SEC’s Proposals on CEO Pay Win Praise : Regulation: CalPERS and other institutional investors cheer the agency’s preliminary approval of the plans.

Institutional investors and shareholder activists hailed a package of proposals by the Securities and Exchange Commission Tuesday to reform corporate disclosure of executive pay and give stockholders new opportunities to band together and object.

“This SEC action paves the way for owners to take their companies back,” said Ralph Whitworth, president of the United Shareholders Assn. He said his group, which represents 65,000 small investors, will mount a nationwide grass-roots effort to ensure that the SEC knows of shareholder support.

Also pleased was the largest public pension fund, the California State Employees Retirement System (CalPERS), which initiated the movement for liberalized shareholder communications three years ago. Current rules require that collaboration by more than 10 shareholders be cleared with the SEC.

“We feel these changes would go a long way toward giving owners a rightful voice in company affairs,” said CalPERS’ chief investment officer, DeWitt Bowman.

Big business reacted less favorably. The Business Roundtable, a lobbying organization of chief executives from the 200 largest companies, issued a muted statement of intent to study the SEC proposals on shareholder communication and “file constructive comment with the agency.” The group said it backs clearer and more complete information on top officers’ pay.

The four SEC commissioners voted unanimously Tuesday to publish the staff proposals on executive pay for 60 days of public comment. They will decide later in the year whether to give final approval. Said SEC Chairman Richard C. Breeden: “We intend to have these rules in place for the 1993 proxy season.”

Breeden is reacting in part to pressure from Congress, which has approved legislative restrictions on executive pay. Public outrage over the pay issue erupted last January when President Bush went to Japan with a group of executives who complained about restrictive Japanese trade policies.

The Japanese criticized high U.S. executive pay, particularly at auto companies damaged by imports. Their jabs hit home with Americans suffering from a recession and stagnant personal income.

The SEC’s proposed reforms include:

* A requirement that proxies clearly disclose the top five officers’ pay in a series of tables covering the past three years.

* A report from the board of directors’ compensation committee outlining factors used in making pay decisions.

* Graphs that permit easy comparisons between the return to shareholders, the return on the stocks in the Standard & Poor’s 500 average and the return on stocks of a group of peer companies.

* A requirement that stock option awards be valued for a 10-year period under three possible scenarios: a 50% increase in stock price, a 100% increase and a 200% increase.

SEC Proposals

Responding to mounting criticism of executive compensation in public companies, the Securities and Exchange Commission is proposing some changes.

Problem: Descriptions of compensation in proxy materials are long, legalistic narratives that obscure rather than illuminate relevant facts.

Solution: SEC would require charts and graphs designed to show in clear detail all components of compensation to senior executives.

Problem: Executive pay is reported with no supporting discussion as to how the board measured success, mediocrity or failure.

Solution: SEC would require members of the board’s compensation committee to state the performance factors that they relied on when establishing pay.

Problem: Boards are granting ever-larger stock option packages whose value is disclosed only when an executive exercises them. If that occurs after the executive retires, shareholders never learn what he was paid.

Solution: Despite uncertainties about future price fluctuations, proxy materials would be required to calculate a range of values for stock-option awards.

Problem: Current proxy rules require SEC permission for one stockholder to tell more than 10 fellow shareholders his opinion of a proposal.

Solution: Remove limitations on free speech of shareholders, while retaining regulation of written materials.