Compensation: How Sweet It Was

The opulent salaries and perks enjoyed by many U.S. corporate executives have touched a raw nerve in a time of massive layoffs and dismal profits. Irate unions and shareholders have demanded that business chiefs be held more accountable for the fat compensation packages they get. Congress has threatened to pass legislation to curb excess corporate pay if regulators fail to take on the task. Sensing the growing outrage, Securities and Exchange Commission chairman Richard Breeden unveiled a set of reforms last week that will make corporate boards think twice before handing out multimillion-dollar paychecks to top executives.

Under the SEC's plan, shareholders will be allowed to have a say in corporate pay. Anyone who owns $1,000 or 1% of a company's stock can insert a proposal in a firm's proxy statement that calls for a vote on an executive's compensation package. Corporate boards were formerly permitted to block such a referendum. Though the results of the vote will not be binding on management, shareholder sentiment could pressure executives to settle for something more modest.

The agency also zeroed in on stock-option grants, easily the most lucrative part of corporate pay packages. These noncash payments, which reward executives handsomely if stock prices rise, often disguise what top managers actually earn. In the past, firms were not required to report a dollar value on such awards, and there was no uniform measure by which shareholders could calculate their worth. Breeden has proposed that companies disclose more fully and succinctly the present value of these payouts.

Corporate leaders unnerved by the latest SEC action won't find much sympathy from the White House. President Bush has been struggling to shed his image as a friend of the wealthy this election year, and Breeden's reforms were cleared in advance by the Administration. Even Congress's staunchest critic of executive pay, Michigan Senator Carl Levin, was impressed: "I'm elated. The SEC did the right thing for stockholders and the American public."