How Overpaid CEOs Escape the Spotlight
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Deciding to Break the Rules
Companies in the U.S. are required to report their executives’ compensation and other information in their annual proxy statements. In 2006, the Securities and Exchange Commission overhauled its executive compensation disclosure rules to require much more detailed disclosures in an effort to help investors better understand and monitor compensation practices.
The SEC’s goal in the 2006 rule change, Yu says, was to make shareholders more aware of how their investments are being managed. If they feel the CEO is overpaid, they can put pressure on the firm to reduce the compensation; at least, that’s how it’s supposed to work.
However, shortly after the new rules took effect, an SEC focused study revealed that many firms were not providing all of the required information about their CEOs’ compensation packages. SEC experts examined the filings of about 350 large companies and found that few of them fully complied with all the new rules. Yu and his co-authors randomly selected 50 firms not included in the SEC study and observed very similar results.
Yu says that while the new regulations are complex and firms claim the reporting defects were honest mistakes, his research suggests it is more likely that the companies made strategic choices in deciding to not to reveal certain information about CEO compensation.
“Both our findings and the SEC's reviews suggest that it’s not because the companies don’t understand the rules,” Yu says. ”They understand the rules pretty well, but they refuse to comply.”
- See more at: http://www.texasenterprise.utexas.edu/2011/07/22/finance/how-overpaid-ceos-escape-spotlight