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Journalism of Courage
Corporations next year must start giving out more and clearer information about the pay and perks of top managers and directors under rules adopted by the US Securities and Exchange Commission on Wednesday.
At a time when executive pay continues to soar and with 80 firms under SEC investigation over possible stock option abuses, the commission voted 5-0 to adopt the new rules.
Besides more thorough and understandable pay and perks disclosure, the rules mandate more openness by corporations on executive stock option grant policies, without barring or endorsing any particular practice.
The SEC also voted to seek more public comment on a controversial part of the disclosure rules nicknamed the 8216;8216;Katie Couric clause8217;8217; after the former co-host of NBC8217;s 8216;8216;Today8217;8217; show who was tapped to present CBS8217; nightly newscasts.
The initial proposal could have forced companies to disclose pay of some top nonexecutive talent. As revised from an original proposal, the rules would require disclosure only of the pay of top personnel who have policy-making responsibilities within large corporations. 8216;8216;This would exclude a professional athlete, a salesperson, an entertainment person,8217;8217; said John White, director of the corporation finance division of the SEC at an open meeting.
SEC Chairman Christopher Cox said: 8216;8216;It will demystify any financial dealings between the executives and the companies they work for. It is not the job of the SEC to judge what constitutes the right level of compensation8217;8217;.
Companies will also be required to explain in narrative form their executive pay programmes in a new statement to be called 8216;8216;Compensation Discussion and Analysis.8221;
A SEC proposal to give investors more say in setting executive pay faltered in the face of strong resistance from businesses.
The new SEC rules require disclosure of a range of stock-option grant information, including recorded grant date; fair value of the options on the grant date; closing market price of the shares on the grant date if higher than the strike price; and the date company directors awarded the options if that date differed from the recorded grant date.
A stock option is a contract giving the holder the right to buy shares of stock in the future at a fixed strike price.
The rules also demand explanations if a company times 8220;option grants to its executives in coordination with the release of material nonpublic information.8221;
A multi-agency probe is focused on determining whether companies manipulated grant dates to boost the profits available to executives who received options.
In one practice known as backdating, option grant dates were retroactively set to precede a rally in the underlying shares, locking in risk-free profits for the recipients.
In another practice known as spring-loading, grant dates were scheduled for just before a positive announcement or just after a negative one in anticipation of a stock price rally. Both practices are not illegal, but can runafoul of the law if not properly disclosed, taxed and accounted for.
8211;Kevin Drawbaugh
