Risk & Compliance

SEC Proposes Changes to Pay Disclosure

''Our disclosure rules haven't kept pace with changes in the marketplace,'' said chairman Christopher Cox.
Stephen TaubJanuary 17, 2006

As widely expected, on Tuesday the Securities and Exchange Commission unanimously voted to require sweeping changes to the disclosure of executive compensation.

The proposals now go through a 60-day comment period, which is expected to generate a tremendous number of responses, followed by possible revisions and a final vote by the SEC. However, new rules would come too late to apply to proxies filed during the next few months for the upcoming annual meeting season.

“This information is information that shareholders have a right to know,” said commissioner Cynthia Glassman before the vote, according to the Associated Press. “Our disclosure rules haven’t kept pace with changes in the marketplace,” added chairman Christopher Cox, who noted that the SEC has not made changes to pay disclosure in 14 years, according to Reuters. “We want investors to have better information, including one number” for pay, he reportedly added.

One of the most significant changes would affect chief financial officers. Under the proposal, companies would be required to disclose annual compensation for the CEO, the CFO, the next three highest-paid executives, and board members. Under current rules, companies must disclose the compensation of the five highest-earning executives — but the CFO’s pay need not be included if it does not rank in the top five.

As we anticipated earlier today, under the proposed rules companies must detail the true costs of stock options; disclose perks totaling more than $10,000; detail in a separate table executive retirement plans, including future benefits; and disclose the compensation of company directors.