New rules open up details of CEO perks

NEW YORK — A new rule forcing companies to reveal more about special benefits they award top executives is unlikely to shame the people in the corner offices into giving them up, but it could prompt them to cut back or at least blush over the excesses.

For too long, there’s been little disclosure of the gritty details of how companies pamper executives by paying for home burglar alarms, membership dues for exclusive clubs, and other “minor” expenses that ordinary citizens, even those making millions of dollars, generally cover themselves.

Under existing rules, a company need only disclose the value of a senior executive’s perks if they add up to $50,000 or 10 percent of that person’s salary and bonus. Then, only those extravagances that account for a quarter of the total need be itemized.

But the Securities and Exchange Commission has proposed lowering the threshold for disclosure to $10,000, at which point all such extras would need to be itemized, no matter how trifling.

Investors should hope this change might produce the same sort of reaction as the new rules requiring food companies to add a line to their nutrition labels showing the amount of trans fat in their products.

Thanks to that edict by the Food and Drug Administration, recipes for products from Oreos to Crisco have been rejiggered to remove trans fat, which increases the risk of heart disease. Faced with the potential stigma of printing anything but a zero in the trans fat column, and knowing rival brands might go the healthier route, food makers moved quickly to protect their sales.

Unfortunately, there’s little risk that any revenue might be lost to better executive pay disclosure. Proxy statements are issued once a year. Only money managers and the most finicky of individual investors read them closely. Given how little recourse investors have to challenge management, an embarrassing list of ingredients in an executive’s pay may bring no immediate consequence.

But even if there’s no shame — actually, particularly if there’s no shame — there’s still benefit in having this veiled form of pay more fully revealed, if only to address a mentality the current rules inadvertently foster.

As the scandal at Tyco International Ltd. showed, it’s very easy to take the little extras lightly when they barely qualify as a rounding error for companies with billions in revenues. It’s even easier for boards of directors not to object when the frivolity needn’t be fully disclosed.

Hormel Foods Corp. disclosed in its recent proxy statement that Chairman and Chief Executive Joel W. Johnson received $213,153 in “other” compensation during fiscal 2005 as part of a pay package worth more than $10 million — and potentially more than $30 million including stock options.

The proxy shows that $177,681 of the other compensation was for personal use of company aircraft, but doesn’t provide a breakdown of what constituted the other roughly $35,500. Asked whether, in light of the SEC’s proposal, Johnson’s other perks could be disclosed, the company declined.

Tyson Foods Inc., a company that’s cut the trans fat from its meat products, agreed nearly a year ago to pay a $1.5 million civil fine to settle charges it failed to fully disclose benefits provided to former chairman Don Tyson, including $38,000 in oriental rugs and antiques, and the use of houses in England and Mexico.

Since then, Tyson doesn’t seem to have tightened the spigot much. In its latest proxy, the company reported that John Tyson, the current chairman and CEO and the son of Don Tyson, received $457,780 in “other” compensation during the fiscal year that ended in September, including $324,472 for personal use of company aircraft.

There’s little explanation of the remaining $133,000 beyond one clue: Every Tyson board member received a $2,000 holiday department store gift card in December 2004. Otherwise, there’s just a blanket description for all top executives: unitemized compensation may include car expenses, club dues, telecommunication services, personal use of company-owned properties, security services, medical expenses, estate planning and tax services.

Compared with option grants and retirement packages, other areas of pay where the SEC also plans to improve disclosure, the cost of a personal trainer may sound petty. So does a high-paid executive making the company pay for it.

If there’s nothing to be ashamed of, companies will soon have the chance to prove it. Or perhaps they too will cut down on the trans fat, just for appearances.