SEC to require broader disclosure on executive pay - 16 dec 2009

By MARCY GORDON
(AP)
–
11 hours ago

WASHINGTON — Companies will have to reveal more information about
how much they pay their top executives, under expanded requirements
being imposed by federal regulators amid a public outcry over
compensation.

The Securities and Exchange Commission also is
changing a formula that critics say allowed companies to understate how
much their senior executives are paid. At issue is how public companies
report stock options and stock awards in regulatory filings. Such
awards often make up most of top executives' pay.

Company
policies that encouraged excessive risk-taking and rewarded executives
for delivering short-term profits were blamed for fueling the financial
crisis. The Obama administration imposed pay curbs on banks that
received federal bailout money. Since then, eight of the largest such
banks have repaid, or said they will repay, their federal money largely
to escape caps on executive pay.

The Federal Reserve has given
the 28 biggest U.S. banks — including Goldman Sachs, JPMorgan Chase
& Co., Citigroup Inc., Bank of America Corp. and Wells Fargo &
Co. — a February deadline for submitting 2010 compensation plans. The
Fed also will be encouraging, though not requiring, banks to revise
this year's pay plans if they are out of step with principles the Fed
has proposed to limit risk.

Anger over lavish Wall Street pay has
led some U.S. banks to take pre-emptive action. Goldman Sachs, for
example, has said it won't give cash bonuses to 30 top executives.
Instead, they'll be paid in stock that can't be cashed in for five
years.

The SEC is meeting Wednesday morning at 10 a.m. EST to
adopt expanded disclosure rules for compensation at all public
companies. The rules include information on how a company's pay
policies might encourage too much risk-taking. SEC officials have said
they want the new rules to be in place by spring, when companies send
annual proxy disclosures to shareholders.

"It's going to force
(companies) to think about these issues a decent amount," said Ray
Russo, a corporate attorney at the law firm Paul, Weiss, Rifkind
Wharton & Garrison.

Companies will have to disclose how pay
is determined in departments involved in the riskiest activities — or
departments that produce a big chunk of company profits.

The new
requirements were proposed by the SEC and opened to public comment in
July. They build on rules the agency adopted in 2006.

"The
turmoil in the markets during the past 18 months has reinforced the
importance of enhancing transparency, especially with regard to
activities that materially contribute to a company's risk profile," the
SEC said when it floated the proposal last summer.

Under current
rules, companies don't have to reveal the full value of stock options
they give an executive. Instead, they must disclose in their annual
proxy statements only the portion of an options award that vests that
year.

The new rule will require companies to show in a summary
table the estimated value of all stock-based awards on the day they are
granted. The SEC's 2006 rules had relegated those totals to a separate
table that investors often overlook or find hard to decipher.

An
example is the case of a company that decides its CEO deserves $10
million worth of stock options, to vest in equal installments over four
years. Under current rules, the company would have to include only $2.5
million — one-fourth of the total — in the summary table.

Also at
Wednesday's meeting, the SEC will require investment advisers to submit
to annual surprise exams by outside auditors — unless they entrust
their clients' money to independent third parties. This move is aimed
at plugging gaps that allowed Bernard Madoff to deceive investors.

The
surprise audits for investment funds that have custody of clients'
money would allow independent accountants to review a fund's books and
verify that the money is there. The snap audits would apply to about
9,600 investment advisers that don't use third-party custodians, out of
roughly 11,000 advisers registered with the SEC.

Copyright © 2009 The Associated Press. All rights reserved.