Upfront: Pay Programs In Limbo

The comment period for the SEC's proposal to amend the disclosure requirements for executive and director compensation, related party transactions, director independence and other corporate governance matters, and security ownership of officers and directors has ended. Now companies are waiting to see what the final rules will look like. "We believe many companies are taking a wait-and-see approach to the proposed rules," says Ira Kay, global director of compensation consulting at Watson Wyatt Worldwide. "While some companies recognize their disclosures are inadequate, most want to see what the final rules entail and how other companies respond."

The new rules are the most sweeping rewrite of executive compensation disclosure requirements since 1992. If adopted, they will take effect with 2007 proxy filings, and businesses will have their compliance work cut out for them, according to Watson Wyatt Worldwide's February survey of compensation and human resource executives at large, publicly traded companies. Eighty-two percent of respondents think that under the existing SEC rules, their current compensation committee disclosures do not fully provide the information that the proposed SEC rules call for.

The SEC proposal will require use of a company's accounting cost for stock-based compensation as the basis for disclosing the value of grants made during the prior fiscal year. Seventy-one percent of participants believe that the value their employees realized from exercising stock options is less than their accounting costs, while 14 percent believe that it is more than their accounting costs. The remaining 15 percent think that it's about the same or don't know.