “2010 Executive Stock Ownership Guidelines” report is available for download here.

With an agenda full of congressionally mandated studies and rulemaking to tackle thanks to the Dodd-Frank Act, the Securities and Exchange Commission is trying a new approach to getting public input: inviting public comment on a number of topics even before it has proposed rules or opened official comment periods.

With the ink barely dry on the Wall Street Reform and Consumer Protection Act, the SEC has already created a series of e-mail inboxes so “anyone interested can easily weigh in” on upcoming rulemaking, Chairman Mary Schapiro noted in July 27 remarks before the Chamber of Commerce’s Center for Capital Markets Competitiveness.

The mailboxes are organized by topic, starting with rules that have the shortest time frame for implementation.

Schapiro said the idea “is to offer maximum opportunity for public comment and to provide greater transparency.”

She also noted that the staff will “try to meet with any interested parties who seek to meet with us,” and will ask those who request meetings to provide an agenda of intended topics prior to the meeting that will be filed in the public e-mail file. Meeting participants will also be encouraged to submit written comments to the public file, and Schapiro noted that she expects to hold public hearings on selected topics.

Among other things, Schapiro noted that the SEC will be adopting a number of rules related to corporate disclosures, especially in the area of executive compensation. For instance, the law requires all public companies to hold advisory say-on-pay votes at least once every three years, as well as votes on golden parachutes that provide payments to executives in the wake of mergers, acquisitions, and major asset transactions. Companies will also be required to calculate and disclose the median total compensation of all employees and the ratio of CEO pay to that of employees, to disclose whether employees or directors are permitted to hedge against a decrease in value of options granted as part of their compensation, and to develop “clawback” policies for reclaiming incentive-based pay from current and former executive officers after a material financial restatement.

Rules governing when brokers can vote proxies without instruction from beneficial holders will also be revised so brokers can’t vote on compensation matters, such as the new say-on-pay requirement, or other significant matters that the SEC determines by rule.

With confirmation of the Commission’s authority to adopt rules to facilitate shareholder access to the proxy to nominate directors now official, Schapiro also said she is “committed to bringing a final rule to the Commission for consideration so that rules will generally be in effect in time for the 2011 proxy season.”

She also pledged to follow up on public comments on the proxy plumbing concept release now out for comment.

“While we will be busy with regulatory reform rulemaking, we can, and will, make the time to address these critical issues,” she stated.

First the Securities and Exchange Commission’s Enforcement Division got an overhaul, now major changes are underway in the Division of Corporation Finance, the unit that reviews public company filings.

Corp Fin is creating three new specialized offices focusing on large financial institutions, asset-backed securities and other structured products, and securities offering trends.

The Commission declined to comment beyond the press release. While the creation of the new specialized offices was no doubt in the works before the financial reform legislation was finalized, the changes could help the SEC deal with some of its new duties under the Dodd-Frank Act.

A new financial services disclosure review office will expand the Division’s enhanced reviews of large financial services companies. The Division has been conducting continuous real-time reviews of the periodic reports filed by some of the largest bank holding companies and other large financial institutions since late 2008.

According to the SEC press release, the new financial services review office will enable Corp Fin to increase the number of institutions subject to those reviews, concentrate staff expertise, and develop new review techniques to further strengthen its review program. The new office will also facilitate sharing information about the firms it reviews with others throughout the agency involved in regulatory oversight of these firms.

A new office will be dedicated specifically to reviewing disclosures in asset-backed securities and other structured finance products and monitoring their impact on the markets. It will also lead rulemaking and interpretive activities related to structured products.

A capital market trends office will review new securities products and capital markets trends and develop recommendations for changes to enhance investor protection in securities offerings.

The SEC also announced that Paula Dubberly has been named to a new Deputy Director for Policy and Capital Markets position, to oversee the two offices that will review asset-backed securities and other structured finance products and capital markets trends. She will continue to lead the Division’s rulemaking efforts through her oversight of the Division’s rulemaking office. Dubberly has served in a number of roles within the Division of Corporation Finance since 1992.

Should proxy advisory firms should be subject to greater Commission oversight and if so, what should that look like? Should there be checks on the accuracy of the information provided by proxy advisers? Are advisers who provide services to both corporations and investors managing and disclosing the resulting conflicts of interest appropriately? Are self-regulatory organizations appropriately overseeing proxy distribution fees?

