New SEC Rules Make Pay More Transparent

Most "are incomprehensible I would imagine to most shareholders," said Paul Hodgson, an analyst at the Corporate Library.

Almost half of the large companies Wyatt studied early in the disclosure season chose not to reveal how high they set the bar for bonuses and other forms of incentive pay. The SEC allowed them to omit specific performance goals, such as earnings targets, if they regarded them as competitively sensitive.

In some areas, the SEC deliberately made the disclosures less revealing -- for example, when companies engage in potential conflicts of interest by doing business with their own officers, directors or members of insiders' families. The SEC raised the threshold for disclosure of so-called related party transactions to $120,000, from $60,000. The threshold had last been revised in 1984, and the change was meant to adjust for inflation, Cox said.

As a result of the change, a board member's son or daughter could be hired by the company at a salary of $115,000 "and not a single investor would know of that potential conflict and the fact that it may be undermining the director's independence," said Daniel Pedrotty, who scrutinizes executive pay for the AFL-CIO.

Meanwhile, some of the most eye-popping numbers have disappeared from the disclosures.

In past years, companies were required to report the value of executives' outstanding stock options -- showing, for example, that William W. McGuire, chairman and chief executive of UnitedHealth Group, ended 2005 with options he could have cashed in at a gain of $1.6 billion, plus $174.9 million worth of options that had not yet vested. McGuire later stepped down after a company investigation found irregularities in how the Minneapolis health insurer dispensed options.

This year, raw data such as the exercise price for each batch of options is disclosed, but investors have to crunch the numbers for themselves.

The year-end values were omitted to make room for other information, said Paula Dubberly of the SEC's division of corporation finance.

One controversial aspect of the new system involves a last-minute change the SEC adopted in December, without a public vote. In computing total annual compensation, the SEC decreed, companies should spread the value of a stock or option grant over its multiyear vesting period instead of counting the full value of the grant in the year in which it was made.

Critics suspected that the SEC's approach would enable companies to report lower pay totals, but the SEC says it hasn't worked out that way. Chief executives at 62 of the 100 largest companies reported equal or higher total compensation using the approach prescribed by the SEC, according to the agency.

The method the SEC adopted corresponds to how companies account for the cost of the grants in their income statements, and booking the entire value of a grant in a single year while it matures over multiple years would be like "squaring the circle," Cox said.

The SEC is preparing to introduce new features on its Web site that will allow the public to view total pay using either method.

An open question is how much the disclosures will influence behavior.

Once cherished as status symbols, perks like club memberships had already become symbols of excess and easy targets for angry shareholders. Though their cost can be small in relation to total compensation, they were beginning to wither at some companies even before the new disclosures came along, compensation consultants say.

Far costlier items -- such as newly bared severance packages that reimburse executives for millions of dollars in taxes -- are embedded in executive employment contracts and are unlikely to change until the contracts expire or the executives move on, consultants say.