Alan L. Beller, director of the division of corporate finance at the SEC, is scheduled to give a speech at a conference later this month on what the agency expects in terms of compensation disclosure and actions it plans to take when it does not consider disclosure sufficient.
Those who closely follow executive pay say a handful of changes being discussed inside the SEC could strongly discourage boards from awarding enormous compensation packages that might result in shareholder backlash and a drop in their firms' stock prices.
SEC Chairman William H. Donaldson said corporate boards need to know the full extent of an executive's compensation, including retirement packages.
(Jay Mallin -- Bloomberg News)
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Perhaps foremost among the possible changes would be to require more precise and easier-to-understand disclosure of executive pensions and supplemental executive retirement plans, or SERPs. Experts say companies can hide large SERP payments, in part because they are not required to disclose the yearly increase in value of such plans in compensation tables.
In addition, firms generally calculate pension plan payments based on an executive's years of service. But in many cases, executives are given credit for many more years than they actually were on the job, something it can be hard for shareholders to figure out without wading through fine print or reading executive biographies to determine how long an individual actually has worked at a company.
For example, Delta Air Lines Inc.'s Leo F. Mullin received credit for an additional 22 years of service toward his executive pension plan when he retired as chief executive this year. US Airways' Stephen M. Wolf took a $15 million lump-sum pension payment when he stepped down as chief executive before the firm filed for bankruptcy protection the first time in 2002. The payment rewarded Wolf for an extra two decades of service to the airline.
Complicated retirement plans that even some board members who approved them said they did not understand helped former New York Stock Exchange chairman Dick Grasso pocket $139.5 million in 2003. The payment led to widespread outrage and Grasso's ouster from the NYSE, which is not a publicly traded company. New York Attorney General Eliot L. Spitzer is suing Grasso in attempt to get much of the money back.
Another factor that makes handsome retirement packages easy to hide is that firms are not required to include pay to former executives in compensation tables, corporate governance experts said.
In the interview, Donaldson also complained that big retirement payouts generally are unrelated to performance measures, meaning retired executives usually are entitled to every penny even if their companies performed poorly or collapsed after they left due to decisions they made on the job.
"I've always felt there ought to be more attention paid to the immediate years after a CEO goes out to pasture," Donaldson said. "A big part of compensation should be tied to that period. You have this big game that everyone plays where a new person comes in and you write everything off and start over."
Another area in which stronger disclosure could be required is the real value of non-cash perks to current and former executives, such as the use of corporate jets, limousines and apartments.