Those are some of the questions the staff of Securities and Exchange Commission will ask when the agency publishes its “proxy plumbing” concept release soliciting input on how to modernize the voting infrastructure, SEC chairman Mary Schapiro told a group of directors.

In June 20 remarksat the Stanford University Law School Directors College, Schapiro urged directors and their companies to “actively participate in this concept release, because we really do need to hear from you.”

Schapiro noted that the Commission is also reevaluating all of its corporate filing forms and disclosure requirements, asking whether the information being sought is still relevant, or whether another type of information or a different form of presentation would be more meaningful to investors and the markets.

Given the demands that financial regulatory reform legislation will likely impose on the agency’s rulemaking agenda, she noted that it may be “a while” before a proposal is presented to the Commission.

However, Schapiro the staff is already reviewing existing disclosure requirements that haven’t been updated, reviewing recommendations made by previous advisory committees such as the Committee on Improvements to Financial Reporting and others, and asking the individuals who prepare and review disclosures day-in and day-out what rule-changes they think would elicit better information.

After the review, Schapiro said she expects the staff will present recommendations it can act on quickly, such as revising the risk disclosure requirements, as well as more sweeping measures that will take more time, such as possibly changing filing formats so that “basic information can be more easily digested by investors and updated by companies.”

Noting that the staff will tackle the problem of “needless repetition in company filings,” Schapiro said, “If you have suggestions for improving our disclosure requirements, we would love to hear from you.”

Meanwhile, she noted that the Commission continues to encourage the convergence of U.S. GAAP and International Financial Reporting Standards, but acknowledged that bringing the two systems together has proven a challenging process.

“We believe that it’s important to provide for adequate due process and commentary on new standards, in order to ensure the informational value, integrity and political independence of the final outcome,” she said. “While we are committed to global standards, a key priority is and must be protecting investors in American markets. We are executing a comprehensive work plan, dedicating significant resources to it and providing periodic progress reports.”

In written remarks, Schapiro also offered her view of a good example of risk disclosure under the SEC’s revised rules.

“Investors are informed and reassured by a proxy statement that begins with…a thorough discussion of the risk-related responsibilities of the board and its various committees,” she said. “It then adds a detailed narrative that touches on the company’s reporting to the Board and its committees about credit and liquidity risks, risk-focused auditing strategies, and the impact on risk of compensation policies.”

Schapiro contrasted that with a risk oversight disclosure statement that reads: “The board has risk oversight responsibility for Company X and administers this responsibility both directly and with assistance from its committees.”

“Investors might find this type of statement informative - but perhaps not quite in the way that the company intended,” she said.

The sunlight of disclosure and heightened public outrage over excessive pay amid the financial crisis has seen some perks fall by the wayside. However, club memberships don’t appear to be one of them.

Among more than 3,000 U.S. public companies studied, 382 had chief executives who received club membership fee benefits in 2008/2009, up slightly from the 372 who did so in 2007/2008, according to research by The Corporate Library.

That’s in contrast to some reports that show that certain perks that tend to draw investor ire, such as tax gross-ups on perks and personal use of company aircraft, have declined somewhat since the Securities and Exchange Commission expanded its rules to require greater disclosure of executive pay in 2006.

Still, overall, the club membership perk isn’t particularly widespread: Only about 12 percent of the sample studied received club membership benefits in 2008/9, according to the report, “2010 Proxy Season Foresights #7: Club Membership Benefits Holding Steady.”

Moreover, at least some CEOs gave up or had the benefit taken away, since a matched sample analysis showed 319 of 2,657 CEOs in their post for all of the 24 months under study received the club membership benefit in 2008/9, compared to 329 in 2007/8.

At the same time, the data also shows that it’s not an “exclusive” benefit provided only by the largest companies. While S&P 500 firms represented slightly more than 15 percent of the sample, just 43 S&P 500 CEOs received club membership benefits in 2008/9, representing just over 10 percent of all CEOs receiving the perk. Meanwhile, among financial services companies, which accounted for roughly 13 percent of the group, more than one quarter (97 CEOs) received the benefit.

The report’s author, TCL senior research associate Paul Hodgson, says the interest in the benefit isn’t in the cost or in the low incidence, but “in the existence of such a perk at all.”

“Club memberships are often seen in conjunction with other largely unnecessary perks at companies and indicate, in our opinion, the possibility of a board unwilling to refuse any request from management,” Hodgson writes. “If this is true of the payment of club membership fees, it may also be true of other, far more financially damaging requests. It is thus a potential indicator of the balance of power in the boardroom and is significant from a governance viewpoint.”

