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U.S. companies will need to provide significantly more detail about total compensation for executives and board members under new disclosure rules proposed by the Securities and Exchange Commission (SEC). The rules are expected to be in place by the 2007 proxy season. Failure of companies to disclose total compensation, frustration over legalistic language in Compensation Committee reports, and increased media scrutiny of executive pay are among the factors driving the most extensive rule changes since 1992.

The new proposed rules, which are designed to heighten accountability, will apply to any principal executive officer, principal financial officer, and the three other most highly compensated executive officers, based on total compensation. In addition, up to two other executive officers who departed during the year and whose total compensation is within that of the top-five officers will also need to be reported.

The proposed rules will require many companies to perform complex calculations to determine the amount of compensation to be disclosed. These calculations will need to be made for all executive officers in order to determine who will be named in the disclosure, and will likely result in different executives being subjected to the disclosure rules each year based on changes in compensation such as sign-on bonuses, retention awards, and severance awards.

Highlights of the Proposed Disclosure Rules

• More complete analysis and discussion of the Compensation Committee's processes in determining executive compensation
• Changes to the Summary Compensation Table that will require tabular and narrative disclosure to provide a clearer picture of total compensation
• Details on perks and other earnings such as incentive plans, equity awards, and deferred compensation
• Additional information about the estimated benefits payable at normal and early retirement

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