SEC May Call for Disclosure of Executive Benefits
ROBERT SIEGEL, host:
How much does a company that you invest in really pay its top executives, stock options included? And what kind of retirement package does the CEO have that will cost the company payments for years to come? Well, according to The Financial Times, the Securities and Exchange Commission is preparing to update its disclosure rules, and SEC Chairman Christopher Cox tells The FT today investors have every right to better understand the real costs of complicated compensation and benefits packages. Chairman Cox sounds almost like Nell Minow, shareholder activist and co-founder of The Corporate Library, who joins us from Charleston, South Carolina.
Welcome back to the program.
Ms. NELL MINOW (The Corporate Library): Thank you.
SIEGEL: What typically don't we see about executive compensation, even if we read the fine print in the proxy statement?
Ms. MINOW: Well, even the fine print is not going to tell you what is in, for example, all the retirement allocated to the CEO. And you remember, of course, the notorious case of Jack Welch, who after making over $900 million in his tenure as the CEO of General Electric, which most people would consider to be well paid, managed to hide away in his retirement plan payment for life of his apartment, his Knicks tickets, his florist bills, his catering bills and his dry cleaning. And the idea was that retirement was so unimportant that it really didn't need to be disclosed. And, of course, that created an incentive for boards of directors to shovel a lot of extra payments in there.
Furthermore, a lot of companies, believe it or not, in the Leona Helmsley world of CEO pay, are now paying the CEOs' taxes on top of paying them. So it's not enough that they pay his salary, they pay his taxes as well, and that is not disclosed.
SIEGEL: So will the new rules effectively be the Jack Welch GE commemorative disclosure rules?
Ms. MINOW: I certainly hope so, but there are so many loopholes. For example, one of the most popular loopholes--and I didn't see Chairman Cox addressing this at all today--is that it used to be that companies had to disclose the pay packages for their five highest-paid employees. Well, they didn't like doing that, so it's now their highest paid officers. So we get to find out what the general counsel and the corporate secretary get paid, which is often not very much compared to, say, division heads.
SIEGEL: Now what is the trend in corporate executive compensation nowadays?
Ms. MINOW: Well, the trend is--basically can be described in one word, and that is up. Corporate Library issued a report very recently about CEO pay over the last year. We found that CEO pay was up 30 percent this year as opposed to being up 15 percent last year. And not only that, we also found six of the 10 companies whose CEOs received the highest increases underperformed their peers in stock price appreciation over the last five years. So it doesn't seem to relate to anything except more and more and more and more and more.
SIEGEL: So what happened to the new age of vigorous boards that were going to take a much closer look at compensation and hold all the CEOs' feet to the fire?
Ms. MINOW: It hasn't worked basically because the CEO still decides who gets to be on the board, who gets to be on what committees and how much they get paid. They don't seem to be able to stand up to the CEO.
SIEGEL: So the same cynicism about the role that the directors were playing a few years ago is justified today?
Ms. MINOW: Absolutely. I think the audit committee members are doing a better job now, and the nomination committee members are doing a better job. Compensation committees are still failing.
SIEGEL: What process awaits the proposed new rules on disclosure that the SEC chairman is talking about?
Ms. MINOW: Well, I can guarantee you it will be proposed. The Business Roundtable and the Chamber of Commerce and other corporate groups will do their very best and throw as much money around as possible to try to stop it. But ultimately I think they can run, but they can't hide. I think this is the number one issue identified by shareholders, especially institutional shareholders, for the next year. There are a number of shareholder proposals pending on it. And I think, most important of all, shareholders are now beginning to take action against the compensation committee members who agree to these outrageous pay plans, and with or without better disclosure, I think that will have a huge impact.
SIEGEL: Well, Nell Minow, thanks a lot for talking with us once again.
Ms. MINOW: My pleasure.
SIEGEL: Nell Minow, who is co-founder of The Corporate Library. She's a shareholder activist. She spoke to us from Charleston, South Carolina.