In all, 66 CEOs in the matched sample received club memberships in 2007/8 but not 2008/9, while 76 received the benefit in 2008/9 though not in 2007/8. However, the reasons behind the changes aren’t clear. While some of the shifts may be due to disclosure issues (initiation fees may exceed disclosure thresholds one year, while regular annual fees might be below it in another), that’s not the case in all of the examples, according to the report.

Median club membership costs rose nearly 4 percent, while the average increase was 66 percent, which the report says was driven by a number of high increases, for example, at companies like Comerica Inc., where initiation fees were paid in the most recent year compared to a simple annual fee in the prior year. The median annual cost of club membership was $6,399, with similar costs regardless of company size.

The report points to four companies that disclosed six-figure club membership benefits in the most recent 12 months of filings. Moreover, two of the top-five club membership fee benefits (those representing the highest costs to shareholders) went to CEOs of banks that are or were in receipt of government bailout money under the Capital Purchase Program of the Troubled Asset Relief Plan.

Under TARP rules, those banks are required to state a policy on “Luxury Expenditures.” One, TCF Financial, which disclosed $105,000 in “club membership equity” which gives members an ownership stake in the club, paid for CEO Lynn Nagorske, didn’t even mention such a requirement in its proxy. The other, Comerica, which disclosed club memberships for all of its NEOs, noted the requirement, but didn’t state its policy.

James Kirsch, CEO of Ferro Corp. also topped the list due to a one-time payment of $100,000 in 2008 for initiation fees to join a country club. Meanwhile, Diebold Inc. discontinued the club benefits for all of its executives except CEO Thomas Swidarski, who kept an existing club benefit and joined another in 2008, putting it in the top five with a club membership benefit of $95,007.

While such memberships may well be useful for business development and networking purposes, Hodgson says “best practice would dictate either that executives reimburse the company for personal use of country clubs or cover the cost of membership themselves and seek reimbursement as for ordinary business expenses.” For example, at Humana and Chubb, personal use and benefits are reimbursed by the CEO.

The full report is available for free here.

A little light weekend reading, courtesy of the Securities and Exchange Commission staff, which posted three new Compliance & Disclosure Interpretations related to Regulation S-K.

The March 12 C&DIs are the latest to update the staff’s views in light of the new Proxy Disclosure Enhancements rule that took effect Feb. 28.

Questions 119.25 and 119.26, relate to reporting Executive Compensation amounts in the Summary Compensation Table under Item 402(c). The third, Question 133.12, relates to the reporting of compensation consultant fees as required under Item 407.

More help for companies on complying with the Securities and Exchange Commission’s new Proxy Disclosure Enhancements rule: The staff of the Division of Corporation Finance has posted six new Compliance and Disclosure Interpretations.

Among other things, the rule, adopted by the SEC in December, requires new disclosure about executive pay, risks and risk oversight, and directors’ experience and qualifications, and requires much faster reporting of shareholder vote results.

The new interpretations published Feb. 16 include new questions 116.07, 117.05; 119.21, 119.22 and 119.23, which offer guidance on disclosure under Items 401, 402(a), and Item 402(c) of Regulation S-K.
The staff also added new question 121A.01 related to Exchange Act Form 8-K, which explains how issuers should calculate the four-business day filing period for disclosing the results of a shareholder vote.

They follow other staff guidance on the new requirements issued in January and December.

RiskMetrics Group has published some guidance for companies, in the form of three frequently asked questions, about how its voting policies may apply to some of the disclosures required under the Securities and Exchange Commission’s new proxy disclosure rule.

The rule adopted by the SEC in December, which includes new disclosure about risk-management oversight, “risky” compensation, and director qualifications, among other things, are effective for proxy statements issued on or after Feb. 28, 2010, by companies with a fiscal year ending on Dec. 15, 2009 or later.

RMG says the FAQs are intended to provide “high-level guidance regarding the way in which the RMG Research Department will generally view certain issues in the context of preparing proxy analyses and vote recommendations for U.S. companies,” but shouldn’t be construed as “a guarantee as to how RMG’s Research Department will apply its benchmark policy in any particular situation.”

Topics addressed include what RiskMetrics will look for in the new disclosure requirement on risks raised by compensation programs, and how it will view non-disclosure, how it will analyze compensation consultant fee disclosures, and views and the prospects for related voting recommendations regarding the new disclosures on director qualifications, diversity policies, and board leadership and oversight of risk management.

