SEC Urges Changing Executive Pay Disclosure

Regulators backed revisions in the way companies disclose executive pay Friday, including a change that would close a loophole allowing firms to give fat bonuses to departing executives without reporting them.

The Securities and Exchange Commission voted 4-0 to ask for public comment on the proposed rule amendments.

The agency, in a highly controversial move, adopted new disclosure rules last year.

Companies have come under fire from shareholders, members of Congress and other officials in recent years for rewarding executives with salaries that had little correlation to company performance.

SEC officials said the changes will be in place before the 1994 proxy season.

The commission also voted to provide companies with written guidance aimed at ensuring they measure up to the requirements of the regulations.

In drawing up the amendments, the commission reviewed about 1,000 proxy statements from the 1993 season--the first time companies were required to spell out how much they pay top officials and to link that pay to performance.

“Based on our experience from the past proxy season, our rules have been successful,” said SEC Commissioner Carter Beese.

But many companies appear to have plenty of room for improvement in spelling out their compensation practices.

“The quality of the reports ranged from superlative to abysmal,” said Linda Quinn, director of the SEC’s corporate finance division. “Most of them were somewhere in the middle.”

Quinn predicted the rule revisions would have a marked impact on companies that have delivered “perfunctory” reports that offer little justification for executive pay levels.

“We expect 1,000% improvement next year,” she said. “We will have to take serious action if we don’t get that.”

Other proposed changes would require companies to provide more information related to the options they grant to top executives.

The current rules require a company to list compensation for its chief executive and its four highest paid executive officers as measured by their compensation at fiscal year-end.

The agency discovered, however, that the departure of a CEO or other top officers before the end of the year gave shareholders an incomplete picture of the company’s pay practices.