Next on Executive Compensation?
Barlas, Stephen, Strategic Finance
Now that the Securities & Exchange Commission (SEC) has finished its rule making for mandating new disclosures about compensation for top corporate officers, some are looking for the Commission to take a next step. The most likely possibility is a rule that would allow an advisory shareholder vote on certain aspects of executive compensation. The U.K. and Australia already allow that. The SEC got some comments on the idea even though it wasn't proposed as part of the executive compensation rule. When that rule was finalized at the end of July, Roel Campos, one of the commissioners, said the Commission didn't have the time to consider the notion because it wanted to get the executive compensation release out well in advance of proxy season. But he kicked the door wide open, adding, "However, I think this is an important idea that may promote transparency, and it deserves to be fully explored in future iterations of our executive compensation rules. Perhaps we will receive more thoughts from commenters about this idea in the future."
The executive compensation disclosure rules set out numerous requirements. The two headline provisions require companies to disclose a "total" compensation figure for the principal executive officer, principal financial officer, the three other highest-paid executive officers, and the directors. The compensation number would include the fair value of options and stock issued to executive officers. Second, companies are required to have meaningful narrative disclosure about compensation practices in a new financial report section titled "Compensation Discussion and Analysis," or CD&A.
Capitol Hill Considering Next Steps on Compensation
While the new SEC executive compensation reporting rules will make it easier to understand what CEO stock options are worth, those rules won't dampen the more general furor over CEO compensation. SEC Chairman Chris Cox believes that the reason nonsalary corporate pay has gone through the roof is the 1993 law, which he supported when he was in Congress, that allows companies to deduct pay for top corporate officers when that pay is over $1 million a year--but only if that overage is performance based. …