SEC Unveils Proposed Exec. Comp. Disclosures Mandate

January 17, 2006 ( - Federal securities regulators have unanimously backed proposed new rules that would require companies to disclose new executive pay information and couch those disclosures in plain English.

According to a  Web statement by the US Securities and Exchange Commission (SEC),  the proposed rules would cover proxy statements, annual reports, registration statements and the commission Form 8-K. Companies would be required to detail compensation arrangements through refined data tables and improved text section of the complete compensation packages of:

  • the CEO,
  • the CFO,
  • the three highest paid executives, and
  • the directors.

SEC Chairman Christopher Cox stressed that the proposal is about “wage clarity, not wage controls,” saying that stepped up disclosure mandates should help investors get a better idea of what companies are paying their executives, the Wall Street Journal reported. Members of the public can now submit comments on the proposal to the commission.

While the SEC is not tackling CEO pay itself, SEC Commissioner Roel Campos, a Democrat, said if the proposal is put in place, succinct tables would provide “one-stop shopping” for investors who want to quickly figure out what CEOs really earn, according to the Journal. “Shareholders will have no one to blame but themselves if executive pay continues to rocket upward,”. Campos added.

According to the SEC, the rules would require a compensation discussion and analysis section dealing with the objectives and implementation of executive compensation programs. The section would focus on the most important factors underlying each company’s compensation policies and decisions.

The rules called for executive compensation disclosure to be organized into three broad categories:

  • compensation over the last three years
  • holdings of outstanding equity-related interests received as compensation that are the source of future gains – A dollar value will be shown for all stock-based awards, including stock and stock options, measured at grant date fair value, computed pursuant to Financial Accounting Standards Board’s Statement of Financial Accounting Standards No. 123,   to provide a more complete picture of compensation and facilitate reporting total compensation.
  • Retirement plans and other post-employment payments and benefits – the Retirement Plan Potential Annual Payments and Benefits Table, which would disclose annual benefits payable to each named executive officer;the Nonqualified Defined Contribution and Other Deferred Compensation Plans Table, which would disclose year-end balance, and executive contributions, company contributions, earnings and withdrawals for the year; and disclosure of payments and benefits (including perquisites) payable on termination or change in control, including quantification of these potential payments and benefits.

Also, after several highly publicized examples of executives receiving numerous non-monetary perks, the rules mandate that the threshold for disclosing such perks would be reduced to $10,000, the commission said. Interpretive guidance is provided for determining what is a prerequisite. The threshold is now $50,000.

A statement by Cox is  here .