Earlier this month, SEC Chairman Mary Schapiro announced continued focus of the agency on the issues surrounding executive compensation. “…the SEC is actively considering a package of new proxy disclosure rules that will provide further sunshine on compensation decisions,” said Schapiro. “While these proposals would not dictate particular compensation decisions, they would lead companies to analyze how compensation impacts risk taking and the implications for long term corporate health of the behavior they are incenting,” she continued.

Broadly, the Chairman described several areas where increased focus and disclosure could be mandated. These areas include:

• How a company manages risks.
• A company’s overall approach to compensation – matching the reward to the risk in terms of magnitude and length of impact on the company.
• The independence of compensation consultants and potential conflicts between compensation consultants and the company and their affiliates, so that compensation committees may better assess the advice they receive.
• The independence and expertise of director nominees and an explanation regarding the board structure.

Just a few weeks prior to these comments, the SEC sought public comments regarding proposals to make it easier for shareholders to put their own nominees on the proxy materials mailed out to shareholders. Current rules make that process difficult and expensive for shareholders.

More disclosure is on the horizon. Many of the so-called “TARP rules” are beginning to be adopted by non-TARP companies in an effort to get “ahead of the curve” with their own shareholders. Clearly the landscape of compensation is experiencing significant changes.

Public outrage regarding the levels of executive compensation has been well documented over the past few months in the popular press, online blogs, and at public forums. Clearly something needs to be done to eliminate unnecessary risk-taking and to get a better link between pay and performance.

However, performance management is an issue that should be addressed at all levels of an organization. Just as important as designing the pay program, the need for a critical performance management review at all levels in the organization is even more so. As golf’s U.S. Open heads to New York’s Bethpage Municipal Golf Course this week, elite golfers and the media have commented on the gorgeous design, intriguing layout and tempting risk-taking opportunities all around the course. If no one is there to count the strokes and add up the scores at the end, what was the point of it all? It’s the same with compensation.

Laying the ground rules and setting the performance measures are just the beginning of the compensation cycle. Compensation consultants can design the most intricate of performance plans, capturing the subtle business objectives of the organization at every level. But if the actual performance management process is just a rote exercise with no dynamic discussions along the way, the elegant plan design was all for naught.

As we ride the waves of this turbulent economy, many companies are focusing their attention on performance management in an effort to hold their employees responsible for the successful achievement of the goals being set in place. These efforts should encourage the desired behavior to ultimately improve the organization’s bottom line.

Last week, Treasury secretary Timothy Geithner met with the new “Compensation Czar” Kenneth Feinberg, SEC Chairperson Mary Schapiro, and others to discuss the issue of executive compensation. The public, the media, and, increasingly, the government continue to voice their concerns on pay practices, not only at the large financial institutions that have received monies from the Troubled Asset Relief Program (TARP), but also executive compensation in general.

Since February of this year, executive pay at TARP companies has been limited to $500,000 for certain executives, and bonuses for this select group have been capped at one-third (1/3) of that annual pay. Other compensation must come in the form of restricted stock that can only be paid out either after the government has been repaid or after a specified period of time has elapsed to guarantee that any gains realized are genuine.

However, following this meeting last week, Secretary Geithner confirmed to the public that, for non-TARP companies, “We are not capping pay. We are not setting forth precise prescriptions for how companies should set compensation, which can often be counterproductive.” Rather, the Treasury secretary is looking to beef up Board of Director independence standards and encourage more companies to adopt “say on pay” proposals for shareholders.

Kenneth Feinberg also has said that he does not see a “one size fits all” approach to executive compensation for the companies with whom he has been charged to work. Rather, he too feels that it is not the pay itself, but the pay practices that should be addressed at these companies. This is surprisingly refreshing news coming from our government agencies.