New CEO disclosure rules won't fix the system
Page | 1 | 2 | 3 | 4 |

In addition, companies will have to follow new disclosure requirements regarding option grants, including listing the grant date, the closing market price of company shares on that date if it is greater than the exercise price, a description of the method used to determine the exercise price if it's different than the closing price, and the date the compensation committee granted the award, if different than the grant date.

In other words, it won't be easy to pull off any backdating shenanigans going forward.

Will these rules fix the problem?
Market pundits say the new disclosure rules will likely change the way that boards structure pay packages. That's what they thought in 1992, when the SEC last improved CEO pay disclosure rules.

While the new rules will definitely improve information flow, some shareholder activists say they don't go far enough: They had also lobbied the SEC for stronger shareholder voting power on matters of executive pay in particular and corporate governance in general.

Lucian Bebchuk, a professor of law, economics and finance and director of the program on corporate governance at Harvard Law School, has been very vocal on this issue. With co-author Jesse Fried, Bebchuk wrote a book on the subject: "Pay Without Performance: The Unfulfilled Promise of Executive Compensation." There's no shortage of white papers that have been written since the book's publication.

In a recent commentary in The Financial Times, Bebchuk wrote, "To ensure that directors focus on shareholder interests, they must be made not only independent of insiders but dependent on shareholders."

He calls for greater shareholder powers to remove directors who don't serve shareholder interests. Often, these board members are themselves current or former CEOs, and their relationships with the managements they're supposed to oversee can be too cozy for shareholder comfort.

In a study Bebchuk released a couple of years ago, he tracked the ratio of CEO pay to that of the average worker. In 1980, it was 42 to 1; in 1991, it was 140 to 1, and in 2002 it was 500 to 1. The top five executives are taking a bigger slice of company profits, he revealed. In 1993, their pay represented 4.8 percent of profits; in 2003, that share grew to 10.3 percent, he wrote.