UPDATE: SEC Proposes Rules To Enhance Disclosure On Pay
July 01 2009 - 4:45PM
Dow Jones News
Companies would have to tell investors how executive pay
policies create incentives for risk-taking under rules proposed
Wednesday by the Securities and Exchange Commission.
The SEC also proposed rules to force some banks and others that
received federal bailout money to give shareholders a non-binding
vote on executive pay.
Separately, the commission approved in a 3-2 vote a
controversial rule proposed by NYSE Euronext (NYX) to ban brokers
from voting in contested or uncontested corporate board elections
on behalf of customers who did not return voting instructions.
The proposed compensation disclosure rules would require public
companies to discuss information about the relationship between
overall compensation policies and risk and how risks are managed.
Companies would only need to provide this information, however, if
the risks could have a material effect on the business, such as
steep losses.
The proposal also targets potential conflicts of interest posed
by compensation consultants by requiring companies to disclose fees
paid to consultants or their affiliates if they provide other
additional services to the companies. In addition, the rules seek
to improve how stock and option awards are reported in corporate
disclosures.
The commission's push to move forward on these issues received
the praise of shareholder advocacy groups, which lauded the agency
for taking steps to empower shareholders in elections and provide
them with greater information about the companies they own.
"Compensation consultants are supposed to provide the board
advice on a CEO's pay," AFL-CIO President John Sweeney said in a
statement. "Too often, the consulting firm pockets far more in fees
for providing employee benefit services to the company's
management."
The proposals on compensation and corporate governance matters
come at a time when some financial firms that received bailout
funds have faced public wrath for paying high salaries and bonuses
to employees.
Regulators now say they believe compensation structures helped
fuel the financial crisis by encouraging excessive risk-taking and
the Obama administration is seeking new laws to help align
compensation structures with the long-term well-being of
companies.
The bill which authorized the $700 billion Wall Street bailout
last year had sought to keep executive pay in check in part by
requiring bailout recipients to hold a non-binding shareholder vote
on executive compensation.
As part of that law, the SEC agreed Wednesday to propose these
say-on-pay rules for bailed-out public companies so the agency will
be able to enforce the provisions in the law.
That vote was not controversial since Congress has already
mandated the SEC must take action, but the vote to finalize NYSE's
proposed broker voting ban created more waves Wednesday among the
SEC's two Republican commissioners who feared it could give
institutional investors too much influence or have unintended
consequences.
First proposed in 2006, the rule is an effort to give retail
investors more of a voice in corporate elections amid fears that
brokers all too often vote with management. But much to the chagrin
of some investor advocates, it has languished at the SEC until
Wednesday.
The rule's approval is just the latest item in a series of
corporate governance and proxy issues that SEC Chairman Mary
Schapiro has put at the top of her to-do list.
Last month, the SEC agreed to consider rules to give
shareholders a greater say in nominating directors to corporate
boards. Having a stronger voice in corporate elections would allow
shareholders to have more input on things like executive
compensation.
In addition to the proposed new rules on compensation Wednesday,
the SEC also said it will consider reforms on other proxy-related
issues including requiring companies to provide more details on the
background and qualifications of directors, executive officers and
nominees, and making them report election results at a faster
pace.
SEC Chairman Mary Schapiro said she hopes the proposed
disclosure rules, if enacted, will give investors "better or more
timely" information and don't merely add to an already "weighty
document."
-By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634;
sarah.lynch@dowjones.com