Requires More Executive Pay Disclosure
SEC Requires Disclosure of More Details of Executive Pay and
By Marcy Gordon, AP Business Writer
Wednesday July 26, 2:48 pm
WASHINGTON (AP) -- Companies will have to provide more
details of executive pay and perks under the most
substantial overhaul of benefit disclosure policy since
1992, adopted unanimously Wednesday by federal regulators.
And amid a widening scandal over suspect timing of stock
option grants to company officials, the Securities and
Exchange Commission also is writing new rules on disclosure
of the dating of options. The five SEC commissioners voted
unanimously at a public meeting to adopt the plan, which is
expected to take effect next year.
For the first time, public companies will be required to
furnish tables in annual filings showing the total yearly
compensation for their chief executive officers, chief
financial officers and the next three highest-paid
Most of the disclosures, in annual reports and other
regulatory filings, will have to be written in plain
The plan is designed to enhance corporate accountability and
address an issue that has angered company shareholders and
the public. In expanding probes, at least 60 public
companies have disclosed that their options practices are
being investigated by the SEC or the Justice Department or
both, and the SEC itself says it has at least 80 companies
At issue in many of the investigations is a practice known
as backdating, in which stock options are retroactively
issued to coincide with low points in a company's share
price -- a move that can fatten profits for recipients of
the options when they sell their shares at higher market
Backdating of options can be legal so long as the practice
is properly disclosed to shareholders and approved by the
company's board, experts say.
Improperly disclosed backdating "is a serious potential
problem under the federal securities laws," SEC Chairman
Christopher Cox said Tuesday in testimony before the Senate
Banking Committee. "I believe that illegal backdating goes
to the heart of investor confidence."
The SEC rules on disclosure of executive compensation
include new requirements for companies regarding disclosure
of options timing.
The plan requires companies to provide detailed information
on how they determine when executives receive option grants
and, if they do so, how and why they backdate options. The
required tables showing option awards to executives will
include the date that options were granted. If the exercise
price is less than the stock's market price on the date of
the grant, a separate column will have to be added showing
the market price on that date.
Companies now are being asked to answer questions in their
reports such as:
-- What was the role of the board of directors'
compensation committee in approving a program of timing
option grants for executives?
-- What was the role of the company's executive officers in
such a program?
-- Does the company plan to time, or has it timed, its
release of significant information for the purpose of
affecting the value of executives' stock options?
The government's first criminal complaint in a stock options
probe came last Thursday, when the U.S. Attorney's office in
San Francisco charged the former chief executive of Brocade
Communications Systems Inc. with fraud.
Gregory L. Reyes and another former executive of the maker
of data storage devices, Stephanie Jensen, also face civil
charges lodged by the SEC. Their attorneys have said they
A central allegation in the government's case involves
backdating of options awards. The authorities also allege
that Reyes and Jensen regularly backdated minutes of
meetings of the company's board so that it appeared that the
compensation committee granted options on dates that
Brocade's share price was relatively low. In fact, the
authorities allege, no such meetings occurred on those
In the SEC plan adopted Wednesday, the true costs to
companies' bottom line of their executives' pay packages --
including stock options -- will have to be spelled out.
-- New disclosure tables for executives' retirement
benefits and the compensation of company directors would be
-- Companies would be required to explain the objectives
behind their executives' compensation.
Securities and Exchange Commission: