Forgive Me For Being Rude, But ...
LexisNexis Legal Editor/Site Coordinator LexisNexis Corporate & Business Law Center
The Federal Securities Act of 1934 Treatise, Chapter 4* was recently updated. Among other enhancements, the update features an in-depth analysis of how the 2006 executive compensation and related person disclosure rules affect Regulation S-K, Item 402(b)*. This new chapter breaks down the requisite disclosures in clear, well organized lists. It will, I think, prove very useful for practitioners on the corporate side, to see that their clients are making the necessary disclosures, and also for their counterparts on the litigation side, who might need to determine, in hindsight, if all proper disclosures were made.
But as I review this new chapter, there is something nagging me in the back of my skull: is Item 402(b), well, rude? I remember being taught as a child that it was not at all nice to ask my grade school compatriots how much money their mommies and or daddies made. As I grew older, I learned that it just wasn’t polite to turn to a guy you just met at a cocktail party and say, “that’s a sharp lookin’ suit… Anderson & Sheppard, Savile Row? Man, what’re you pullin’ down with a suit like that?”
However for upper-level corporate executives, that question is asked and answered, in official government forms, as it should be. Executive compensation is of course brutally necessary information for investors and analysts. A question one would not ask someone in a social situation would certainly be well within the realm of civility if they were the CEO of a company seeking investors – is the executive being paid too highly, are there financial shenanigans afoot? As such, rude or not, this informational flow regarding salaries is a good thing. The societal mores which keep group social situations fluid have absolutely no place in the world of business where information is more valuable than any stock or bond, and disclosure is the general rule.
Yet, in all honesty, everyone is curious as to what other people make, even in purely social situations. I think we are all guilty, to one extent or another of looking at the cars our friends drive, the jobs they work, the places they live, and performing some mathematical manipulations to arrive at a rough salary estimate. Such impolitic calculations do not mean the calculator is a bad person, just a naturally curious human being.
Two friends go to Las Vegas for the weekend: one spends Saturday night doing endless laps of the casino floor searching vainly for an open seat at a $10 blackjack table, the other is relaxing by himself at a $100 table playing three hands at once. It is not terribly hard to deduce whose paycheck has more zeros on the end, nor is it wrong to have made such a deduction. Perhaps this impolite curiosity we all seem to have is merely a symptom of the forbidden fruit syndrome – folks feel the need to try and extrapolate another person’s salary simply BECAUSE they are not “allowed” to ask and it is something they are not “supposed” to know. That being the case, it is easy to satisfy such curiosity regarding executives at public companies, as their salaries are freely disclosed in corporate filings and available through multiple sources, including LexisNexis.com.
Yet this begs an obvious question: since these amounts are freely available, does that make them less interesting? Can overpaid or dishonest executives somehow hide in the plain sight of disclosure, since finding out what they make is not difficult and therefore no longer titillates? I am sure the prudent investor or analyst would answer with a resounding, “NO!”
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