SEC considering change to CEO pay
The Associated Press
Saturday, May 2, 2009; 12:54 PM
NEW YORK -- The Securities and Exchange Commission is considering
changing a formula that critics say often allows public companies to
low-ball in regulatory filings just how much top executives are paid.
At issue is how companies report in a summary compensation table found in
their annual proxy statements the totals for stock options and stock awards,
which often make up most of top executives' pay.
When the rules were last revised three years ago, the SEC directed companies
to include a figure that is based only on how much of a charge against
earnings is taken each year for the portion of those awards that vested
during the year.
Take the case of a company that decided the CEO deserves $10 million worth
of stock options. But the company would only have to include one-fourth of
that amount in the summary table if the award was structured to vest in
equal installments over four years.
Executive pay experts say a better gauge of what boards of directors
consider when setting pay levels is the estimated present value of all
stock-based awards on the day they are granted. But the 2006 SEC rules
relegated those totals to a separate table lower in the proxy statement that
investors often overlook or find hard to decipher.
The Associated Press and other news organizations don't rely on the total
pay figures reported by companies in the summary compensation table for
SEC Chairman Mary Schapiro said in an interview on Tuesday that an executive
pay formula review may be part of a broader rethinking of the agency's
compensation disclosure requirements.
Other changes Schapiro, who was picked by President Obama and took over the
SEC in January, said the SEC is considering:
_ Requiring companies to spell out in greater detail how their board's
manage risk _ ranging from financial issues to climate change _ and how risk
affects the setting of compensation, Schapiro said.
"Shareholders generally deserve greater clarity about how compensation plans
have been designed, how they relate to risk taking and how they relate to
longer-term performance," she said.
_ Bolstering required disclosures relating to benchmarking _ how companies'
pay practice compare to those of competitors _ and the qualifications of
_ Expanding disclosure about how companies pay employees outside the top
five now listed in proxy statements. While individuals wouldn't be named,
companies may be ordered to reveal more about things like the structure of
their bonus programs for the broader work force.
Schapiro said adding details on that would be useful to shareholders, who
could better see what "kind of conduct is incentivized by paychecks."
"I think it's important in the context of understanding, particularly at
financial institutions, the linkage between compensation decisions and risk
taking," she said.