Tuesday, January 17, 2006

Transparency on Executive Pay

The SEC voted for greater transparency in executive pay packages. (see here)  The new rules that have been published for comment:

"would amend disclosure requirements for executive and director compensation, related party transactions, director independence and other corporate governance matters, and security ownership of officers and directors. The proposed rules would affect disclosure in proxy statements, annual reports and registration statements. The proposals would require most of this disclosure to be provided in plain English. The proposals also would modify the current reporting requirements of Form 8-K regarding compensation arrangements."

Although pay packages received by executives may not be influenced by this new reporting requirement, it is likely that this transparency could assist in curtailing criminal activity.  For one, it provides a reporting method so that everyone knows the amounts involved and takes away any avenues that might have existed for under the table sources of income from a company.  Further, it also serves a benefit for executives now subject to this rule.  It is difficult to claim that moneys received were improper when there is full compliance with the reporting rules. (See also The New York Times here)

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