- The Washington Times - Wednesday, July 26, 2006


Companies will have to provide more details of executive pay and perks under the most substantial overhaul of benefit disclosure policy since 1992, adopted unanimously yesterday by federal regulators.

And amid a widening scandal over suspect timing of stock-options grants to company officials, the Securities and Exchange Commission (SEC) also is writing new rules on disclosure of the dating of options. The five SEC commissioners voted unanimously at a public meeting to adopt the plan, which is expected to take effect next year.

For the first time, public companies will be required to furnish tables in annual filings showing the total yearly compensation for their chief executive officers, chief financial officers and the next three highest-paid executives.

Most of the disclosures, in annual reports and other regulatory filings, will have to be written in plain English.

The plan is designed to enhance corporate accountability and address an issue that has angered company shareholders and the public. In expanding probes, at least 60 public companies have disclosed that their option practices are being investigated by the SEC or the Justice Department or both, and the SEC itself says it has at least 80 companies under scrutiny.

At issue in many of the investigations is a practice known as backdating, in which stock options are retroactively issued to coincide with low points in a company’s share price — a move that can fatten profits for recipients of the options when they sell their shares at higher market prices.

Backdating of options can be legal as long as the practice is properly disclosed to shareholders and approved by the company’s board, analysts say.

Improperly disclosed backdating “is a serious potential problem under the federal securities laws,” SEC Chairman Christopher Cox said Tuesday in testimony before the Senate Banking, Housing and Urban Affairs Committee. “I believe that illegal backdating goes to the heart of investor confidence.”

The SEC rules on disclosure of executive compensation include new requirements for companies regarding disclosure of options timing.

The plan requires companies to provide detailed information on how they determine when executives receive option grants and, if they do so, how and why they backdate options. The required tables showing option awards to executives will include the date that options were granted. If the exercise price is less than the stock’s market price on the date of the grant, a separate column will have to be added showing the market price on that date.

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