Noting that some companies may say nothing in their proxy statement, rather than make a negative disclosure, if they conclude they have no material adverse risks caused by pay, RMG says that, while it doesn’t have a policy regarding non-disclosure, it advises issuers to, “at a minimum, talk about their process and any mitigating features (such as claw-backs or bonus banks) that they have adopted.”

With respect to compensation consultant fee disclosures, RMG said since the data is brand new, it won’t apply any formula or any specific policy with regard to fees (i.e. raising concerns if fees for other services exceed fees for compensation consulting). Rather, RMG says it will analyze the issue after proxy season and will then “develop, in consultation with clients, any policy guidelines that are warranted.”

RMG also said it’s too early to speculate about potential policy changes related to the new disclosures on director qualifications, diversity policies, and board leadership and oversight of risk management.

Additional information clarifying directors’ qualifications “will not be determinative in any recommendation but rather will provide additional insight that may be considered in overall evaluations, as warranted,” the FAQs state.

With respect to board leadership and diversity and the board’s oversight of risk management, RMG hasn’t made any policy changes related to director elections in 2010.

“We look forward to seeing substantive discussion of these issues, and will incorporate meaningful information into analysis of related shareholder proposals, as appropriate, although RMG policy regarding those proposals is unchanged for 2010,” RMG says.

Despite the progress made during the last year, both with respect to financial reform and reform of the Securities and Exchange Commission’s enforcement program, there’s more work to do, according to at least one SEC official.

While he praised some of the progress made to date, SEC Commissioner Luis Aguilar, in a Feb. 5 speech, said more change is needed, both by the SEC and lawmakers crafting regulatory reform.

“Whether reform legislation comes soon or not, the SEC must continue its own revitalization,” Aguilar said in remarks at the SEC Speaks conference in Washington, D.C. In particular, he flagged two issues he says would go “a long way to truly empowering our staff and removing barriers from their path.”

First, he repeated his call for the SEC to revisit its 2006 Penalty Statement, which he described as “a misguided approach to how to weigh factors one considers when deciding whether to seek a corporate penalty.”

“Every day these guidelines are in place they adversely impact the cases we are working on,” Aguilar said.

Under that framework, which prioritizes the presence or absence of a direct benefit to the company as a result of the violation and the degree to which the penalty will recompense or further harm the injured shareholders, Aguilar said, “the conduct itself becomes of secondary importance, and the Commission fails to appropriately focus on deterrence.”

He also called for the establishment of a uniform audit trail for securities trading to provide the staff quicker access to information regarding trades. Currently, the staff relies on information from the Electronic Blue Sheet system and information from the self-regulatory organizations, which he described as “an outdated, patchwork approach.”

Aguilar advocated replacing the current system with a searchable repository of trading data that would provide the staff with a “near real-time view of market activity.” He said such a system should be scalable to allow for the inclusion of new products and practices in securities markets, and ideally the derivatives markets.

As previously reported, SEC Commissioner Mary Schapiro noted in a speech at the same event that the commission will consider staff recommendations in the spring to have the SROs develop and implement a consolidated audit trail that captures customer and order event information across markets to help improve market surveillance.

Meanwhile, Aguilar noted that promised e-proxy changes and investor education efforts are coming. He said the SEC soon will establish educational efforts to help investors “understand e-Proxy and their rights” and amend its rules so that the process “is less confusing to investors.”

Under the current rule, companies can post their proxy materials online and send shareholders a notice that they’re available without sending a full set of paper materials unless requested. However, data showed that participation by retail investors plummeted at some companies that used the so-called “notice only” model, sparking criticism by some, including Aguilar, who urged the SEC to either fix or scrap e-proxy.

Aguilar said he’ll be “watching to see if the amendments result in real improvement.”

He also reiterated his call for the SEC to be self-funded. While an early draft of the Senate financial regulation reform bill provided for self-funding, it’s unclear whether that provision will make it into any final legislation. As recently reported, the President’s recent budget request of $1.258 billion for fiscal 2011 would increase the Commission’s coffers by roughly $139 million, or 12 percent over its fiscal 2010 funding level, and would enable the agency to add hundreds of staff positions.

