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SEC 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 total.

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 incentives.

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 corporations.

---- Judith Burns contributed to this article.

Write to Kara Scannell at kara.scannell@wsj.com

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