Securities and Exchange Commission
took a step toward clarifying disclosure on corporate compensation Tuesday, passing a set of proposals that would require companies to boil down annual pay packages for top executives into a single dollar figure.
The SEC's first major overhaul of pay disclosure in 14 years passed on a 5-0 vote. It will now stand for public comment until it is taken up by the commission for final approval later this year.
Public companies in the U.S. use a hodgepodge of salary, stock options, restricted stock, deferred pay, retirement benefits and other perks to compensate their top executives. Critics say the difficulty of computing the value of such packages has contributed to a sharp rise in executive pay over the last 10 years.
The proposals passed Tuesday are aimed at standardizing the components' overall valuation so investors can analyze pay more easily. In addition to the single-figure calculation, companies will be required to describe in plain English their rationale and methodology for granting compensation and include it in annual filings.
In order to calculate a single-entry compensation estimate for top executives each year, companies would be required under the proposed rules to value stock and stock-options grants to corporate executives using fair-value accounting. The rules apply to the top five corporate officers, including the CEO and chief financial officer.
Other changes would include a broadening of the definition of so-called "related party transactions" between company executives and entities controlled by them, their families or other business associates. A more detailed list of corporate perquisites would be required in proxy filings, as would a better cataloging of retirement benefits.