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SEC to Require More Disclosure Of Sr. Executive Pay Packages

By Stephen Labaton


The Securities and Exchange Commission voted unanimously on Tuesday to overhaul the way companies report their pay packages for senior executives, a move that is expected to lead to greater disclosure but not to any significant decline in executive compensation.

The proposal — the biggest change in this area in more than a dozen years — is the first major rule suggested by the commission’s new chairman, Christopher Cox. SEC officials said it would be adopted in a few months, after a few details were sorted out. It is expected to go into force for the 2007 proxy season.

The move comes after a series of corporate scandals at the New York Stock Exchange and Tyco International, among others, that drew criticism over excessive pay.

In 1992, when the five-member commission first addressed executive pay issues, it sought to require greater disclosure as an antidote to excessive pay. But in the intervening years, many boards have come up with partially or completely hidden benefits for top executives, ranging from paying their taxes to letting them use corporate jets for personal reasons.

“Simply put, our rules are out of date,” Cox said at a commission meeting. But Cox emphasized that the agency did not intend to produce rules that forced changes in executive pay scales, but to make them more apparent to investors.

“It’s about wage clarity, not wage controls,” he said. “By improving the total mix of information available to the marketplace, we can help shareholders and compensation committees of boards of directors to assess the information themselves, and reach their own conclusions.”

In recent years the commission has accused several companies, including General Electric, Tyco International and the Walt Disney Co., of failing to adequately describe significant payments and benefits to top executives. Just as the accounting scandals prompted Congress and the regulators to adopt new rules to invigorate audit committees of directors, the proposal on executive pay is meant to prompt compensation committees to be more exacting.

At the same time, large institutional investors, like pension funds, have been raising more questions about the compensation of executives at companies where they own stock. The pay of the average worker has remained almost flat since 1990 at $27,000, adjusted for inflation, while average chief executive pay has risen to $11.8 million from $2.82 million, representing a ratio of more than 400 to 1, according to figures from United for a Fair Economy and the Institute for Policy Studies.

The proposed rules would for the first time require public companies to provide a figure of total compensation, including significant perks, stock options and retirement benefits for the chief executive, the chief financial officer and three other top-paid officers, as well as all directors.

It is intended to prod companies into providing greater justification for pay packages, retirement plans, severance agreements and so-called golden parachutes — large payments to executives when the control of a company changes hands.