draft new rules on disclosure of pay for CEOs
Citing "notorious abuses" of current guidelines, the
agency's chairman said it's time to bring executives' hidden
pay to light.
By Laurence Arnold, Bloomberg News
Minneapolis Star Tribune
Saturday, December 10, 2005
Securities and Exchange Commission Chairman Christopher Cox
said Friday that the agency will propose regulations as
early as next month to crack down on hidden executive pay.
The SEC is drafting rules that would require companies to
tally salary, bonus, stock and option awards, and all
benefits into a single figure. Cox plans to have the
regulations ready shortly after Jan. 1.
"Today's regulatory regime permits obfuscation or worse when
it comes to executive compensation," Cox said in an e-mail
statement. "The notorious abuses, such as
never-before-disclosed exit payments, are the byproduct of
this leaky regime."
Institutional investors also are pushing for better
disclosure. New York-based TIAA-CREF made executive pay a
corporate-governance priority for 2006, and the American
Federation of State, County and Municipal Employees -- a
union with 1.4 million members -- urged companies to give
shareholders a vote concerning compensation.
The SEC's rule concerning compensation disclosure is 13
years old. It allows companies to scatter details of
executive compensation in different parts of the proxy
statements that they distribute to shareholders before their
Some elements, such as salary and bonus, are disclosed in
columns of a compensation table. Others, such as employment
agreements, are listed in the text or attached exhibits.
Other pay remains hidden, or is disclosed as units instead
of in dollars.
Totaling up those items will be difficult, said Broc Romanek,
a former SEC official who advocates better disclosure. Such
calculations "require a lot of assumptions for arrangements
in which there's a range of potential outcomes," he said.
The SEC also might require companies to change the narrative
sections of proxy reports to better spell out the objectives
of compensation programs and to help readers understand how
various pay tables relate to one another, said Paula
Dubberly, associate director for legal issues in the SEC's
division of corporation finance.
The agency began clamping down on executive pay during the
final months of William Donaldson's tenure as chairman. It
took action last year against General Electric Co. and
Springdale, Ark.-based Tyson Foods Inc. for not reporting
executive perks. Donaldson said in February that he was
concerned that investors had to be "Sherlock Holmes" to
figure out how much executives made.
Cox, who joined the SEC on Aug. 4, said in an interview six
days later that shareholders should be given a total pay
figure, "comparable executive-to-executive and
company-to-company," so that they can "discipline" corporate
boards that grant excessive packages.
CEOs in the United States make an average of $10 million a
year, according to the Council of Institutional Investors.
A report in October by Portland, Maine-based Corporate
Library said CEO compensation at 2,000 of the largest U.S.
companies increased 30 percent in fiscal 2004; it was 15
percent in 2003 and 9.5 percent in 2002.