December 28, 2006
The Friday before Christmas the SEC popped out a new rule, effective immediately (which is very, very unusual), even though the public comment period will run another 30 days. The rule provides a new calculation for the valuation of executive stock options in the SEC's new rule forcing the disclosure of the total compensation of the CEO, the CFO and the top three highest paid executives. When the disclosure rule was proposed, the SEC deviated from the calculation of value used in the new accounting rules on expensing options. The SEC thought it had good reason to do so but introduced complications that main street felt overvalued the options in the disclosure rule. The revision makes sense, better syncing up the disclosure rule to the accounting rule. At issue however is the SEC's current tendency to out- think itself, get too cute, and promulgate too much detail in its rules. This micro-management approach is risky and can often backfire, as it did here.
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