WASHINGTON - Companies will have to disclose their executives' pay and perks in greater detail under an overhaul of reporting rules approved Wednesday.
Included are new rules on disclosure of the dating of stock option grants to executives, as a scandal spreads through corporate America over suspect timing of option awards.
The Securities and Exchange Commission members voted 5-0 to adopt the plan. It will take effect Dec. 15 so companies' 2006 annual reports issued early next year will reflect the changes.
For the first time, public companies will be required to furnish tables in annual filings showing the total yearly compensation for their chief executive officers, chief financial officers and the next three highest-paid executives.
Most of the disclosures, in annual reports and other regulatory filings, will have to be written in plain English.
The plan is designed to enhance corporate accountability and address an issue that has angered company shareholders and the public.
In the SEC's 72-year history, no other issue has stirred as much interest, with more than 20,000 letters filed during the public comment period that followed the proposal being floated in January, according to SEC officials.
"Shareholders need intelligible disclosure that can be understood by a lay reader without benefit of specialized expertise or the need for an advanced degree," SEC Chairman Christopher Cox said before the vote. "It's our job to see that they get it."
In the controversy over the timing of options awards to executives, at least 60 public companies have disclosed that their options practices are being investigated by the SEC or the Justice Department or both. The SEC itself says it has at least 80 companies under scrutiny.
On Wednesday, Milpitas, Calif.-based technology company Sigma Designs Inc. became the latest company to report that the SEC had begun an inquiry into its options granting practices. Three other companies - SafeNet Inc., QuickLogic Corp. and Amkor Technology Inc. - disclosed that they have started internal investigations of their options awards.
At issue in many of the investigations is a practice known as backdating, in which stock options are issued retroactively to coincide with low points in a company's share price - a move that can fatten profits for options recipients when they sell their shares at higher market prices.
Backdating options can be legal so long as the practice is properly disclosed to shareholders and approved by the company's board, experts say.
The SEC rules on disclosure of executive compensation include new requirements for companies regarding disclosure of options timing.
Removed from the original proposal, though, was a requirement for companies to disclose the pay details of as many as three non-executive employees whose individual compensation exceeds that of any of its top five executives. Dubbed the "Katie Couric clause" by critics, it brought a flurry of opposition during the comment period from Hollywood and big media companies.
As an alternative, the SEC decided Wednesday to propose a narrower requirement for disclosure of the pay of non-executive employees who help set corporate policy and strategy at big companies - excluding most professional athletes, and TV and film personalities.
The SEC plan as adopted requires companies to provide detailed information on how they determine when executives receive option grants and, if they do so, how and why they backdate options.
The government's first criminal complaint in a stock options probe came last Thursday, when the U.S. Attorney's office in San Francisco charged the former chief executive of Brocade Communications Systems Inc. with fraud.
Gregory L. Reyes and another former executive of the maker of data storage devices, Stephanie Jensen, also face civil charges lodged by the SEC. Their attorneys have said they are innocent.
A central allegation in the government's case involves backdating of options awards.
Safenet, a provider of computer network security products based in Belcamp, Md., had previously reported that its options grants were under investigation by the SEC and federal prosecutors in Manhattan. The company said Wednesday that it will restate earnings for the fourth quarter of 2002 to reflect expenses for options and that because of its internal review, its financial report for the second quarter of this year will be filed late.
QuickLogic, a technology company based in Sunnyvale, Calif., said its second-quarter report likely will be delayed.
Amkor, based in Chandler, Ariz., sells semiconductor packaging and test services.
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