U.S. SEC's Aguilar urges voluntary disclosures on compensation

WASHINGTON Wed Feb 20, 2013 4:41pm EST

WASHINGTON Feb 20 (Reuters) - A top official at the U.S. Securities and Exchange Commission is urging companies to consider voluntarily giving shareholders more details on compensation, rather than wait for the agency to issue long-awaited rules mandating additional disclosures.

In a statement issued on Wednesday, SEC Democratic Commissioner Luis Aguilar said shareholders deserve to know how the pay of lower-level employees compares with a chief executive's, and how an executive's pay compares with the company's long-term performance.

He urged companies to start voluntarily making these disclosures, noting it is simply good governance. His comments come ahead of the proxy season, in which public companies will hold their annual shareholder meetings.

"The relative pay of different classes of employees, such as the ratio between CEO compensation and median pay, can... create risks to an enterprise, including the risk of employee, customer, and shareholder discontent," Aguilar said.

"Companies should consider whether additional disclosure is necessary to enable stockholders to assess such risks and the manner in which any such risks may be affected by a company's compensation policies and practices."

The Dodd-Frank Wall Street reform law of 2010 required the SEC to tighten corporate governance and disclosure rules.

Among some of the key provisions is a requirement that companies disclose the ratio between a CEO's compensation and the typical company worker.

It also requires the SEC to enact rules requiring companies to disclose the relationship between executive compensation and the financial performance of the company.

The SEC, however, has not yet proposed those provisions amid strong opposition from companies, which say producing the pay ratio will be too costly and burdensome.

"Obtaining the data will be difficult and time-consuming as the definition of compensation among countries will vary widely, and companies will face difficulties attempting to rationalize compensation with currency fluctuations," business groups, including the U.S. Chamber of Commerce and the Securities Industry and Financial Markets Association, wrote in a letter last year.

Some U.S House and Senate Democrats, meanwhile, have written letters urging the SEC to act, saying the delays are unwarranted and that companies are exaggerating the difficulties they will face in calculating the pay ratio.

"A company's treatment of their average workers is not just a reflection of their corporate value system, but is material information for investors," a group of U.S. House lawmakers wrote to the SEC last year.

It is unclear when the SEC will act to propose the compensation rules.

The SEC is currently divided between two Democrats and two Republicans after SEC Chairman Mary Schapiro departed the agency in December.

Former federal prosecutor Mary Jo White, who has been nominated to chair the SEC, has yet to be confirmed by the U.S. Senate. Little is known about her policy views, including those on compensation disclosures.

SEC spokesman John Nester said Wednesday that while there is no statutory deadline to complete the rules, the staff is "working hard to get a recommendation to the commission for consideration."

"The pre-rulemaking comments and meetings with interested parties have been helpful as we consider a workable implementation of the congressional mandate," he said.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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