No more hiding the corporate jet

Tuesday, the Securities and Exchange Commission (SEC) was set to unveil its first overhaul of executive compensation disclosure rules in 14 years. Given the ballooning of CEO pay since then, and the plethora of hidden perks, the transparency pushed by new SEC chairman Christopher Cox is welcome, though long overdue.

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If the SEC adopts the changes as expected, shareholders should be able to see the entire compensation package of top executives at publicly traded firms detailed and tabulated in one place in the annual corporate proxy statement.

The SEC correctly recognizes that it shouldn't be trying to regulate the level of pay of America's business titans, who should be rewarded for adding value to a company. Instead, it's counting on disclosure - and by extension, stockholder outrage - to rein in compensation increases that seem to bear little or no relation to performance or other measures.

From 1990 through 2004, CEO pay at the top 365 firms increased 319 percent, the S&P 500 238 percent, and profits 87 percent, while average worker pay rose 4.5 percent.

But outrage hasn't yet stopped the waterfall of wealth pouring down on America's chiefs. Even as cases of excess become widely known, boards of directors still want to prove they've got the best CEO in the world by paying their top person more than anyone else. (Stock-option grants also have much to do with the remuneration run-up.)

Not all chief executives prefer megapay. Ethan Berman, CEO of RiskMetrics, a $100 million, privately held firm, received recent attention for requesting no pay increase and a bonus cut - despite strong revenue growth. Mr. Berman said he felt uncomfortable with his compensation compared to the pay of those who work directly for him.

Indeed, extravagant compensation at the top is demoralizing to lower-level employees. It can also cost a firm dearly.

According to Harvard Law School professor Lucian Bebchuk, the salary, bonus, and stock of the top five executives at the 1,500 largest US publicly traded companies was nearly 10 percent of profits from 2001-03. That's double the percentage from 1993-95.

Boards of directors could take any number of corrective measures. They could cut CEO pay, tie incentives to long-term performance, and stop comparing their CEO's package to the one next-door and instead set an internal pay scale as, for instance, DuPont does. But so far, they haven't had the stomach for much change.

That leaves the job to shareholders, who are exerting more pressure on boards over executive excess (after all, it's the shareholders' money). Last month, for example, Coca-Cola decided to limit large executive severance packages after 40 percent of Coke's shareholders backed the idea.

Perhaps the new SEC disclosure rules will provide the torches and pitchforks necessary for a more widespread shareholder revolt.