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Pulling backing the curtain on executive pay

John Dimsdale Jul 26, 2006

KAI RYSSDAL: How many times have you heard about some executive’s rich pay package and asked, What was the board of directors thinking? or, Why do shareholders put up that?

Sometimes it’s as simple as they didn’t know. The Securities and Exchange Commission is trying to take care of that. Regulators endorsed new rules today. They’ll force companies to pull back the curtain on executive compensation. Marketplace’s John Dimsdale has the story from Washington.

DIMSDALE: Beginning this December, corporate filings with the Securities and Exchange Commission will have to include full disclosure of pay packages for every public company’s top five executives. That includes all stock option grants, termination compensation and other perks.

Paul Hodgson is a compensation watchdog for the governance research firm called the Corporate Library.

PAUL HODGSON: In the balance, I think this is a very significant improvement on previous disclosure regulations.

Too often in the past, Hodgson says, shareholders and even board members were kept in the dark about pay provisions.

Until now, the SEC required companies to report any perks worth $50,000 or more. That’s now down to $10,000. But Hodgson would get rid of any threshold.

HODGSON: It just removes the temptation for companies to pay out little nuggets of perquisites valued at $9,999 so they don’t have to disclose them.

Some corporate governance experts wanted the SEC to insist on shareholder approval of top executive salaries. But John Castellani, president of the Business Roundtable, which endorses the new SEC rules, says stock owner vetos over pay packages goes too far.

JOHN CASTELLANI: What we have to be careful of is that we have the kind of structure that promotes good corporate governance but still allows companies to act quickly, to take risks, to make investments.

Both Castellani and Hodgson praise new SEC chairman Christopher Cox for pushing for fuller corporate disclosure.

In Washington, I’m John Dimsdale for Marketplace.

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