SEC Pushes Fuller Disclosure of Executive Pay

The Security and Exchange Commission voted 5-0 to require greater transparency from public companies in the area of executive pay. The rules are now open for public comment, and the final SEC vote is expected by year’s end. This is a win for shareholders.

The SEC, contrary to popular belief, is somewhat political. Three of the current members were appointed by Republicans and two by Mr. Clinton. A 3-2 vote is not too far from the norm on some matters. Here, though, the commissioners are in agreement. The market needs better and clearer information.

“Our disclosure rules haven't kept pace with changes in the marketplace ... We want investors to have better information, including one number” for bosses’ pay, said SEC Chairman Christopher Cox. It has been 14 years since the SEC has reviewed the pay disclosure rules. In that time, deferred compensation, stock option grants and loans that don’t get repaid have soared in popularity, mainly because they aren’t covered under existing rules.

The rules also call for reducing the level at which total executive perks must be detailed to $10,000 from $50,000. Executives’ retirement benefits and the compensation of company directors would be shown in more detailed tables than is currently the case. Also, companies would be required justify their executives’ compensation formula. Moreover, annual filings would have to include sections written in plain English on executive pay.

This isn’t going to solve the problem of bad performance in exchange for vast compensation. What it will achieve is a better measure of just what shareholders are spending for their top management talent. It’s very hard to determine if one is overpaying if one can’t discern what the price paid actually is.

© Copyright 2006 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent.
Produced using Fedora Linux.


Home