SEC Pushes New Rules on Executive Pay : Compensation: The proposals aim at improving accountability and disclosure.

A three-year campaign by institutional investors to increase corporate directors’ accountability for executive pay decisions is expected to culminate today in new rules proposed by the Securities and Exchange Commission.

The SEC’s revised amendments, welcomed by shareholder activists, are aimed at enabling stockholders to better understand how much top corporate executives are paid and why the board arrived at a specific amount. Moreover, the changes should make it easier for shareholders to communicate with one another.

At a meeting in Washington today, the SEC staff will recommend that the agency’s four commissioners approve proposals that represent a market-based solution to a problem that has excited politicians searching for issues in an election year.

Both the House and Senate have jumped on the executive-pay bandwagon and passed amendments to unemployment-compensation bills calling for a limit to corporate deductions on salaries greater than $1 million.

In an effort to head off such legislation, one SEC rule change will require boards to justify the awards they grant by explaining what factors they took into consideration.

In a speech in Los Angeles last week, SEC Chairman Richard C. Breeden said: “Before voting to reelect a board, the shareholders should be entitled to know what the . . . board’s reasoning was.”

When companies do not have a compensation committee exclusively made up of outside and non-interlocking directors, the SEC will ask for more detailed disclosure on how pay decisions were made, as well as details on the relationships among decision makers.

A second major change will direct companies to show senior executive compensation in the form of easily understood charts and graphs. “All too often,” Breeden said, “proxy descriptions of compensation are lengthy, legalistic narratives that obscure rather than illuminate the most relevant facts.”

Third, addressing an especially sore point with critics, the SEC will order companies to deliver a range of estimates on the value of executives’ stock options.

Since most of the megabucks awarded top officials flow from massive grants of stock--such as the 1 million shares of restricted stock worth about $80 million granted to Coca-Cola Chairman Roberto Goizueta this spring--activists consider this an important reform.

Said Jamie Heard, president of Institutional Shareholder Services, a Washington research organization for institutional investors, “Some accounting for the value of options is long overdue. To be sure, (opponents) will argue it is impossible to know with certainty when options are granted what their prices will be in the future. But you can make reasonably accurate estimates.”

The SEC’s overall goals are twofold: to delineate more clearly various components that make up executive compensation, including salary, bonus and incentive awards such as stock options or restricted stock, and to compare executive pay with a company’s performance.

Breeden said these changes might be painful, but that “owners of the company have every right to know just exactly what they are paying to those who run the company.”

Earlier this year, the SEC began to require public companies to include resolutions setting forth shareholder views on compensation in proxy materials. Although the resolutions are non-binding, they nevertheless allow shareholders a voice. The SEC ordered 10 companies to include such resolutions in 1992 proxy statements.

The SEC reforms follow an unusually cantankerous spring proxy season. Institutional shareholders such as the California Public Employees Retirement System and the New York City Employees Retirement System protested multimillion-dollar pay packages at companies such as Champion International and Sears, Roebuck, where corporate financial performance has lagged competitors and the overall stock market.

The issue has been building for several years, however. In 1989, CalPERS appealed to the SEC to ease rules that prohibit communication among investors. For example, a shareholder who wishes to tell more than 10 owners of the same stock how he feels about a proposal must ask permission of the SEC.

At the time, the SEC responded with proposals to lift certain restrictions. But business protested vigorously. In about 800 letters that poured into the commission, companies argued that easing the rules amounted to a license to conspire in secret to control corporations.

But Breeden defends a loosening of communication restrictions on the basis of free speech: “Merely announcing that you plan to vote for or against management’s nominees, and why, should not . . . require regulation by the government.”