Exec Comp: The SEC's Side of the Story

(continued)

So it's not that the commission isn't requiring the reporting of the grant date fair value of option and equity awards at all — it's just moving them to another table. What's more, it's providing arguably more disclosure by requiring the fair value of each individual award rather than just aggregate disclosure.

Thus, the commission contends, investors will now see both the aggregate and the vested numbers — the best of all possible worlds, since it's debatable which figure is more useful. "Reasonable people can disagree which number is best, but both will be disclosed under the commission's new rules," SEC spokesman John Nester told CFO.com.

To be sure, Cox may have inadvertently invited some of this trouble by focusing public attention on a single compensation number — accounting is rarely that simple. And the amendment does substitute a more graceful figure (read: smaller) for an uglier number in the summary table — arguably the table that most proxy users will focus on. According to the SEC, however, the move was made largely to avoid volatility in the listings of a company's five most highly-compensated executives, which are contained in the summary table.

Reporting stock and option compensation over vesting periods in the summary table should "eliminate the potential for distortion in identifying named executive officers based on a measure that reflects the full grant date fair value of awards," the SEC contends in the 53-page amendment. One big fair-value grant in a given year, for instance, could land an unlikely executive on a top-five list even though his salary, bonus, and actual equity-based income have consistently trailed those of other executives.

If the SEC had such a positive message to convey, why did it pick such an obscure time to convey it? The Office of Management and Budget didn't supply the required approval of the amendment until the afternoon of Friday, December 22, and the SEC did not want to "bury" the announcement by waiting to issue the release in the week between Christmas and New Year's Day to make it, according to Nester. "This is a rule, there is no burying it," he said. "It would make no sense to try to hide a rule, because you want issuers to be able to comply with it and the public to be able to benefit from it."