Firms to reveal top pay SEC will require detailed disclosure


WASHINGTON -- Federal regulators approved rules yesterday that require detailed disclosure by publicly traded companies on how much their top executives are paid.

Regulators also strengthened the role of stock investors in corporate affairs, giving them leverage to name independent members to boards and easing restrictions on stockholder communications during proxy fights.

The new rules, approved by the Securities and Exchange Commission, would require companies to regularly disclose executive pay, in salary, bonuses, stock options, and other forms of compensation. The rules are the government's first major effort to address widespread criticism of escalating executive pay.

"The new compensation disclosure rules will do away with impenetrable legalistic narratives that often obscure the bottom line," said Richard Breeden, SEC chairman. "Instead of the legal boilerplate will be a series of tables expressly designed to inform shareholders of exactly what is being done at their expense."

Shareholders groups praised the moves, but the new rules were not universally endorsed. Some lawmakers in Congress are expected to renew their push for tougher changes on executive pay next year, when a new Congress is in place.

Democratic senators have called for limits on the tax deductibility of executive pay, and some have said that shareholders should be allowed to determine bonuses and salaries for corporate CEOs.

But some critics contend that the plan approved by the SEC yesterday goes too far. Many executives fear that some of the changes in proxy rules will allow large institutional investors, like mutual funds or pension funds, to interfere in their operations.

Their worries are supported by at least one Bush administration member, Deputy Treasury Secretary John Robson. He has taunted SEC commissioners in recent months, calling them "bean counters" and criticizing them for taking moves that Mr. Robson said could weaken the use of pay as an incentive for better performance by managers.

In addition, before voting for the measures, SEC Commissioner Carter Beese said he was concerned that the rules on executive pay could set off a rash of shareholder lawsuits against executives and companies.

The rules passed yesterday represent the SEC's attempt to both allay the rising tide of criticism of executive pay and head off the more restrictive proposals in Congress.

Mr. Breeden said regulators should not be in the business of telling companies how much to pay their executives. Instead, he said, investors should have the authority to raise questions when they feel executives are being paid too much.

The rules require that companies provide four new tables in proxy statements providing detailed disclosure of executive compensation. The rules also require company pay committees to explain their rationale in setting executive pay.

In addition, the rules eliminate restrictions on how investors may communicate with one another before company proxy votes.

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