CEO Pay 4: The Corporatocracy Undermines Openness


Last December, the SEC changed the accounting rules around the reporting of top corporate executive pay packages to require, it said, “more openness”. SEC Chair Christopher Cox bragged that for the first time investors would get a clear picture of just how much $$$ was being paid out in salaries, bonuses, and other benefits. Critics, however, claimed there was a loophole that would allow one of the biggest chunks of an executive’s total pay to be hidden or glossed over: stock options. Cox pooh-poohed them and put the rule into effect.

Well, once again, the critics were right.

Due to an accounting loophole for stock options and an eleventh-hour rule change made by securities regulators just before Christmas, some of the biggest names in technology, health care and financial services will be able to cloud what their top executives make.

The anomaly is being discovered by compensation consultants who have been hired by firms to draft these filings. In some cases, it is lowering the compensation figures reported by firms, they said. In others, executives who should be named in the filings as the five highest-paid officers in their companies are being replaced with employees making less.

I like that word “discovered”, as if nobody noticed it before the accountants actually had to deal with it. “Anomaly” is another good word. It makes it sound like it’s an unintended consequence, something no one saw coming, and some kind of weird, strange, unexplainable phenomenon, like a tornado or UFOs.

Every time somebody like Cox – or Reagan or Bush or the RWNM – assumes that the corporatocracy won’t cheat, business execs take that as an opportunity…to cheat. They grabbed that loophole with both hands and shoved it as hard as they could.

The Securities and Exchange Commission’s first changes to pay disclosures since 1992 were meant to be user-friendly. Shareholders could look at a summary table and easily see what the top executives of a company were taking home in salary, perks, retirement bonuses and stock options.

Now, that summary table “won’t give you the full picture,” said Brian Foley, a compensation consultant based in White Plains, N.Y. “It misses a big part of the puzzle.”

Golly. Yah think?

That was, of course, the whole point right from the beginning. Cox and the SEC cleverly buried the loophole where non-accountants couldn’t find it and then wrote it in language that could be “interpreted” to mean the opposite of what it was supposed to mean. It wasn’t an “accident” or an “anomaly” – these people aren’t stupid. They did it deliberately and then rushed it through just before Christmas because a) at that time of year there’d be less scrutiny, and b) the Democrats were coming in and might have raised holy hell over it if the SEC waited until January to announce it. The Republicans then still in charge, of course were going to benefit from it and so said NOTHING and did NOTHING, which is what the corporatocracy can always count on the Republics to do.

Now that the loophole has been outed, the SEC is claiming that a) it can’t do anything about it and b) anyway, over the long run, it will be better,

SEC officials said they had no control over which companies used the stock options loophole. But they said the agency’s late December rule change will provide more accurate figures in the long run and will better reflect what an executive is making in a given year. Although the summary table may not provide full information on options, that data will be included elsewhere in the filing, they said.

The first part is disingenuous BS. You don’t whine about how you can’t do anything about a loophole you had the power to write and enforce, you close it. And you don’t defend a rule intended to make information more accessible by claiming everything’s alright because the info will still be there even if it’s inaccessible.

“The proxies will provide you three or four times as much information as before,” Foley said. “But . . . now you will have to pick through the mess to get the value of the options. It’s not going be in plain English.”

In other words, the rule is a complete and total failure because it allows executives to do precisely what they were doing before: hide their income.

The stock market is supposed to regulated but we can see what happens when the regulators are part of the club they’re supposed to be riding herd on: they play games so the club can go right on hiding its theivery with accounting tricks in the name of “transparency”, and even when they’re caught they insist it’s “all for the best.”

The SEC isn’t “regulating” the corporatocracy, it’s protecting them, giving threm cover. Whatever credibility Cox had just went up in smoke, and the SEC itself has taken a serious hit that will force us to call every decision it makes into question:

Qui bonum? Who benefits?

Addendum: Meanwhile, the beat goes on.

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