Top Execs Can Now Hide Their Paychecks Again

Posted on 26. Dec, 2006 by in News

ceo.gifIt looks as though the SEC has reversed a decision it made in July and has adopted a rule allowing companies to once again “hide” the total compensation of top executives. As if the amount of compensation wasn’t hard to figure out to begin with, this change comes as a blow to investors like you and I. In July, we were excited that we could see what the top executives were making – so that we could make informed decisions whether or not to support companies who paid their executives outrageous amounts for very little work (in some cases).

My favorite quote from this last-minute decision, is from Ann Yerger, the executive director of the Council of Institutional Investors:

“It was a holiday present to corporate America, it will certainly make the numbers look smaller in 2007 than they would otherwise have looked.”

Under the old rule, if a company awarded an options grant valued at $15 million to an executive this year, the full amount of $15 million would show up in the summary compensation table.

Under the new rule, which takes effect immediately, the amount reflected in the table would be much smaller, with the remaining part of the $15 million included in later years, as the executive qualifies to exercise the options.

The justification behind this decision is that the new rule is intended to make the disclosures identical to the way companies report options expenses in their financial statements, under accounting standard 123R, as approved by the Financial Accounting Standards Board. Having worked very recently on the 123R disclosure of a major public company, I can tell you that it is not that difficult to disclose this information in both formats. In fact, most companies have to prepare this information for its external auditors anyways! It makes perfect sense to disclose the amount of option grants in terms of 123R as well as part of the “total compensation” disclosure that was introduced in July.

It seems completely ridiculous to me that this total compensation information is being kept from investors. This is one time, in my opinion, that the SEC has caved in favor of corporations and has failed to do its job of keeping investors informed. Now we’ll have to go back to using vesting schedules and other obscure information to calculate the total compensation of top-dawgs…

One Response to “Top Execs Can Now Hide Their Paychecks Again”

  1. Mike Williams

    03. Jan, 2007

    This is not good at all for investors. A public company is just that a public company. Trade secrets and marketing plans can be kept a secret as this maintains a company’s competitive edge, but certainly not the payroll and compensation packages of the executives. Aren’t we the stockholders entitled to know how much our employees are being paid?? I would most certainly think so.

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