By Steve Eder
March 10, 2010 1:32 PM EST
A dark corner of corporate America is being thrust into the harsh glare of disclosure.
New rules are forcing blue-chip companies to expose ties with their compensation consultants by making public business relationships, including how much they pay the advisers -- putting potential conflicts of interest in plain view.
Some of the first annual proxy statement filings detailing executive compensation this month show that the disclosure rules have begun to shake up the business of executive compensation consulting and have caused some major U.S. business to consider switching pay advisers.
Early indications are that Towers Watson, the giant in the field, is being affected. Towers Watson was formed this year in the $3.5 billion merger of Towers Perrin and Watson Wyatt.
One client, IBM <IBM.N>, disclosed that it had cut ties with Towers Watson as its compensation adviser, doing so last July, when the U.S. Securities and Exchange Commission proposed the new disclosure rules.
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Another client, Kellogg
A third, Coca-Cola Co
Doug Friske, who leads Towers Watson's global executive compensation practice, played down the impact of the new disclosure rules, saying that his company has not experienced a significant loss of clients.
"All the clients are looking at this," Friske said. "It is an issue they are dealing with."
QUESTION OF APPEARANCE
Regulators and watchdog groups have long questioned whether compensation consultants are able to curry favor with the top executives of major companies by helping boost their pay in return for access to more lucrative pension work, and sometimes millions of dollars of fees.
As a result, companies generally do not like disclosing their ties to compensation consultants that are also doing other work for the companies because of the appearances that there could be a conflict.
"The client does not want that combination disclosed," said Rose Marie Orens, a senior partner with Compensation Advisory Partners. "It looks like a conflict. It looks like your independence might be affected."
It is too early to tell whether the new disclosure rules will have any impact on executive pay practices or embolden shareholders to question compensation packages. Still, they are expected to reshape the consulting business.
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