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SEC forces corporations to fess up on CEO pay

Updated: May 3, 2013 12:14PM



Executive compensation is making headlines these days. That's because of new SEC regulations that force companies to disclose far more about executive pay -- not only salary and bonus, but options grants, restricted stock, deferred compensation, retirement benefits and all kinds of perks including use of corporate aircraft and corporate promises to cover the executives' taxes on those benefits!

For years, these numbers have been buried in proxy statements, or not disclosed at all. But the SEC under Chairman Christopher Cox has demanded more information for shareholders. This year, compensation information must be formatted in a prescribed table in proxy statements, those densely printed booklets that arrive along with the photo-laden annual reports.

In future years, all corporate financial information will be available in a more useful format, submitted in a new interactive computer format (XBRL). But at a panel I moderated in Washington, D.C. last week, Cox made a surprising announcement. A wealth of new data

All of the data in the new executive compensation tables for the 500 largest reporting companies will be translated into the new user-friendly format of XBRL by this June. That means you'll be able to go to the SEC Web site and compare all of the reported data by company and category with a click of your mouse.

Richard Bennett, CEO of the Corporate Library, an independent firm that researches corporate governance and compensation issues, hails the move for more disclosure of the true nature of executive pay: "Shareholders will be able for the first time to see in real time the tremendously important numbers, warts and all, exposed for viewing."

The Corporate Library (www.thecorporatelibrary.com) employs 25 people who are sifting through proxies to compare the newly mandated disclosures.

Bennett says the translation to online interactive data at the SEC Web site will make staffers' jobs easier. But his group has already issued two reports detailing some egregious compensation practices.

One of the largest is the category of "non-qualified deferred compensation plans." These plans have not been reported in the past. Just as athletes defer salary to future years, so do corporate executives. They're not qualified retirement plans, but are meant to be paid out in the future, when the executive retires, and presumably will be in a lower tax bracket. Until then, they might be "invested" in company stock or other alternatives, and continue to grow.

The Corporate Library found that of the 280 largest companies that have reported so far, two-thirds of CEOs have investments in NQCD plans. The average balance in such plans is more than $5 million.

Among the largest deferred comp plans reported so far: US Bankcorp CEO Jerry Grundhofer has amassed more than $86 million, while Alexander Cutler, CEO of Eaton Corp., and William Weldon, CEO of Johnson & Johnson, each have more than $40 million in these plans.

Bennett wonders: "If they're aggregating such large sums in these accounts, do they really need additional retirement benefits?"Reporting the perks

Another big issue that is coming to light as a result of new reporting requirements: the value of executive perks. In a sample of 100 companies that had filed as of March 12, the total disclosed cost of perks was more than 130 percent higher than the reported amounts the previous year, according to the Corporate Library.

Bennett asks: "Are these new benefits -- or just newly reported?" He answers his own question: "The better disclosure standards demanded by the SEC are scaring companies into being much more meticulous about reporting compensation."

You can learn more at www.TheCorporateLibrary.com. Or, starting in June, you can go to www.SEC.gov not only to see, but compare the data that companies are now reporting on executive compensation.

Given the enthusiasm for this kind of disclosure, it's likely that next year they'll post even more data, including director compensation and benefits. More disclosure is truly a "perk" for shareholders. And that's The Savage Truth.

Terry Savage is a registered in- vestment adviser. Check out Terry's answers to reader questions at suntimes.com, and click on Business.



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