Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SATURDAY, February 1, 1992 TAG: 9202010139
SECTION: BUSINESS PAGE: A-8 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
BIG PAY, GROWING FLAP
U.S. law lets corporations keep their investors in the dark about the size and impact of lucrative pay packages for top executives, a Senate panel was told Friday."Shareholders haven't a clue as to what's going on," said Graef Crystal, a University of California-Berkeley professor who conducts numerous studies showing U.S. executives are overpaid.
Crystal and other witnesses before a subpanel of the Senate Governmental Management Committee criticized stock option plans that give executives the right to buy their company's stock in the future at a predetermined price.
Sen. Carl Levin, D-Mich., the subcommittee chairman, called stock options "stealth compensation" because accounting rules allow companies to keep the true value of the option plans off the bottom line.
"This practice is misleading to potential investors, dilutes the value of the stock held by current stockholders, shortchanges the company by forgoing capital and jeopardizes employee morale," said Levin.
He has introduced a bill to give shareholders more direct say on how corporate officers and board members are paid and require better disclosure of who is being paid what.
Executives and some academic experts defend the compensation packages as pay-for-performance agreements fairly negotiated in a free market.
Critics argue that the existing rules keep the true value of executive stock option plans off the balance sheet, while simultaneously allowing the company to report them as a tax-deductible expense.
If, for example, there is a 50-cent increase in the price of each share of the company's stock, a stock option grant of 4 million shares can mean a $2 million gain for the executive, Levin said.
In most cases, shareholders now have only an indirect voice through the company's board of directors in determining executive pay. While the board members are elected by shareholders, they often are nominated by the company management.
Levin's bill also would require the Securities and Exchange Commission to make publicly traded companies deduct from their earnings the value of stock options given to executives as compensation.