The Association of U S West Retirees



SEC to 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 annual meetings.

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.