Rules on Fuller Disclosure For Corporate Pay Clear Hurdle
By Kara Scannell, Staff Reporter
THE WALL STREET JOURNAL
Wednesday, January 18, 2006
WASHINGTON -- The Securities and Exchange Commission voted
unanimously to propose changing how executive pay is
disclosed, although two Republican commissioners expressed
concern that the proposed rule would give investors an
artificially inflated view of executive compensation.
Under the proposal, the agency would require companies to
disclose for the first time a total compensation figure for
the highest-ranking executives. In addition, the SEC wants
better disclosures on retirement payouts, perquisites,
directors' pay and related-party transactions.
The total compensation figure is one of the most significant
reforms pushed by Chairman Christopher Cox. Investor
advocates have long complained that it is difficult to
ascertain what executives are being paid because details of
various forms of compensation -- stock options, restricted
stock, perquisites -- are sprinkled throughout the annual
proxy statement and aren't combined as one figure.
The proposed rule would for the first time list the value of
the stock options side-by-side with salary, bonus,
restricted stock, and other compensation and be tallied in a
In a two-hour public meeting yesterday, Republican
commissioners Cynthia Glassman and Paul Atkins questioned
whether the formula used to determine the value placed on
stock options was the right one or whether it would give
investors an artificially inflated view of executive pay,
because the options may never vest or become exercisable to
the executives. Under the proposed rule, a company would
value the stock options using the same formula it uses when
expensing stock options.
Mr. Cox, a former Republican congressman and securities
lawyer, also made clear that he had no intention to rule on
the size of executive pay. The SEC's mission, he said, was
"wage clarity, not wage controls."
SEC Commissioner Roel Campos, a Democrat, said if the
proposal is put in place, succinct tables would provide
"one-stop shopping" for investors who want to quickly
discern what CEOs really earn.
Under the changes, the SEC would also be casting a net to
capture highly paid employees whose compensation exceeds
that of the highest-level officers. Currently, annual proxy
statements list the chief executive officer and the next
four highest-paid executives. There has long been criticism
that some companies, particularly in the entertainment
field, avoided disclosing the pay of heads of subsidiaries
or major units. That is an issue when it includes divisions
that contribute significantly to the company's bottom line,
they say, because it isn't presenting a full picture of pay
Under the proposed rule, the compensation of the CEO, chief
financial officer and the three highest-paid executives will
need to be disclosed, as will the compensation and job
description of as many as three employees whose total pay
exceeds those amounts.
Alan Beller, the SEC's corporation finance chief, said, "We
think the benefit of eliminating that possibility of abuse
... outweighs the cost to companies."
Some business advocates worry the disclosure, even if not by
name, could open a company up to talent poaching of, say,
top salesmen or software designers.
"The question is, 'Is it relevant to the business and its
ongoing operations?' " asks John J. Castellani, president of
the Business Roundtable, which represents CEOs of large
---- Judith Burns
contributed to this article.
Write to Kara Scannell