The US Securities and Exchange Commission (SEC) yesterday
voted to publish their proposals for comment. The pay of the
CEO, CFO, the three other highest paid executive officers and the
directors would have to be disclosed. Stock options will be
revealed in dollar values.
US companies are already required to make certain disclosures
about compensation; but as SEC Chairman Christopher Cox observed
yesterday, "in some cases disclosure obfuscates rather than
illuminates the true picture of compensation."
He continued: "We want investors to have better information,
including one number – a single bottom line figure – for total
annual compensation."
Currently, US companies are required to report a lump sum if an
executive's perks are more than $50,000, or 10% of his salary and
bonus. And under current rules, an individual perk has to be
reported only if it represents more than 25% of all the perks that
an executive receives.
Under the new proposal, perks must be itemised if they total
$10,000 or more. The proposed new rules would also improve the
disclosure of retirement benefits and exit packages. These are not
required under the current US rules.
In his column for Fortune magazine, Geoffrey Colvin pointed out
last March that those who became upset when they heard of Carly
Fiorina's $42 million exit package from Hewlett-Packard or by James
Kilts' $100 million goodbye kiss from Gillette were fussing
too late: the send-off deals were written into contracts long ago.
Now it looks like such exit packages will become public knowledge
up-front.
Explaining the new plans, Cox said, "while it is up to the
Boards of Directors to decide how much to pay the CEO, without
artificial restrictions, companies will have to disclose a clear
explanation of how they arrived at both the amount and the
measurement."
The proposals – which are not yet available in full – will also
require companies "to prepare most of this information using plain
English principles in organization, language and design." Cox
warned: "these rule changes would permit the SEC to get very
serious about plain English."
European disclosure
In Europe, the UK has better developed controls on corporate
governance than many of its neighbours. Companies listed in the UK
are subject to the Combined Code on Corporate Governance and also
the Directors' Remuneration Report Regulations, passed in 2002. No
equivalent level of disclosure is required in Germany, Spain,
Austria or Belgium.
The British regime appears to have formed a blueprint for
European Commission recommendations that were published in December
2004.
The Commission recommended that member states should ensure that
listed companies disclose their policy on directors’ remuneration
and tell shareholders how much individual directors are earning and
in what form. They should also give shareholders adequate control
over these matters and over share-based remuneration schemes.
The Commission sees a conflict of interest where executive
directors take part in setting their own pay and would like to see
shareholders better informed.
The UK is already doing this: its 2002 Regulations require
listed companies to publish a remuneration report, put it to
shareholders for an annual resolution (albeit only an advisory
vote) and disclose details of directors' remuneration packages.
Only Britain, Italy, France, Ireland, Sweden and the Netherlands
currently ask companies to reveal directors' pay packages.
