SEC Reversal Irks a
Committee Chief
Rep. Frank Shows Concern
For Relaxed Disclosure Rule,
Vows to Get Congress Involved
By SIOBHAN HUGHES
December 28, 2006; Page A2
WASHINGTON -- The Securities and Exchange Commission's
decision to reverse course and relax disclosure rules on executive pay
isn't sitting well with the Democrat who will head the House Financial
Services Committee in the new Congress.
Rep. Barney Frank (D., Mass.) said he is "very
disappointed with both the substance and the procedure" involved in the
rule changes, which the SEC announced late Friday, just before the long
Christmas weekend.
![[B F]](HC-GF436_Frank_20051019044306.gif)
The rules, which apply to publicly held companies,
would reduce the amount of top executives' compensation that many
companies would be required to disclose next year. Companies would be
allowed to spread the value of options and restricted-stock awards over
a number of years, disclosing them as they vested, rather than in the
year they were granted. Businesses had lobbied for the change, arguing
that the SEC's plan to tighten disclosure requirements for options would
have overstated executive pay.
Mr. Frank's committee has oversight of the SEC, and he
could hold hearings on the executive-pay rules. He has already said he
would push for legislation to allow shareholders to vote on executive
compensation.
"Backtracking by the SEC on this important matter of
stock options reinforces my determination that Congress must act to deal
with the problem of executive compensation that is now unconstrained by
anything except the self-restraint of top executives, a commodity that
is apparently in insufficient supply," Mr. Frank said.
The SEC said it acted to reconcile the value of
stock-options awards as disclosed in corporate financial statements with
the value of executive-stock option grants disclosed to investors.
Companies treat stock options as costs in their
financial statements as the options become exercisable. The SEC rules
had previously required companies to disclose the value of stock-options
awards on the date of the award, sometimes years before the recipient
was entitled to exercise them.
SEC Chairman Christopher Cox said in a statement
yesterday that "the object is to report accurate numbers. Artificially
inflating executive pay, or reporting 'phantom' pay, is just as
misleading as routinely underreporting it, which was the case before we
adopted the new executive-compensation rules in July."
The U.S. Chamber of Commerce had complained that by
including the value of options, stock or other awards that wouldn't vest
-- or pay out -- for years, the earlier rules would have made executive
pay packages look misleadingly large.
Executive pay increasingly is becoming a hot-button
political issue as the pay gap widens between corporate chieftains and
rank-and-file employees. Prompted by investor concern, the SEC earlier
this year approved rules that will provide more information about the
pay and perquisites granted to top executives. The new details of
executive-pay packages will be released mostly in early 2007, when
companies file annual proxy statements.
In its latest changes, the SEC took the unusual
approach of making the new rules for stock options effective almost
immediately. That decision essentially renders moot the agency's plans
to provide a 30-day public comment period on the matter.
"The problem of executive pay that is both greatly
excessive and deliberately obscured is a grave one," Mr. Frank said. "I
had been encouraged when the SEC recognized this problem in its initial
proposal, and while that continues to provide improvements in the
relevant rules, this slippage is regrettable both substantively and for
not having been open to more public discussion."
Write to Siobhan Hughes at
siobhan.hughes@dowjones.com1
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