Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, February 14, 1992 TAG: 9202140106
SECTION: BUSINESS PAGE: A-7 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
A COLLAR FOR FAT CATS
Reacting to the politically charged issue of runaway pay for corporate executives, the Securities and Exchange Commission's chairman on Thursday revealed plans to give stockholders more say.After weeks of hinting, Securities and Exchange Commission Chairman Richard Breeden revealed a plan that calls for changes in proxy voting rules that would require clear explanation of compensation packages. The changes will be proposed by the SEC for public comment later this year.
Specifically:
Companies would be required to include tables summarizing both the cash paid and the present value of stock or stock options in the year they are granted.
The proposed summary table also would require a comparison of changes in corporate performance over recent years and changes in executives' compensation. This is designed to help shareholders evaluate the differences between pay and performance.
Companies' boards of directors would be required to spell out the criteria they use in awarding incentives compensation packages to executives.
In a shift from past SEC policy, Breeden said the SEC is mailing out letters to 10 major corporations, including IBM and Chrysler Corp., telling them they have to include pending shareholder proposals in proxy materials for their upcoming annual meetings.
Previously the SEC has said executive pay constituted "ordinary business" and thus was not subject to a shareholder vote. In the future, shareholders will be allowed to submit advisory proposals. They won't have veto power over pay packages, but they will be able to express publicly how they feel about them.
Outrage has been building for years over the compensation corporate fat cats receive. The lengthy economic downturn that forced massive layoffs in some industries has transformed it into an election-year issue.
The anger intensified after business executives earning millions a year accompanied President Bush on his trip to Japan and complained Japanese trade barriers were hurting their companies.
Stock options give executives a right to buy their company's stock on a given date - often years later - at a predetermined price. If the stock does not go up, the options aren't exercised.
But if the price rises, executives with options to buy millions of shares at a lower price can make hefty profits by buying and quickly reselling shares.
Such a plan, for example, allowed UAL Corp. Chairman Stephen Wolf to receive a total of $18.3 million - most of it in stock options - in 1990, a year when profits for the parent company of United Airlines fell 71 percent.
Breeden also could push to make it easier for corporate shareholders to have a say - through proxy votes - in how lucrative pay packages are awarded.
The SEC has been working for months on reforming the process by which companies distribute proxy statements for their annual meetings.
Proxy statements amount to shareholders' absentee ballots and contain information about top executives, the board of directors and how much they are paid. They also contain any proposals to be voted on by shareholders.
Publicly traded companies must submit proxy statements to shareholders and the SEC at least 30 days before their annual meeting.
Supporters defend U.S. executives' compensation packages as pay-for-performance agreements fairly negotiated in a free market.
But critics such as Sen. Carl Levin, D-Mich., say accounting rules allow companies to keep the true value of the option plans off the bottom line and away from shareholder scrutiny.
Levin has introduced a bill that would give shareholders more input in policy changes on executive compensation and require better disclosure of executive pay.
Shareholder-rights advocates have complained that current SEC rules make it difficult and expensive for dissident shareholders to buck management and submit their own proposals.