WASHINGTON – Investors are getting access to clearer and more detailed information from public companies on their top executives’ pay packages and perks under new federal rules that took effect Friday.
Companies’ 2006 annual reports issued early next year will reflect the changes, ordered by the Securities and Exchange Commission in July in a major overhaul of disclosure rules for executive compensation.
The requirements include disclosure of the dating of stock-option grants to executives. Companies must provide detailed information on how they determine when executives receive option grants and, if they do so, how and why they backdate options. Suspect timing of option grants has turned into corporate America’s scandal of the year, with more than 100 companies under investigation by the SEC or the Justice Department, more than $5 billion in profit erased by restatements and 18 CEOs swept out of office.
Backdating options can be legal as long as the practice is disclosed properly to investors and approved by the company’s board. In some cases, however, the practice can run afoul of federal accounting and tax laws.
For the first time, under the new disclosure rules, companies are required to furnish tables in annual filings showing the total yearly compensation for their CEOs, chief financial officers and the next three highest-paid executives. Most of the disclosures, in annual reports and other regulatory filings, must be written in plain English.
On Capitol Hill, Rep. Barney Frank, D-Mass., who will take over in January as chairman of the House Financial Services Committee, has proposed legislation that would require shareholder approval of executive compensation plans.
