Rule won’t hide value of options

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 Securities and Exchange Commission said Monday.

SEC Chairman Christopher Cox, speaking at the annual Reuters Regulation Summit in Washington, said the effect of the changes, made in late December, had 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 ... 100% 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.

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 at the gathering.

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 unexpectedly announced 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.