SEC Prepares to Shine Light on Executive Perks

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The Securities and Exchange Commission is considering a plan that would force companies to be more explicit about how they compensate top executives. The rules, which are expected to take effect this year, would shine a light on many of the hidden perks senior managers receive.

RENEE MONTAGNE, host:

American companies catch a lot of flak about all the money they pay their top executives, and over the next few months, the criticism could get even worse.

The Securities and Exchange Commission is considering a plan that would force companies to be much more explicit about how they pay their top executives. The new rules are being weighed just as new scandals are breaking out over executive pay at Exxon Mobile and United Health Group.

NPR's Jim Zarroli reports.

JIM ZARROLI reporting:

In the world of executive compensation, money isn't everything. Sometimes you also get stock options.

Recently, the Wall Street Journal reported about the compensation given to William McGuire, the Chief Executive Officer of United Health Group. It turns out that over the past decade or so, McGuire received stock options worth about $1.6 billion.

Mr. BRIAN FOLEY (Managing Director, Brian Foley & Company, New York): One point six billion is an extraordinary amount of money. And I think there is a real question as to whether it is well-beyond enough.

ZARROLI: Brian Foley is an executive compensation consultant based in New York. Like a lot of his peers, he calls McGuire's pay unprecedented.

Mr. FOLEY: In an industry that is plagued by issues of cost-containment and people seeking--needing insurance that don't have insurance, and people not being able to afford the insurance they have, he's the first person in that industry to go over the billion-dollar mark.

ZARROLI: But it's not just the value of the stock options that McGuire received that's causing jaws to drop. The Securities and Exchange Commission is investigating whether United Health and other companies back-dated the release of stock options given to executives in an effort to make sure they were worth more money.

In a webcast with analysts on Tuesday, McGuire denied any wrongdoing.

Mr. WILLIAM MCGUIRE (Chief Executive Officer, United Health Group): I can say that, to my knowledge, every member of management in this company believed at the time we collectively followed appropriate practices for those option grants, which affected all of our employees.

ZARROLI: But McGuire also said the company would stop giving out options and certain other forms of executive pay for the foreseeable future.

The United Health Group controversy has surfaced at a time of continuing concern about executive pay. This year, the SEC is expected to begin requiring companies to be much more explicit about the compensation that top executives receive.

Mark Borges is a principle at Mercer Management Human Resources Consulting, and a former SEC attorney.

Mr. MARK BORGES (Mercer Management Human Resources Consulting): The disclosure is going to cover a lot of the compensation techniques and practices that the current rules didn't seem to get at.

ZARROLI: Companies will have to list in greater detail whatever they give senior managers, be it money, bonuses, or perks like free airplane rides and apartments.

Brandon Reese is assistant director of the AFL-CIO Office of Investment. He says many companies have learned to disguise what they're handing out to management by putting it in the form of retirement money or deferred compensation. Now, Reese says, it won't be so easy to do that. And shareholders may not like what they see.

Mr. BRANDON REESE (Assistant Director, AFL-CIO Office of Investment): Shareholders are going to be surprised about the size of these guaranteed retirement compensation packages that have been offered to CEOs, particularly at a time that more and more companies are terminating their promises to their own employees to provide them with retirement security.

ZARROLI: And those shareholders could end up making life more difficult for management. The highly profitable ExxonMobile generated a backlash from shareholders this year after revealing that its former chief executive Lee Raymond took home nearly $170 million in pay and retirement benefits last year. The CEO of Pfizer took home $65 million over the past five years, even though the company's share price is down sharply.

This isn't the first time that federal regulators have tried to strengthen the rules governing executive pay. While most shareholder activists like what the SEC is doing, they also warn that the companies will eventually find ways to get around the new rules.

There's also another potential downside. When everyone can see how much an executive makes, then managers at other companies often demand similar compensation, and over time, that can push up executive pay levels even higher than they are now.

Jim Zarroli, NPR News, New York.

MONTAGNE: This is MORNING EDITION from NPR News. I'm Renee Montagne.

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