Opening the boss’s pay packet
Jan 18th 2006
From The Economist Global Agenda"America’s Securities and Exchange Commission has proposed a sweeping reform to improve disclosure of executive pay. More transparency should help shareholders decide whether top bosses represent value for money, though it may do little to restrain expensive failures
For most employees pay is a private matter, to be exaggerated or downplayed as circumstances dictate. For the world’s leading executives it is different. Many countries have rules that insist upon some measure of transparency for the pay of top executives at publicly traded companies. But limited disclosure of salaries and bonuses only gives a glimpse of the riches on offer at the top. And so, on January 17th, America’s Securities and Exchange Commission (SEC) voted to propose a set of rules that will require firms to unpick the complicated remuneration packages that American bosses enjoy to reveal the true cost of their employment.
The SEC’s shake-up will now be subject to public scrutiny and some elements might yet change before the plans are finally agreed later in the year. But the broad thrust of the measures will oblige firms to reveal many more details of the packages on offer to the chief executive, chief financial officer and the next three highest-paid managers at any public company, by putting a dollar value on their entire packages. When the new rules come into force (probably in 2007) that information must include details of golden handshakes and severance pay, total pensions benefits, and performance-related awards such as stock options and other grants of company shares. Other perks, such as private use of company jets or company-financed private offices will also have to be accounted for more rigorously. The threshold for noting such largesse will be dropped from $50,000 to $10,000.
America’s publicly traded companies are already required to divulge some information about what they give their five highest-paid members of staff. But the Byzantine nature of awards to top executives has obscured from shareholders the true level of remuneration. The new rules will require more precise information to be given in a simplified form.
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http://www.economist.com/agenda/displaystory.cfm?story_id=5406081&fsrc=nwl