April 10, 2006
Ms. Nancy M. Morris
Secretary, Securities and Exchange Commission
100 F. Street, NE
Washington, D.C. 20549-9303
RE: Executive Compensation and Related Party Disclosure -- File # S7-03-06
Dear Ms. Morris:
This letter is in response to the request of the Securities and Exchange Commissions (SEC) for comments contained in the SECs proposed new rules relating to executive compensation and related party disclosure (file # S7-03-06). We appreciate the opportunity to provide you with these comments focusing on the proposed requirement to disclose compensation information for up to three additional individuals if their total compensation exceeds that of any named executive officer.
The benefits (if any) of the requirement to disclose the total compensation of up to three additional individuals who are not executive officers are far outweighed by the potential negative impacts of this disclosure on the operations of the company. Investors gain little benefit, if any, by learning that there are other individuals in an organization who have compensation in excess of some of the executive officers. Unlike the named executive officers, these individuals would not likely have a policy making role with the company. More likely than not, the total compensation of these non-executive employees may be the result of a transitory, non-recurring spike in pay due to such possible events as sign-on bonuses or extraordinary commissions, or to particular competition for the skill sets or expertise possessed by those employees. The compensation paid to such individuals, who may never become executive officers, is likely not material to either the company or reasonable investors.
On the other hand, the disclosure of the compensation of these individuals could cause significant disruption in the operations of the company. Although we would not be required to disclose the names of the individuals, disclosure of their job descriptions would make it likely that employees and other employers could identify these individuals. This additional disclosure would, at the least, cause added tensions and potential morale issues among current employees, who would have total visibility into the compensation of their peers, and could potentially even cause overall upward pressure on compensation. This disclosure may also expose the company to unwanted solicitation of key personnel by competitors, who will know the total compensation received by employees who are presumably the company's best performers. This potential for solicitation pressure may also have an impact on overall compensation that is directly converse to the goals of the proposed rules, as companies are forced to raise total compensation to these non-executives to ensure that they are not lured away by competitors using this newly-available public information. This outcome is not to the benefit of the company or its shareholders and outweighs any perceived gains that would be achieved by the added disclosure of total compensation for these employees who are not named executive officers.
We would like to thank you again for providing the opportunity to comment on the proposed rules and share a few of our concerns with respect to some of the potential, unintended impacts of the proposed rules.
Sincerely,
Sharon Le Duy
General Counsel and Secretary
CNET Networks, Inc.