WASHINGTON -- The Securities and Exchange Commission, as expected, adopted rules Thursday that will make it easier for shareholders to understand corporate executives' compensation.
The agency also stripped away some restrictions on communications among shareholders and made it easier for dissident shareholders to get elected to a company's board of directors.
The goal is to give shareholders a greater voice in corporate governance and management accountability.
|Protection Against Abuses'
SEC Chairman Richard Breeden said the rules will "inform and empower" shareholders - from the 50 million individuals who own small amounts of stock in America's companies, to pension funds and other large institutional investors.
"The best protection against abuses in executive compensation is a simple weapon - the cleansing power of sunlight and the power of an informed shareholder base," Mr. Breeden said. "The new compensation disclosure rules will do away with impenetrable legalistic narratives that often obscure the bottom line."
The agency had been working on the rules for more than two years. During a regulatory proposal process that included two revisions, some 2,000 comment letters flooded the SEC.
Complaints of Overkill
Publicly traded bank companies will be subject to the new rules. Bankers, in written comments to the SEC, complained that the disclose policy is overkill and will add to their costly regulatory burden.
But the American Bankers Association said forcing banks to better disclosure executives' compensation could head off regulations from the banking agencies that could mandate pay standards.
Such standards were required by Congress last year in the Federal Deposit Insurance Corp. Improvement Act. The banking industry is trying to get that part of the law repealed.
The SEC did simplify its original proposal on executive compensation disclosure. Instead of 12 tables outlining who made what, a company will have to produce four charts. Currently, just one is required.
The SEC stuck with a plan, also objected to by banks, that will require a company to defend executive salaries with detailed written explanations of the performance criteria used in setting pay.
Under the new rules, shareholders will be able to more freely express opinions about a company.
Currently, any group of 10 shareholders or more is forbidden by law to discuss a company without informing the SEC. The agency Thursday deregulated most communication among shareholders not involved in attempts to take over the company.
Investors with more than $5 million in a company who want to write or call other shareholders need only file a copy of the communication with the SEC.
Steps were also taken regarding elections of directors by proxy. Currently, when a shareholder votes for a dissident candidate, that shareholder is precluded from voting for any of the directors on management's slate.
Under the changes adopted Thursday, shareholders can vote for a dissident shareholder and give that person the right to cast votes for other members of the board.