The U.S. Securities and Exchange Commission gave preliminary approval today to a set of new corporate governance regulations, including changes to how public companies report executive pay packages.
| Christopher Cox |
Under the proposal, public companies will have to include tables in their annual reports detailing total annual compensation for the last three years for their chairman, CFO, next three highest-paid executives, and directors, including a "single, bottom-line figure for total annual compensation," the chairman said, to allow cross-company comparison. In addition, firms will have to explain, in "plain English," the reasons behind their compensation decisions, answering a series of questions including, "What are the compensation program's objectives and what is it designed to reward and not reward?" and "Why does the company choose to pay each element?" More information would also be required regarding meetings of nominating, audit and compensation committees.
Commissioner Roel Campos, a Democrat, said that, should the SEC give final approval to the proposal, "shareholders will have no one to blame but themselves if executive pay continues to rocket upward."
"This information is information shareholders have a right to know," said Republican Commissioner Cynthia Glassman, adding that, if a company is reluctant or embarrassed to make the compensation public, "then perhaps they shouldn't be paying it." She continued, "Perhaps a positive, unintended consequence of this proposal will be that compensation is simplified."
Still, Cox was careful to caution that the Commission was not seeking to dictate executive pay. "It's about wage clarity, not wage controls.... It's up to the board to decide how much to pay the CEO, without government restrictions," he said.
The Commission voted unanimously to recommend the proposal from the Division of Corporate Finance, and open a 60-day public comment period. The proposal would also require firms to list perks worth $10,000, down from the current $50,000, and to detail the value of pension plans and non-tax-qualified deferred compensation.
The proposal also would double the annual threshold for disclosure of related-party transactions to $120,000, as well as requiring explanation of a firm's policies for approving such transactions.
In spite of the unanimous vote to recommend, some commissioners expressed concern about how stock-based awards would be reported. Under the proposal, stock awards, including options, must be included using their fair value on the grant date. Glassman and fellow Republican Commissioner Paul Atkins said there needs to be greater clarity in new rules on the issue to insure that options would not be double-counted.
