Congressman urges action on executive pay

U.S. Rep. Barney Frank (D-Mass.), who will head the committee that oversees the Securities and Exchange Commission, said Congress should rein in executive pay after the SEC changed rules for how companies value stock-option awards.

“Backtracking by the SEC on this important matter of stock options reinforces my determination that Congress must act to deal with the problem of executive compensation that is now unconstrained by anything except the self-restraint of top executives,” Frank said in a statement.

The SEC on Friday said it would let companies report stock-option expenses “as that cost is recognized” instead of when awards were made. The change allows companies to spread expenses over many years rather than disclosing them all at once, said accounting experts including Charles Mulford, a professor at the Georgia Institute of Technology.

Frank, the next chairman of the House Financial Services Committee, said it was ironic that the agency wanted to change its rules when regulators were uncovering “widespread abuses” in stock-option awards.

Almost 200 companies are under investigation for backdating option awards to periods of low share prices, a practice aimed at boosting the value of the grants when they are exercised.

“I am very disappointed with both the substance and the procedure used” to reach the SEC’s decision to loosen reporting requirements, Frank said. “The problem of executive pay that is both greatly excessive and deliberately obscured is a grave one.”

Last week’s action amended regulations approved by the agency in July, which involved the most extensive overhaul of executive-pay rules in 14 years.

The SEC will still require companies for the first time to disclose total pay, perks and lifetime retirement benefits for their five top-paid executives.