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VOL. 123 | NO. 25 | Wednesday, February 6, 2008

SEC Looks Into Executive Pay at International Paper

By Andy Meek

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PAPER TRAIL: Memphis-based International Paper Co. is one of the 350 companies across the U.S. that received letters recently asking for details about the way they compensate their top executives. -- Photo By Andy Meek

One prominent Memphis company was among the 350 from across the country last summer that received letters from the U.S. Securities and Exchange Commission asking for greater detail about executive pay packages.

SEC officials reportedly faxed most, if not all, of the letters to chief executive officers at the various companies, many of them among the largest in the U.S.

Memphis-based International Paper Co. - No. 93 on the Fortune 500 list - got one of the SEC missives asking for clarification about the way the company compensates its top execs. IP responded several months ago.

After scrutinizing its original batch of responses, the SEC sent out a second round of letters asking for still more details. The commission sent the follow-up letters to most of the 350 companies involved, including IP.

The 110-year-old paper company, which moved its corporate headquarters from Stamford, Conn., to Memphis in 2006, responded to the second letter a few days ago.

"The specifics of our correspondence with them will be publicly available 45 days after resolution," said IP media relations manager Amy Sawyer. "Based on the process the SEC outlined for all the companies it's working with on this matter, none of the correspondence for a given company becomes publicly available until 45 days after resolution."

45 and counting

IP employs about 54,000 people in 20 countries and has annual sales of almost $22 billion. Many of the other large publicly traded companies based in Memphis said they have not received a similar inquiry from the SEC. Memphis is home to three Fortune 500 companies: FedEx, AutoZone Inc. and IP.

Other large public companies with major presences here, including First Horizon National Corp. and Fred's, also said they did not receive the SEC letters.

SEC spokesman John Nester said the commission could not confirm which companies were sent letters asking about executive compensation. He also said the second round of letters that went out recently would be the last on that topic those companies get for now.

"The way the process works is we review a filing and we generally ask the issuer some questions first," Nester said. "About two dozen of the (executive pay) letters are already available on the Internet now for some of the companies whose reviews ended in, like, November."

Through the smokescreen

The idea driving the SEC review of companies' executive pay calculations and practices is partly to expose big CEO paychecks to closer scrutiny. The watchdog agency developed many changes to the rules governing such disclosures in 2006, and the review process that started in 2007 was the first opportunity to make sure corporate America is generally on the same page.

As an added tool for investors and the general public, the SEC launched in December an Internet-based application that lets anyone with a computer connection get a better idea what the biggest U.S. companies are paying their top lieutenants.

The new Web site set up by the commission, www.sec.gov/xbrl, collects data from financial statements such as proxy documents and other disclosures and brings it all into one place. The Internet tool lists IP CEO John Faraci's total 2006 pay package as $13.7 million, including a $1.17 million base salary.

In a speech at the 35th Annual Securities Regulation Institute in San Diego Jan. 23, John White - the director of the SEC's corporate finance division - outlined some of the commission's thoughts on the financial review project thus far.

"Overall, we thought companies generally made a good faith effort to comply with the new rules," he said. "With regard to manner of presentation, I urge companies and their counsel to focus on the idea that disclosure can be clear and understandable yet not meaningful or responsive to our disclosure requirements, and vice versa.

"... With regard to analysis, this was a frequent shortcoming. We saw a real lack of disclosure in the 'how and why' of compensation decisions."

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