Executive-Pay Summaries Conceal as They Reveal

The rule had a huge impact on the all-important bottom line: If firms gave stock options to executives, they had to subtract the total value of those grants from their earnings that year. Before, options were not counted as an expense.

Suddenly, under FAS 123R, it could appear as if a company's profit took a big hit, especially in industries such as health care and technology in which granting executives hundreds of millions of dollars' worth of stock options is common.

To avoid the appearance of a profit dip, more than 900 companies, including Dell, Sun Microsystems, CBS, J.P. Morgan Chase, Whole Foods Market, Viacom, Corning and Northrop Grumman, sped up the vesting date of their options to occur before FAS 123R took effect, according to a Bear Stearns report. This was neither illegal nor improper under accounting rules.

But the acceleration helped these firms collectively erase about $8 billion of future stock option expenses from their books, meaning they awarded the options but would not have to include the cost in their financial results, according to Bear Stearns.

"Option-vesting acceleration was used as a means to temporarily benefit reported earnings," the report said. The analysis says Dell accelerated the most options -- $591 million in total -- followed by Sun Microsystems, with $400 million.

Then, on the Friday before Christmas, the SEC gave corporations a present: It changed a rule to allow them to report the amount of stock options that vest per year rather than the total value of the options granted to an executive.

One compensation consultant, who has major technology firms as clients, said the difference in reported compensation levels before and after the SEC's December rule change has been striking.

In almost every case, the SEC change and the acceleration of options altered the total amount of compensation reported on the disclosure's summary table. For many firms, the final number was lower. For other companies, at least on paper, it created a different pecking order for the highest-paid executives. The consultant spoke on condition of anonymity because the filings have not yet been released to the public.

The new summary tables are "potentially misleading if you are looking for a single number to guide you. . . . You don't get a picture of what the compensation committee originally intended the compensation to be," he said. "The number that you get is precisely wrong."

Especially in the first year, the compensation expert added, shareholders should be cautious about taking these figures at face value.

SEC officials said shareholders should not rely solely on the summary tables and should read a company's entire filing. They added that if the December rule altered the composition of a company's "top five," the change made the filing more accurate.

"There are still problems . . . but this reporting season, we will know much more about both the amount and the structure of compensation than we've known for a long time," said Lucian Bebchuk, director of the Program on Corporate Governance at Harvard Law School.