The US gets tough on executive pay

America's corporate bosses are under siege. New Securities and Exchange Commission (SEC) rules will force them to reveal their pay packets -- something they really, really didn't want to do.

by The Economist
Last Updated: 23 Jul 2013

And it never rains but it pours. The rules come into force just as the Democrats take control of Congress and the presidential election campaign begins, which will put "excessive" CEO salaries under even more scrutiny.

The large majority of America's biggest firms have yet to report under the new rules, but those that have done are already generating negative publicity, with some CEO packages turning out to be millions more than expected. The biggest cheese to emerge so far is Ken Lewis, CEO of Bank of America, who is paid $114.4 million.

But it won't just be basic salaries that are forced into the light. A range of other perks of the sort usually collected under the term "other annual compensation" will also be revealed (in 2006 the average value of such compensation was $192,000). Among the previously undisclosed perks to be included will be use of the corporate jet and golden parachutes for departing bosses.

There are signs that things are already changing, as compensation committees, which now have to consist entirely of independent directors, get to grips with the new climate. Base salaries have stabilised, while options have been partially replaced by performance-related pay.

However, if bosses think the worst is nearly over they could be in for a surprise. According to David Yermack, an economist at New York University, Congress may soon toughen up the tax treatment of executive pay, possibly by removing tax benefits for performance-related compensation. "Anything is possible in this climate," he says. "So bosses may need to get used to the idea that more of their compensation will be subject to taxation."

Source: The Economist
Review: Nick Loney

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