SEC Moves Toward More Disclosure of Executive Pay
MELISSA BLOCK, host:
The Securities and Exchange Commission took steps today to require companies to do a better job of disclosing what their top executives are paid. The proposal has the support of many consumer and business groups. But as NPR's Jim Zarroli reports, some critics say the new rules could have an unintended consequence.
JIM ZARROLI reporting:
Publicly traded companies already have to disclose how much they pay their top executives, but SEC Chairman Christopher Cox said companies have often found ways to disguise how much they're really paying through the use of golden parachutes, complex pension plans, stock options and executive perks.
Mr. CHRISTOPHER COX (Chairman, Securities and Exchange Commission): And in some cases, as a result, the disclosure obfuscates rather than illuminates the true picture of compensation. This has led to concern that some companies may not be disclosing all compensation, even all compensation as is currently required.
ZARROLI: The rules passed today, which have to be reviewed and then approved a final time, would require companies to disclose a single figure for executive pay that takes in all forms of compensation. They also have to explain the objectives of the pay package--in other words, what the executive is expected to accomplish. Some critics say too many CEOs get huge pay packages even when they do a poor job. The move comes at a time of growing concern about the very large salaries paid to some top executives, but Cox went out of his way to say the commission wasn't trying to limit anyone's pay.
Mr. COX: It is about wage clarity, not wage controls. Indeed, the SEC lacks statutory authority to impose salary caps on corporate executives.
ZARROLI: The idea of greater transparency by publicly traded companies is one that people of all political stripes generally support. And the proposal was approved by all five commissioners, both the Democrats and the Republicans. And both consumer and business groups gave their qualified support. John Castellani, president of The Business Roundtable, said greater transparency is a good thing, as long as companies aren't required to reveal too much.
Mr. JOHN CASTELLANI (President, The Business Roundtable): What we're hoping for is the SEC finds the balance that gives enough information so that it's valuable for shareholders but not so much that it provides important competitive information to competitors.
ZARROLI: And Castellani said it wouldn't be clear whether the commission has found that balance until all of the plan's details are released. Brandon Reese of the AFL-CIO's investment division says the proposals would have a positive effect, although he acknowledged that many companies would gradually find a way around them.
Mr. BRANDON REESE (Investment Division, AFL-CIO): It's like the tax code; it has to be updated because creative compensation consultants and, frankly, greedy executives figure a way to circumvent and exploit loopholes in the disclosure regulations.
ZARROLI: Some critics have also noted that the new rules could have an unintended consequence. They say the SEC's previous attempts to force greater disclosure have actually increased compensation. Democrat Roel Campos is one of the five commissioners.
Mr. ROEL CAMPOS (SEC Commissioner): Some suggest that the very disclosure of executive compensation has contributed to some of the instances of large pay packages, as all packages are now public and any company can see what its competitor is paying. There may be a ratcheting effect as each tries to outdo its competitors.
ZARROLI: But Campos and the other commissioners are hoping that by forcing greater disclosure, they'll make it easier for shareholders to ask questions about compensation. And that, they hope, will pressure board members to think twice when they hand out lavish pay packages. Jim Zarroli, NPR News.
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