In the name of deregulation, the Securities and Exchange Commission last Thursday gave corporate executives a license to steal.
You can pad your paycheck with perquisites and you don't have to tell the stockholders, unless the freebies add up to more than 10 percent of your pay, the SEC decided.
Country club dues, a corporate hideaway, a company car or any little fringe benefit you can finagle can be yours and the folks who invested in the company will never know, the commission told Wall Street. Disclosure rules in effect since 1978 were canceled, effective immediately.
We're not doing this to save executives the embarrassment of having their off-the-books benefits disclosed to the stockholders, the five SEC members chorused unanimously. We're doing this to save money for the company and to save time for investors.
Think of how much money businesses have wasted telling stockholders about the extracurricular benefits paid to executives. All the wear and tear on adding machines to total up the club dues, the chauffeur's salary, the monthly Mercedes payments. To say nothing of the outrageous cost of shrinking those numbers into flea-size type and hiding them amongst the footnotes in reports to stockholders. Think of how much time stockholders wasted reading those footnotes.
By the logic of the SEC, the untold hundreds of dollars saved by not disclosing details of executive compensation will no doubt be invested in capital equipment, new factories and new research that eventually will trickle down into jobs for unemployed. (If you believe that, I've got a supply-side tax cut to sell you.)
The sad reality is that any piddling savings from weakening the reporting requirements will be more than offset by the new perquisites that are likely to be paid as the result of the new policy.
Anyone who understands the workings of regulations knows what happens when the government establishes a threshold for the enforcement of any rule--all the action tends to take place right outside the door.
By requiring companies to report executive fringe benefits that amount to more than 10 percent of cash compensation (or $25,000 a year, which ever is less), the SEC has created a free fire zone. Anything up to 10 percent is unreported, unregulated and usually untaxed.
Back in the days when perks had to be reported to the stockholders, many executives hesitated to ask for them. Board members and top management understand that a lot of stockholders resent imperial executives.
It doesn't look good to give an interest-free mortgage to a $100,000-a-year vice president, to subsidize country club dues for people who can afford to pay their own greens fees or to lease a Lincoln for the boss.
As even the five SEC members must understand, any disincentive for digression was destroyed by the 10 percent threshhold. The threshold becomes a ceiling for unreported income. The first 10 percent is free. You can drive a mighty long gravy train through that loophole.
Executives of the old Auto-Train Corp. got away with giving themselves a private railroad car as a perk back in the days before the Carter administration demanded disclosure of freebies.
Perks weren't what derailed Auto-Train, but they certainly were a symptom of its problems. Investors began to lose faith in the management of the railroad when someone leaked information about the private car, the Mercedes and the Jaguar provided the president and the condominium in Florida shared by the top brass. The people who wound up holding worthless Auto-Train stock might not have invested in the company if they'd known how high on the hog the executives were eating.
The Auto-Train affair ought to show the SEC members they are wrong if they think that allowing executives to hide their fringe benefits is going to help avoid scandals. If anything, it will create more petty backbiting about the propriety of particular perquisites. Dirty little leaks will replace routine disclosure. The corporate gadflies will feast on the droppings.
Disclosure of compensation keeps executives honest. It discourages dubious expenditures, holds down costs and increases profits. It provides investors with valuable information about a company's management. What better arguments could there be for continuing to require disclosure?
Surely the cost of reporting compensation cannot outweigh these benefits.
Disregarding the deterrent effect of disclosure, the SEC action ignores the principle that stockholders should be given as much information as possible so they can make intelligent investment decisions. Just as democracy depends on an informed electorate, Wall Street depends on informed investors.
The SEC decision to let companies hide perks from their shareholders is a telling commentary on the Reagan administration's regard for the public's right to know.