New SEC Rules Make Pay More Transparent

This year's executive pay reports are the first since the government mandated clearer disclosure, and even some people responsible for setting compensation have been surprised at what they show.

The new disclosures were intended to give investors more and better information about executive rewards, partly by illuminating retirement benefits and other types of pay that became known as "stealth compensation" because their value wasn't spelled out.

"The owners of an enterprise are entitled to full knowledge of how much they're paying their employees," said Securities and Exchange Commission Chairman Christopher Cox, whose agency drafted the new requirements. "It's not really disclosure if the investor has to sort it all out and piece it together."

Among investors, the reviews are largely favorable.

"Overall, investors are getting a much clearer picture than they had a year ago," said Amy Borrus, deputy director of the Council of Institutional Investors.

In corporate boardrooms, there have been some "aha moments" as directors read the expanded disclosures and saw just how much their executives stood to collect, said Ira Kay of the Washington consulting firm Watson Wyatt, who advises boards on compensation.

"It was 'Wow, that's a lot of money,' " he said.

Kay was referring specifically to the size of the golden parachutes executives had the potential to receive. But the reaction showed how much clearer some aspects of compensation have become under the new system -- and how opaque they had been.

Where companies previously described the often complex formulas and contractual terms that determine how much executives could receive in severance benefits, the new disclosures show the potential size of the parachute -- for example, as much as $126.9 million for H. Lawrence Culp Jr., chief executive of Danaher, a District-based manufacturer.

Where companies previously disclosed big-ticket perks, like six-figure sums for taking the corporate jet on vacations, the threshold for disclosure of perks was lowered. This year, NeuStar, a Sterling communications firm, even noted that, along with golf and travel benefits, chairman and chief executive Jeffrey E. Ganek received "periodicals and other reading material."

Still, measured against the stated goal of making pay more transparent, the SEC's new rules haven't been a complete success. Cox has publicly complained that some companies' disclosures have been "really horrid."

The sections where the SEC asked companies to provide plain-English descriptions of their compensation policies are often filled with gobbledygook, some readers say.