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Is executive compensation going to be flushed out of hiding? For years, companies have found ways to skirt rules requiring them to disclose publicly everything they bestow on their five best-paid officers. But in January, the Securities and Exchange Commission (SEC) announced a sweeping new proposal that will not only close many reporting loopholes, but for the first time will force businesses to add each executive’s total compensation in a single number. Many general counsel could be affected, since according to research by Corporate Counsel, a sister publication of The National Law Journal, chief legal officers were among the top five executives at 190 of the Fortune 500 companies in 2004. If the SEC votes to implement the new rules after the current 90-day comment period ends-which most observers expect-companies will have to insert a special section titled “compensation discussion and analysis” in all public filings. This section will include a three-year compensation history for the chief executive officer, the chief financial officer and the next three highest-paid executives. In addition to all cash compensation, companies will have to disclose the value of all equity awards and retirement packages, and will have to itemize all perks with a cumulative value of more than $10,000. Dodging disclosure The SEC’s proposal came about because many companies have found ways to get around its existing rules on compensation disclosure, which were issued in 1992. Many businesses focus on salary alone in their public filings-a relatively small part of overall compensation-and hide or leave out significant elements such as retirement benefits and stock awards. Sometimes companies try to bury a compensation detail in a footnote; other times they may calculate the value of a benefit in such a way that it doesn’t trigger the reporting threshold. This wiggle room will be lost under the new rules. The SEC’s proposal also largely settles the debate over the public disclosure of tally sheets, which shareholder activists have been demanding. Over the past two years, a growing number of businesses have begun to prepare tally sheets, single-page summaries that add up all of an executive’s compensation. According to a survey conducted last year by the compensation consulting firm Pearl Meyer & Partners, tally sheets had been implemented at 54% of 37 responding companies with annual revenue of more than $10 billion. But tally sheets generally have had extremely limited circulation, according to Joseph Rich, the CEO of New York-based Pearl Meyer. At most companies, not even the full board gets to see these summaries, which usually are only given to the compensation committee. Shareholder activists, however, argue that they should have access to the same information. Last fall, Institutional Shareholder Services (ISS), for example, issued guidelines for the 2006 proxy season in which it called on shareholders to push for public disclosure of tally sheets, at least for CEOs. The SEC’s new compensation reporting rules will essentially force companies to do what ISS was asking them to do voluntarily. According to Patrick McGurn, executive vice president and senior counsel of ISS, the SEC’s proposal is “pretty close to what groups like ours had on our wish list for disclosure. There aren’t many gaps between what [the SEC is] asking for and what we’re asking for.” One criticism that’s been lobbed at tally sheets is likely to come up in comments on the SEC’s new proposal, however. Tally sheets are often called “holy cow” sheets because seeing all of an executive’s compensation added up into a single-usually large-number can cause people to do a double take. But experts say that looking at the overall compensation figure for a single executive by itself doesn’t tell the whole story. Rather, an officer’s pay should be compared to what others make in similar positions and similar businesses.

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