SEC puts bosses' pay in spotlight

2007

Investors in American corporations are to get a much clearer idea of the sorts of rewards being lavished on top executives, and whether they are worth it, under new disclosure rules.

The pay and perks of America's top executives are to come under much closer scrutiny following the agreement of new rules by the Securities and Exchange Commission.

The new system of disclosure is expected to show more clearly, and in much greater detail, what sort of compensation, salaries and bonuses senior executives in listed companies are taking home.

The scorecard disclosures, outlined in annual reports and proxy statements, will come closer than ever to a full accounting of total compensation for companies' top two executives and the next three highest-paid executives, said the Associated Press.

"The new disclosure requirements will be easier for companies to prepare and for investors to understand," said SEC Chairman Christopher Cox.

"The SEC, in a very short amount of time for a regulator, has pushed through very sweeping pay disclosures that, for the first time, will give investors a very clear picture of CEO pay," added Amy Borrus, deputy director of the Council of Institutional Investors. "The big picture is a very big win for investors."

Investors wondering whether top executives are earning their pay have always been able to look for evidence in annual reports and proxies but key parts of this information often were buried in footnotes.

What will be new in is that listed companies whose fiscal year ends after December 15 will now need to outline total figures.

This will have to include executives' annual salary, any bonuses, stock awards or options, any other incentive-based compensation, changes in the value of the pension and all other compensation.

The decision to do this was taken by the SEC Securities and Exchange Commission last July, was agreed in December and is now being consulted on for a month, but is widely expected to be get the nod of approval.

It is being hailed by financial observers as the biggest overhaul of executive pay disclosure since 1992.

"In our view, this is a step in the right direction; however, in some respects, it still doesn't go far enough," David Zion, an accounting analyst at Credit Suisse told AP.

The tallies, which are likely to be the most scrutinised parts of the reports, are missing some important components of pay, such as the amount of dividends paid on restricted stock that has not yet vested, pointed out some analysts.

"We're talking about, in some cases, millions," said Brian T Foley, an independent executive compensation consultant based in White Plains, New York.

Besides the tallies, there will also have to be a compensation discussion and analysis, including looking at the objectives of a company's compensation programme, and what the programme is designed to reward.

The disclosure will also need to include details of the pay an executive stands to get under "change of control agreements" in place if the company is sold.

But these will not appear in the total pay tables, meaning investors will have to read deeper in the filing to find them.

The requirements also include disclosure of the dating of stock option grants to executives, including whether the company "backdates" options.

The SEC has said its goal is to provide investors with more and clearer information, rather than to dictate what companies pay their executives.

Charles Peck, compensation specialist at The Conference Board, told AP: "In terms of its impact on executive comp, I don't think we'll see any particular change in the size of executive pay or how it's delivered."