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."
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.
