Will 2006 be remembered as the year that widespread executive compensation reforms took hold? Final rules have yet to be set, but the current proposals represent the biggest overhaul by the Securities and Exchange Commission (SEC) in 14 years. Companies, of course, aren’t being told how they should compensate senior executives, but the approach of letting more sunlight into the process of determining pay packages, and getting rid of much of the overly lawyered boilerplate, may be the regulators’ best weapons. As SEC chairman Christopher Cox put it when he announced the proposed measures, “Our purpose ?? 1/2 is to help investors keep an eye on how much of their money is being paid to the top executives who work for them.”
More certain is the fact that the final rules will add to the responsibilities of CFOs and put more emphasis on their own pay. Under the proposals, all public companies would be required to furnish a total compensation figure–as well as details including stock- and options-based rewards, perquisites, pensions and post-employment plans–for their CEO, CFO, the three other highest-paid executive officers and all directors. In addition, a new Compensation Discussion and Analysis (CD&A) section would replace the current Compensation Committee Report and Performance Graph. The CD&A would have to be filed with regulators, thereby requiring a sign-off certification by the CEO and CFO.
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