SEC Chief to Push for Fuller Disclosure of Executive Stock Options

Securities and Exchange Commission Chairman Christopher Cox said he plans to force corporate boards to disclose more information about executive stock options after some companies backdated grants to increase their value.

Companies will have to "release all information related to their decisions, and we mean all," Cox said in a speech Thursday night to the New York Financial Writers Association. That would include details on when options were priced.

The SEC and the Justice Department are investigating allegations that companies manipulated option grant dates. At least 30 companies have disclosed such inquiries, and a half-dozen more are conducting internal probes. The SEC's proposal on disclosure rules drew more than 20,000 comments, Cox said.

Stock options allow holders to buy shares at set prices on future dates. They're usually granted to executives as part of annual compensation and are set at the current market price, giving managers an incentive to make the stock advance over time.

While companies are allowed to award executive options at below-market prices, they must charge the difference in value against earnings and may lose the right to tax deductions on compensation exceeding $1 million. Backdating gives executives a similar benefit without the costs.

Cox said the SEC would require companies to include in their financial statements an explanation of the rationale behind executive pay decisions. The proposal would also require full disclosure of stock-options awards and the dates they were priced. Cox said the new rules should be in place by next year's proxy season.

"It appears that Chairman Cox and the commission are taking seriously the urgent need to toughen their executive-compensation proposal in light of these appalling disclosures," said Damon Silvers, an attorney at the AFL-CIO, which has urged the SEC to require more disclosure.

In addition to the federal probes, more than 50 lawsuits have been filed in connection with possible backdating of stock options. At least 15 executives have been fired.

Most of the companies under scrutiny are in the technology or health-care industry, including UnitedHealth Group, based in Minneapolis; New York-based Comverse Technology Inc., the world's largest maker of voice-mail software; and Vitesse Semiconductor Corp., a Camarillo, Calif.-based chipmaker.

Mercury Interactive Corp., a Mountain View, Calif.-based software company, said yesterday that it voided some of the options granted to former chairman and chief executive Amnon Landan. A special litigation committee of the board recommended that the company pursue claims against Landan, the company said in a filing with the SEC.

Landan resigned from the software company in November after an internal investigation found he had manipulated the value of stock options for six years. A message left for Landan at Savi Technology Inc., where he is a board member, was not immediately returned. Mercury spokeswoman Michelle Ahlmann also did not return a call seeking comment.

Current disclosure regulations, unchanged since 1992, permit companies to list some elements of compensation in dollar figures, and others such as stock options in units, without having to tally them up. As a result, details of executive compensation are often scattered throughout the proxy statements that shareholders receive before annual meetings.

Vineeta Anand in Washington and Allan Dodds Frank in New York contributed to this report.