WASHINGTON – Companies would have to disclose far more details about their executives' pay packages and perks under a proposal coming before the Securities and Exchange Commission.
The changes address a source of shareholder and public anger: lavish pay for executives, often not fully and clearly disclosed to investors, even as their companies stumble and lay off employees.
The five SEC commissioners are scheduled to vote at a public meeting next Tuesday on the plan, which makes the biggest changes in rules governing disclosure of executive compensation since 1992. The proposal would be opened to a public comment period and could be formally adopted by the SEC sometime afterward — possibly in time for the spring company proxy season next year.
Companies would for the first time be required to furnish tables in annual filings showing the total yearly compensation for the chairman and the next four highest-paid executives. The true costs to the bottom line of their pay packages, including stock options, would have to be spelled out.
"It has been a very long time since the (SEC) has revised these rules," agency chairman Christopher Cox said Tuesday in a meeting with reporters.
The tighter rules are needed "in order to eliminate the surprise of hidden payments" to executives and to ensure that shareholders are fully informed, Cox said.
Cox, a longtime Republican congressman from California who became SEC chairman last August, said that he had focused on the issue of compensation disclosure as a high priority before he was confirmed by the Senate.
Still, some critics of corporate conduct don't believe fuller disclosure of compensation goes far enough because it won't rein in runaway pay and may even create competitive pressure among companies that will push it up.
"Disclosure can produce resentment and demands for controlling the pay," said Tamar Frankel, a law professor at Boston University who specializes in corporate governance. "Or it can continue to produce followers of a culture for squeezing more and looking for soft benefits that cannot be quantified."
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 tightened disclosure requirements for compensation.
In a high-profile case, the SEC said in September 2004 that General Electric Co. violated the law by failing to fully disclose to investors the millions of dollars in perks enjoyed by its retired chief executive Jack Welch, one of Wall Street's most admired chief executives. They included unlimited personal use of GE's planes, exclusive use of an $11 million apartment in New York City, a chauffeured limousine, a leased Mercedes, office space, financial services, bodyguard security and security systems for Welch's homes.
The SEC did not fine GE in the settlement but won a promise from the company to fully disclose such benefits in the future. The agency also has brought cases involving disclosure of compensation against Tyson Foods Inc. and The Walt Disney Co.
Investor advocates and some members of Congress also have expressed outrage at the extravagant pay and retirement packages, lucrative stock options and perks such as personal use of corporate jets. Rep. Barney Frank, D-Mass., a member of the House Financial Services Committee, recently proposed legislation that would give shareholders a greater say over executive pay.
Details of the SEC proposal, which were first reported in Tuesday's editions of The Wall Street Journal, were still being worked out. They include:
—Reducing from $50,000 to $10,000 the level at which executive perks must be detailed if they add up to the latter amount or more.
—Requiring new disclosure tables for executives' retirement benefits and the compensation of company directors.
—Requiring companies to explain the objectives behind their executives' compensation.
By knowing details of incentives for corporate officials, shareholders will have a better grasp of what the company is trying to achieve, Alan Beller, who heads the SEC's corporation finance division, said in the meeting with reporters.