SEC seeks pay disclosure

THE BALTIMORE SUN

With corporate scandals still fresh in the minds of a public that can be fascinated by the rich but resentful of their lifestyles, federal regulators proposed new rules yesterday to shine a brighter light on how top executives are compensated.

Heralded as the most sweeping reform to executive compensation disclosure in 14 years, the Securities and Exchange Commission's proposed changes include requiring publicly traded companies to clearly disclose the total annual pay, including perquisites, for the chief executive officer, the chief financial officer and the next three members of top brass.

It also wants companies to provide - "in plain English" no less - improved narratives and more details about stock options, perks and severance and retirement packages.

The five-member SEC voted unanimously to propose the plan, which will be open to a 60-day public comment period.

"Over the last decade and half, the compensation packages awarded to directors and top executives have changed substantially," SEC Chairman Christopher Cox, a former Republican congressman, said in opening statements yesterday.

"Our disclosure rules haven't kept pace with changes in the marketplace, and in some cases disclosure obfuscates rather than illuminates the true picture of compensation," he said.

Experts said the changes would help make executive compensation more transparent to the investing public.

Current reporting requirements allow companies to scatter more of the numbers throughout official documents such as annual proxy reports, for example listing salary on one page but stock option values in a chart elsewhere.

"To the extent that people invest in mutual funds or individual stocks, it will provide much greater clarity in terms of what executives are paid in publicly traded firms," said Joe Rich, president of compensation consulting firm Pearl Meyer & Partners.

But Rich believes that the new rules will do little to slow the growth or reduce the pay levels of executive compensation, and in fact could lead to the unintended consequence of higher executive pay.

"Enhanced disclosure is likely to rein in a few bad actors, but it's much more likely that the vast majority of good actors will have better data to compare themselves with their peers, and people want to be competitive," he said.

That the proposed rule changes come under a Republican administration, typically seen as more friendly to business than a Democratic one, doesn't surprise at least one expert. That's because of the prosecution of executives from such companies as WorldCom Inc. and Enron Corp., and executive pay reform taps into more of that outraged populist sentiment over hidden compensation.

"Given what we've seen with Bernie Ebbers and Ken Lay, there is momentum in this direction on both sides of the aisle," said Rosemary Lally, an editor of the Council of Institutional Investors' weekly newsletter.

At first glance, the SEC's proposed changes look "very good, but the devil is in the details, and the details haven't been released yet," she said.

The SEC started cracking down on executive pay under former chairman William H. Donaldson. The agency took action last year against General Electric Co. and Tyson Foods Inc. for doing a poor job of reporting perks. Under the new rules, the level at which total executive perks must be detailed would be reduced to $10,000 from $50,000.

Donaldson once said investors had to be "Sherlock Holmes" to compute executive pay.

Cox has expressed similar sentiments.

"We want investors to have better information, including one number, a single bottom-line figure, for total annual compensation," Cox said. "That single figure will include a more accurate representation of perquisites."

Most compensation watchers lauded the changes.

Becky Yerak writes for the Chicago Tribune.

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