SEC's Cox: no options hiding in exec pay rule

By Kevin Drawbaugh

WASHINGTON (Reuters) - Companies will not be able to hide the value of executive option grants under 11th-hour changes to a new pay disclosure rule, the head of the U.S. Securities and Exchange Commission told Reuters on Monday.

SEC Chairman Christopher Cox, speaking at the annual Reuters Regulation Summit in Washington, said the effect of the changes, made in late December, has been misconstrued.

"The most significant misunderstanding was ... companies or executives would be able to cover up or conceal a portion of the options that had been granted to them because now they'd be able to spread it out over a period of years," Cox said.

"But as you can see from this table, 100 percent of the options that are granted in a 12-month period have to be disclosed," Cox said, displaying a mock-up of new disclosures that companies must soon begin issuing on executive pay.

Moving to make the information given to investors about executive pay clearer and more complete, the SEC in July adopted a new rule. The centerpiece of it was a single pay number meant to replace a jumble of charts and tables that appear now in proxy statements sent annually to investors.

"I fought very hard for this new feature of our disclosure," Cox said in an interview at the summit.

The single number will combine salary, bonus, perks and other compensation awarded in a given year, with details for each component provided in a summary compensation table.

As adopted in July, that table was to include an estimated value for stock options granted during the year. But the SEC announced unexpectedly days before Christmas that the summary table would instead include the value of option grants that vested, or became eligible to be exercised, during the year.

Some investor advocates replied that this approach -- by focusing on incremental vesting amounts -- could obscure the real gains of executives by shrinking the option values in the summary table and in the bottom-line single number.

"The focus has been on the summary compensation table. Now that table will show information that, I think, is not as helpful as what would have been shown under the original rule," said Jeff Mahoney, general counsel for the Council of Institutional Investors, a group of major pension funds.

"We were very strong supporters of the original approach, as were most investors," Mahoney said.

The U.S. Chamber of Commerce was pleased with the SEC's decision to adopt the vesting approach, which the business lobbying group had long supported, said David Hirschmann, senior vice president at the chamber.

Information that has been dropped from the summary table will appear in another table nearby. "It's the table right next to it," Cox said at the summit.

Mahoney replied that it will take awhile for investors to adjust to the change.

"Over time, it won't be a big problem as people get used to the disclosure ... But initially people may be confused or misled about the information because they'll be focused on the summary table," he said.