In order for reforms to be sustainable, Aguilar said existing rules must be “implemented fully and enforced.” For example, pointing to the recently adopted Proxy Disclosure Enhancement rule, which requires greater disclosure about board member qualifications, Aguilar said the usefulness of that disclosure to investors will depend on how well the rule requirements are implemented.

“To that end, I commend those who will work to meet not only the letter of the law, but the spirit as well,” he said.

His remarks were part of a broader speech lamenting the lack of progress on financial regulatory reform. Despite the “intense focus” on financial reform over the last year, Aguilar said “very little has changed.”

“There have been many speeches given and many preliminary steps taken toward regulatory reform, but for all the activity, reform itself has yet to be achieved,” he said. For example, he said over-the-counter derivatives, hedge funds, and municipal securities markets “still lack appropriate regulation, and our inspection and enforcement efforts in these areas continue to be severely undermined.”

Aguilar also chastised the use of the reform process by some as an “opportunity to weaken strong investor-focused laws arising from lessons learned in prior crises.” In particular, he has criticized the Wall Street Reform and Consumer Protection Act passed by the House in December because it would exempt non-accelerated filers—which he says account for 50 percent of all U.S. public companies—from having an outside audit of their internal controls as required under Section 404(b) of Sarbanes-Oxley. The Senate draft bill was silent on that issue.

Meanwhile, he lauded two initiatives he advocated last year: the creation of the Investor Advisory Committee and the streamlining of the formal order process, which delegated the power to issue a subpoena to senior staff. Aguilar said the change has resulted in “a huge improvement in the speed and efficiency” by which the enforcement staff can conduct an investigation.

Amid fury over bank bonus pay, the head of the House Financial Services Committee wants the Securities and Exchange Commission to require public companies to disclose the compensation of their top-paid employees who aren’t senior executives, which would essentially revive a proposal the agency panned in 2006.

Under current SEC rules, companies disclose the pay of their chief executive officer, chief financial officer, and three highest-paid executive officers.

Financial Services Committee Chairman Barney Frank said the SEC “should expand the disclosure,” according to a Feb. 2 report by Bloomberg. Doing so would potentially force Wall Street firms to reveal how much their top traders and money managers earn.

“They can do that without us,” Frank is quoted as saying. “There’s no point in legislating.”

Steven Adamske, Communications Director for the House Committee on Financial Services, confirmed the report of Frank’s comments as correct.

“We don’t have an exact time for when we will have new legislation, but as Mr. Frank points out in the story, the SEC does not have to wait for us,” he told Compliance Week in an e-mail.

Frank’s remarks come amid backlash over reports that some banks are paying billions in bonuses a year after receiving huge government bailouts.

The idea is reminiscent of a proposal, floated and ultimately dropped by the SEC in 2006 when it overhauled its rules on pay disclosure, that would’ve required companies to disclose the total compensation and job description of their three highest-paid non-executive employees who earn more than the company’s named executive officers.

Dubbed the “Katie Couric rule,” since it would’ve required disclosure of the celebrity journalist’s eye-popping pay as anchor of the “CBS Evening News,” the proposal was later revised in response to sharp criticism from Corporate America. The narrower version targeted only non-executive employees with management responsibilities, excluding most traders, top salesmen, entertainers, and professional athletes. However, the SEC eventually dropped the proposal amid a firestorm of criticism from the business community, which argued that the disclosure wouldn’t be material to investors and wouldn’t help them understand pay decisions, since non-executive pay is often set differently from that of executive officers. Companies also said it would put them at a competitive disadvantage in the market for managerial talent.

In an e-mail response to a request for comment, SEC spokesman John Heine said, “The SEC recently revised our executive compensation disclosure rules and routinely reviews our rules to ensure they provide meaningful information to investors.”

As previously reported, the SEC adopted new proxy disclosure rules in mid-December that require more disclosure about the relationship of a company’s pay policies and practices to risk management and the board’s role in risk oversight, among other things, amid concerns that Wall Street pay practices contributed to the financial crisis by incentivizing executives to take huge risks.

Frank also told Bloomberg that lawmakers are “discussing expanding legislation that lets shareholders weigh in on corporate pay” to give shareholders of financial companies “a vote on the percentage of annual revenue that’s allocated to pay.”

The House already approved a measure to give public company shareholders a non-binding advisory vote on pay for the named executive officers disclosed in corporate proxies as part of its Wall Street Reform legislation. The Senate is still hammering out its own reform legislation. An earlier draft also included a say-on-pay provision.