SEC may clarify rules on backdating

The US Securities and Exchange Commission declared that ?no shareholder should need a machete and a pith helmet to go hunting for what the CEO makes?, as it said it was considering clarifying rules on stock options backdating.

In a speech in New York on Thursday night, Christopher Cox, SEC chairman, said his agency would consider the need for ?additional guidance? on backdating.

The issue has cost the jobs of a handful of senior executives at some of the more than 20 US companies embroiled in questioning over the timing of stock options grants.

The practice under scrutiny is the retro-active grant by companies of stock options just before a sharp rise in the company?s share price, and whether this was properly disclosed to shareholders.

On Friday, business software maker Mercury Interactive said it had voided 2.6m stock options granted to former CEO Amnon Landan after finding that they had been dated improperly.

The developments come as the SEC is pressing ahead with a broad package of reforms to executive compensation disclosure. The move, unveiled in January, is a key policy initiative for Mr Cox.

The reforms come after a wave of criticism from corporate governance campaigners and public pension funds over ?stealth compensation? ? such as the granting of non-cash compensation and perks to executives that were not easily visible to shareholders.

Mr Cox said the SEC had received more than 20,000 comments from the public on the agency?s executive compensation reform proposals ? a record for any SEC initiative.

He said the SEC was considering ?further adjustments to our executive compensation proposal to deal with the issue of backdating options?.

The SEC says it was looking at stock options backdating before the issue was first aired three months ago.

But the fallout from the scandal appears to have prompted the agency to take action beyond the current investigations into some of the companies concerned.

John Coffee, director of the Center on Corporate Governance at Columbia University, said the SEC should not be blamed for failing to unearth the full extent of questionable options backdating. Professional advisers ? an increasing focus of official investigations ? ought to have known more.

?I don?t know how a government agency is going to know how people are backdating their records. Maybe the auditors should have known. The SEC is not a fact-checker, they rely on the information they are given,? he said.

Mr Cox said he wanted the stock options reforms ?settled in time for next year?s proxy season?.

?When a company fails to disclose to shareholders that it paid additional compensation through backdating ? in violation of the terms of the company?s stock option plan ? or when it fraudulently misrepresents that it granted options at an earlier date than they actually were granted, this interferes directly with the shareholders' right to know both the level and the form of executive compensation. And that?.?.?.? is clearly wrong.?

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