SEC's Cox Wants 'Plain English' in Pay Disclosures

Christopher Cox said some investors are confused by complicated data on executive compensation. (By J. Carrier -- Bloomberg News)

Christopher Cox, chairman of the Securities and Exchange Commission, said some companies have been providing investors with confusing data about executive compensation, making it difficult for them to decipher how these companies are paying their top officials.

"The message we are sending is that we don't want overlawyering in the proxy statements," Cox said after a speech in Washington yesterday. "We want plain English."

Rising executive pay has become a top concern for shareholder advocates, and Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, held a hearing yesterday to consider legislation that would give shareholders more power to influence how much companies pay top executives.

Frank's legislation was challenged by John J. Castellani, president of the Business Roundtable, who argued that management is liable if something goes wrong at a company, not shareholders. "Corporations were never designed to be democracies," he said. "While shareholders own a corporation, they don't run it."

In July, the SEC approved the most extensive revision of executive-pay rules in more than a decade, requiring companies to report the total compensation for their five highest-paid executives.

Cox said companies were providing convoluted analysis of management pay, and added that regulators have seen examples of companies providing too much information.

"This kind of slavish adherence to boilerplate disclosure is what we are trying to stamp out," Cox said. "While we're giving people some grace in getting used to the new rules, the plain English part of our executive compensation will be increasingly, strictly, enforced in the years ahead."

The SEC rules are designed to help shareholders compare pay practices at different publicly traded companies. Companies may find it prudent to rein in questionable pay practices if they are forced to reveal them in explicit detail, Cox has said.

The average pay for chief executives of companies listed in the Standard & Poor's 500-stock index rose 16 percent, to $13.5 million, in 2005, the Corporate Library said in a report in September. Chief executives on average were paid 411 times more than U.S. workers in 2005, nearly 10 times the difference in 1980, according to the Institute for Policy Studies, a research group based in Washington.

Companies face increasing pressure from investors to allow advisory votes on pay packages. The SEC said in a letter Feb. 16 that AT&T, the nation's largest phone company, must allow investors to decide whether they want a nonbinding vote on executive compensation. Its smaller rival, Verizon Communications, received a similar letter on Feb. 19.