They’re paid how much?
READING A CORPORATE financial statement is like driving around a former British colony: The signs may be in English, but it can be maddeningly hard to find what you’re looking for without a guide.
That’s no accident. Corporate bosses have become adept at obscuring uncomfortable or embarrassing information, particularly when it comes to their own pay. Rather than making it clear to investors just how much revenue is being consumed by top executives, many corporations have chopped this information into fragments and scattered it through different sections of their reports. And some have found nest-feathering techniques that do not have to be included in quarterly reports or proxy statements, such as “tax gross-up” deals that relieve an executive of the indignity of being taxed.
Happily, federal regulators are poised to end this game of information hide-and-seek, at least temporarily. Next week, the Securities and Exchange Commission is expected to propose that publicly traded companies make clearer, more comprehensive disclosures of the pay and benefits packages they award to top executives. Under the plan, which SEC Chairman Christopher Cox outlined last week, shareholders would not have to scour multiple tables and footnotes to tally up how much a chief executive, chief financial officer or other top executive is being paid. Instead, corporations would have to calculate a total dollar figure for each of those executives and disclose it in their proxy statements.
Not every bit of compensation can be boiled down to a number, however, because at least part of the typical executive pay package is based on future events -- how much the stock price rises over a period of years, for example. The SEC’s proposal is to require companies to include tables in their proxies that would cover these elements, along with the value of retirement plans and golden parachutes. The commission also may call for any perk worth $10,000 or more to be disclosed, compared to the current $50,000 cutoff.
The aim is to ensure that boards of directors act responsibly and keep shareholders’ interests paramount. Where executive pay is concerned, some boards have clearly not been minding the store. Executive pay has raced upward in the last five years despite the stock market’s struggle to regain the peak it reached in early 2000. This trend has exasperated investors who want to tie executive pay to stock performance. By ending the obfuscation over top executives’ pay, the SEC can give shareholders more ammunition in their drive for rational compensation that provides the right incentives.
These companies belong to their shareholders, after all. Why should it be so hard for the owners to find out how much they are paying the talent?
