As companies ramp up for their 2009 proxy disclosures and the financial crisis sharpens the focus on executive pay, companies got an earful from a top Securities and Exchange Committee official on what the staff wants to see in the coming proxy season and some advice on how best to get there.

Executive pay, already a thorny issue, is expected to be an even more contentious issue this proxy season, as investors scrutinize the pay Wall Street executives pocketed as their companies were making decisions that helped contribute to the current crisis.

The recently-enacted Emergency Economic Stabilization Act requires financial institutions to meet prescribed standards for executive compensation and corporate governance if they sell troubled assets to the U.S. Treasury or participate in the capital purchase program created under the Troubled Asset Relief Program (TARP).

The TARP and “the unusual market events that led up to its enactment will introduce new compensation disclosure challenges,” Corporation Finance Director John White told attendees at a conference in New Orleans on Oct. 21. “... So if your company is a participating financial institution, you will need to carefully consider and reflect the new provisions and their ramifications in drafting your CD&A [Compensation Discussion & Analysis] and Item 402(j) disclosure.”

Regardless of whether they participate in the TARP, White stressed that companies “should not merely be marking up last year’s disclosure.”

He urged companies and their advisors to reread the SEC’s 2007 staff report on its reviews of executive compensation disclosure, his own remarks from last year and this year, and new Compliance & Disclosure Interpretations published earlier this year, and “then return to that blank sheet ... and strive for ever-better disclosure in this important area.”

While a limit on compensation arrangements that could lead senior executive officers to take unnecessary and excessive risks applies, on its face, only to TARP participants, White advised companies to “consider the broader implications and ask yourself this question: Would it be prudent for compensation committees, when establishing targets and creating incentives, not only to discuss how hard or how easy it is to meet the incentives, but also to consider the particular risks an executive might be incentivized to take to meet the target—with risk, in this case, being viewed in the context of the enterprise as a whole?”

To the extent that such considerations are or become a material part of a company’s compensation policies or decisions, a company would be required to discuss them as part of its CD&A, “so please consider this carefully as you prepare your next CD&A,” White said.

Companies should also carefully consider if and how recent economic and financial events affect their compensation programs. For example, he said companies should consider whether they’ve modified outstanding awards or plans, or implemented new ones; any changes to the program structure, or the relative weighting of various compensation elements; whether they’ve waived any performance conditions, or set new ones using different standards; and whether they’ve changed processes and procedures for determining executive and director pay that trigger disclosure under Item 407.

For 2009, White said the staff will review the annual reports of all of the very largest financial institutions in the United States that are public companies, including those that agreed to participate in the capital purchase program. The reviews will include the financial statements and the executive compensation disclosures. The staff also intends to monitor the quarterly filings on Form 10-Q and current reports on Form 8-K of those companies, he said.

White noted that the primary areas of comment on executive comp disclosures this year were the same as in 2007: the need for more analysis, disclosure of performance targets, and disclosure relating to benchmarking.