A plan for fuller disclosure on CEO pay and perks
SEC proposal would require details on pensions and trips.
NEW YORK — The details first came out in the newspapers, not in corporate reports:
• Don Tyson, Tyson Foods' former chairman, got the firm to pay for items such as a $20,000 Oriental carpet and an $8,000 horse.
• Jack Welch of General Electric had a retirement package that gave him use of the company jet and fresh flowers for his New York apartment.
• Ronald Allen, Delta Airlines' former chair, had a consulting deal that paid him $500,000 a year - even if he weren't alive.
Such revelations of CEO compensation - a few among dozens of similar examples - have helped spur a drive to make corporate pay more transparent. When the Securities and Exchange Commission (SEC) announces its proposal Tuesday, it is expected to require companies to provide more details about how they pay top honchos, including pumped-up pensions and weekend family picnics on Nantucket via the company jet.
As a result, shareholders, watchdog groups, and publications such as Business Week should find it easier to tabulate a CEO's total compensation. And companies may also now have to give more details about what departing executives, such as Mr. Allen, will make once they leave.
"As more and more staggering surprises on the amount of benefits not disclosed have come out in the news, the SEC has gotten some momentum to work on this," says Anne Plimpton, a lawyer at McDemott Will & Emery in Boston and an expert on executive compensation.
Disclosure is likely to exacerbate the debate over CEO compensation. When companies release their proxy statements each spring, business publications begin tabulating how much their executives make. Some corner-office occupants scan their competitors' reports in hopes of making the case for higher pay. It's also the season when shareholder activists call for restraint, noting the huge gulf between the average worker and the boss.
"It flares up every year," says Bruce Ellig, author of "The Complete Guide to Executive Compensation." "The expected SEC changes in executive-pay disclosure will take the excessive executive-pay issue to new heights."
In 2005, corporate earnings for the Standard & Poor's 500 stocks are estimated to have risen 13 percent, down from about a 15 percent gain in 2004. For that year, Business Week estimated that the CEOs at the largest companies made $3.5 billion in salaries, bonuses, and long-term compensation. (Actual 2005 earnings and compensation data aren't available yet.)
While executive compensation last year may not be a record when adjusted for inflation and compared with the dotcom boom, it's also likely to be pretty good. "I would say it's about the same as 2004 and maybe a little less," says Mr. Ellig. "It depends on the industry. For example, investment bankers will be high."
Last week, in fact, New York State Comptroller Alan Hevesi estimated that, despite a lackluster stock market, bonuses on Wall Street hit a record $21.5 billion, up 15.5 percent from the prior year. The average bonus: $125,000.
"This is really good news for the financial services industry," said Mr. Hevesi at a press conference.
Hevesi is also the sole trustee of the New York State pension fund. As such, he says he supports full disclosure of executive compensation. "We look to the SEC to take the lead," he said last week.
But the SEC is not the only force pressing for change in revealing CEO compensation. "The shareholders have been wanting to have these rules overhauled for a long time," says Diane Doubleday, San Francisco-based principal of Mercer Human Resource Consulting. "They have been able to garner the attention of the SEC and get these rules reissued."
In fairness to the companies, she points out, corporate compensation and benefit practices have become more complex since 1992, the date of the last SEC overhaul. "Not all the practices today fit tidily into a tally sheet."
However, corporate watchdogs, including consultants who advise institutional investors, have been pressing for change. One of those is proxy consultant Institutional Shareholder Services (ISS), which issues recommendations to 1,600 institutional clients. One of its goals for some time has been comprehensive "tally sheets" of CEO pay. In a press release last fall, ISS said it plans to recommend "withhold votes" on some directors of companies with "poor pay practices."
Jesse Fried, a law professor at University of California at Berkeley, says it hasn't always been easy for investors to weed through the proxy statement to find how much an executive makes. "Everything is there somewhere, but you must be very sophisticated and spend a lot of time to get to it," he says. "What has happened is, since 1992, firms have paid compensation in forms that don't need to be included in the summary tables, such as post- retirement compensation," says Mr. Fried, co-author of the book "Pay Without Performance."
Some of the new SEC changes could be enacted as early as this proxy statement, says Ms. Doubleday: "We may see a number of companies try to restructure their disclosures to reflect the spirit of the SEC proposals."
But most of the changes will come the following year, when some experts think the compensation numbers could be very high. It could encompass retirement benefits, including such perks as use of the company jet. Predicts Ellig: Executive retirement packages will be the next target for shareholders.