SEC backs tougher exec pay disclosure

WASHINGTON (AP) — Federal regulators voted Wednesday to require companies to reveal more information about how they pay their executives amid a public outcry over compensation.

The Securities and Exchange Commission voted 4-to-1 to expand the disclosure requirements for public companies.

Company policies that encouraged excessive risk-taking and rewarded executives for delivering short-term profits were blamed for fueling the financial crisis.

The SEC also changed a formula that critics say allowed companies to understate how much their senior executives are paid. At issue is how public companies report stock options and stock awards in regulatory filings. Such awards often make up most of top executives’ pay.

The new requirements include information on how a company’s pay policies might encourage too much risk-taking.

Separately, the agency voted unanimously to require thousands of investment advisers who have custody of clients’ money to submit to annual surprise exams by outside auditors.

The surprise audits would allow independent accountants to review the books and verify that the money is there. The snap audits would apply to about 1,600 investment advisers that don’t use third-party custodians, out of roughly 11,000 advisers registered with the SEC.

This move is aimed at plugging gaps that allowed disgraced money manager Bernard Madoff to deceive investors.

The expanded executive-pay disclosure rules will take effect next spring, when companies send annual proxy disclosures to shareholders.

The changes will help investors make better-informed voting decisions for the companies in which they hold stock, SEC Chairman Mary Schapiro said.

“By adopting these rules, we will improve the disclosure around risk, compensation and corporate governance, thereby increasing accountability and directly benefiting investors,” Schapiro said before the vote.

But Commissioner Kathleen Casey said she opposed some of the new requirements, such as added information on qualifications of directors and candidates for the board, that she said could be “unduly burdensome.”

As a result, Casey said she was voting against the rule as a whole.

It was the first final rule adopted by the SEC this year under Schapiro’s tenure. Numerous proposals have been made by the commissioners.