SEC Plan Would Trim Executive Pay Fine Print to Just the CEO and CFO

On Friday the Securities and Exchange Commission took a red pen to one of the thickest sections of the proxy statement, the booklet most shareholders toss in the recycling bin without a second look. Under a proposal unveiled Nov. 13, most public companies would detail the pay packages of just two people, the chief executive and the chief financial officer, instead of the five executives covered today, Bloomberg reported.

I have spent a lot of years reading these filings, so let me say it plainly: some of this trimming is overdue, and some of it deserves a hard second look before it becomes the rule of the land.

Today's rule requires companies to report pay for the CEO, the CFO and the three other most highly paid executives, according to Reuters. The new plan would cut that list to the top two in most cases. It would also raise the dollar line for reporting executive perks, such as security details and personal travel, from $10,000 to $150,000, Bloomberg reported. Reuters noted that the proposal also scales back detailed pay reporting for board members, not just for executives.

The agency's own release describes a broader rewrite of Item 402 of Regulation S-K, the rule that governs pay disclosure, with the aim of making it more principles-based and tied to what is material to investors. The four main pay tables investors know today would give way to three new ones covering compensation earned, compensation granted and the status of stock awards, the SEC said. In the pay-versus-performance section, the commission wants to replace the complex "Compensation Actually Paid" calculation with a simpler total of pay earned, and it says the new format would let investors track equity awards over their full life. The SEC also said it would keep disclosure of material perks while easing the paperwork load on companies. These rules were last comprehensively overhauled in 2006, according to the agency.

SEC Chair Paul Atkins argues the rule has grown layer upon layer for two decades without anyone stepping back to review the whole structure, leaving a system that no longer clearly tells investors what matters about pay decisions. He said the agency drew on more than 80 comment letters from investors, companies and advisers gathered around its executive compensation roundtable, and that the goal is "more informative disclosure rooted in materiality". Atkins called the plan the second of three pillars in his effort to reshape public company disclosure, following a May proposal on how companies are classified as filers. Reuters reported that Atkins said the changes would help hold disclosures to what investors actually need to know.

Business groups are on board. The U.S. Chamber of Commerce praised the proposal, and Mike Flood of the Chamber's Center for Capital Markets Competitiveness said the disclosure mandates have become so complex that they often fail to give investors a clear picture of executive pay.

That rings true from where I sit. When a proxy runs dozens of pages of tables and footnotes, the signal gets buried in the noise. The lawyers who draft those pages get paid either way; the shareholder is the one left squinting.

Investor advocates see it very differently. Better Markets, a group that pushes for tougher Wall Street oversight, said the plan would drop disclosure for all but two executive officers and let companies decide for themselves whether to report perks for their CEOs. Benjamin Schiffrin, the group's director of securities policy, argued that the changes would make it harder for shareholders to weigh pay against performance and would obscure material information rather than simplify it. Reuters cited the group's figures showing CEO pay has climbed more than 1,000% over the past 50 years, with the median S&P 500 package reaching $17 million in 2024, while worker pay rose 24%.

Nothing changes yet. This is a proposal, not a rule, and the SEC said the public will have 60 days to comment once it is published in the Federal Register.

Here is my take for the ordinary investor holding an index fund or a handful of blue chips. The CEO and CFO are the two people whose paychecks most often tell you whether a board is minding the store, so keeping them front and center makes sense, and clearing out clutter is a fair goal. But jumping the perk threshold fifteenfold, from $10,000 to $150,000, is a big leap, and a chief executive's personal travel and security tab is exactly the kind of thing owners like to see. Good stewardship cuts both ways: companies should not drown shareholders in paperwork, and shareholders should not be kept in the dark about what they are paying for.

If you have a view, file a comment. That is how the system is supposed to work. The people who own these companies get their say before Washington writes the final rule.