Reversal Irks a Committee Chief
Rep. Frank Shows Concern For Relaxed Disclosure Rule, Vows
to Get Congress Involved
By Siobhan Hughes
Thursday, December 28, 2006
WASHINGTON -- The Securities and Exchange Commission's
decision to reverse course and relax disclosure rules on
executive pay isn't sitting well with the Democrat who will
head the House Financial Services Committee in the new
Rep. Barney Frank (D., Mass.) said he is "very disappointed
with both the substance and the procedure" involved in the
rule changes, which the SEC announced late Friday, just
before the long Christmas weekend.
The rules, which apply to publicly held companies, would
reduce the amount of top executives' compensation that many
companies would be required to disclose next year.
Companies would be allowed to spread the value of options
and restricted-stock awards over a number of years,
disclosing them as they vested, rather than in the year they
were granted. Businesses had lobbied for the change,
arguing that the SEC's plan to tighten disclosure
requirements for options would have overstated executive
Mr. Frank's committee has oversight of the SEC, and he could
hold hearings on the executive-pay rules. He has already
said he would push for legislation to allow shareholders to
vote on executive compensation.
"Backtracking by the SEC on this important matter of stock
options reinforces my determination that Congress must act
to deal with the problem of executive compensation that is
now unconstrained by anything except the self-restraint of
top executives, a commodity that is apparently in
insufficient supply," Mr. Frank said.
The SEC said it acted to reconcile the value of
stock-options awards as disclosed in corporate financial
statements with the value of executive-stock option grants
disclosed to investors.
Companies treat stock options as costs in their financial
statements as the options become exercisable. The SEC rules
had previously required companies to disclose the value of
stock-options awards on the date of the award, sometimes
years before the recipient was entitled to exercise them.
SEC Chairman Christopher Cox said in a statement yesterday
that "the object is to report accurate numbers.
Artificially inflating executive pay, or reporting 'phantom'
pay, is just as misleading as routinely underreporting it,
which was the case before we adopted the new
executive-compensation rules in July."
The U.S. Chamber of Commerce had complained that by
including the value of options, stock or other awards that
wouldn't vest -- or pay out -- for years, the earlier rules
would have made executive pay packages look misleadingly
Executive pay increasingly is becoming a hot-button
political issue as the pay gap widens between corporate
chieftains and rank-and-file employees. Prompted by
investor concern, the SEC earlier this year approved rules
that will provide more information about the pay and
perquisites granted to top executives. The new details of
executive-pay packages will be released mostly in early
2007, when companies file annual proxy statements.
In its latest changes, the SEC took the unusual approach of
making the new rules for stock options effective almost
immediately. That decision essentially renders moot the
agency's plans to provide a 30-day public comment period on
"The problem of executive pay that is both greatly excessive
and deliberately obscured is a grave one," Mr. Frank said.
"I had been encouraged when the SEC recognized this problem
in its initial proposal, and while that continues to provide
improvements in the relevant rules, this slippage is
regrettable both substantively and for not having been open
to more public discussion."
Siobhan Hughes at