Regulators moved Tuesday to require companies to provide far greater detail about executives' pay and perks in an effort to bring more openness to an area that has provoked investor anger.
The five-member Securities and Exchange Commission voted unanimously to propose the biggest changes in rules governing disclosure of executives' compensation since 1992. The proposal could be adopted by the SEC sometime after a 60-day public comment period, possibly in time for the spring annual-meeting season next year.
Publicly traded companies for the first time would be required to furnish tables in annual filings showing the total yearly compensation for their chairmen, chief financial officers and the next three highest-paid executives. The true costs to the bottom line of the executives' pay packages, including stock options, would have to be spelled out.
"This information is information that shareholders have a right to know," Commissioner Cynthia Glassman said before the vote.
Also under the SEC proposal:
—The level at which an executive's total perks must be detailed would be reduced from $50,000 to $10,000.
—New disclosure tables for executives' retirement benefits and the compensation of company directors would be required.
—Companies would be required to explain the objectives behind executives' compensation. Annual filings would have to include sections written in plain English on executive pay.
Studies have shown dizzying leaps in top executives' salaries, bonuses and stock benefits in recent years, as well as big increases in compensation as a percentage of company earnings — money that otherwise would go to shareholders. At the same time, critics of corporate conduct underline what they see as a disconnect between pay and performance.
With the pay gap between employees and bosses widening enormously, Commissioner Roel Campos said, investors may ask whether "payment for performance has been replaced by payment for pulse."
SEC Chairman Christopher Cox, who has made fuller disclosure a priority since taking the agency helm last August said, "Simply put, our rules are out of date."
Still, some critics of corporate conduct don't believe fuller disclosure of compensation goes far enough, and they say it may even create competitive pressure among companies that will push compensation higher.
Even after the corporate scandals of 2002, as some companies continued to lavish on their executives extravagant pay packages with scant justification — often tied to short-term leaps in stock prices — the SEC began in 2004 to consider new disclosure requirements.
The Business Roundtable, a group representing chief executives of the largest corporations, offered qualified support Tuesday for the SEC proposal. Rules governing disclosure of executive compensation should provide for proper valuation of stock options so that their value is not overstated, said the group's president, John Castellani.
In addition, he said, "We want to make sure that the disclosure rules do not reveal to competitors strategic information about compensation tied to a company's business goals or product development plans."