Thursday, December 28, 2006

Curtail Excess Pay? Just Change the Expense Rule

Excess pay for CEOs has been the topic of choice at cocktail parties these days, just as real estate was last year. Years ago when CEO salaries were becoming excessive, lawyers and accountants said options would be the best way to compensate management that traditionally sat on poorly performing businesses and made millions anyway. Check out the WSJ article yesterday on the state of the employee stock option.

It was interesting to see the SEC's response to excessive management pay and backdated options seems to just "mask" actual option compensation, as a CNN article points out.

"But in a statement issued Friday, the commission said it had changed the disclosure rule to match stock option accounting expense requirements that only require the cost of vested options - those an executive can currently exercise - to be counted as an expense."

So if it hasn't been vested, it won't be expensed. So CEO pay will seem lower, but in reality, it's just an accounting adjustment.

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