SEC to Force Salary Disclosures

Over the past few months, the Securities and Exchange Commission (SEC) has proposed and promulgated a number of regulations that importantly affect U.S. multinational corporations. By requiring disclosure of financial data and other pertinent information about the issues of public securities (stocks, bonds, etc.), the SEC seeks to inform the investor and the public about the conditions of American businesses. Reports filed with the SEC often provide most of the information that is publicly available about a given corporation.

On August 3, the SEC published new regulations concerning the reporting of information on candidates for a company's board of directors. Over the objections of corporate representatives, the Commission adopted policies requiring disclosure of other directorships held by each candidate as well as general information relevant to the "integrity and background" of each candidate. This information should include convictions in criminal suits, involvement in bankruptcy proceedings, and judgments prohibiting the candidate from engaging in certain business activities. In a related action, the Commission adopted a regulation requiring the company to disclose any business or family relationships that may exist between directors and management of the company.

The Commission recently proposed changes in regulations that require a company to list the salary and other remuneration of top executives. Under the present rules, the firm must disclose on its public filings and proxy statements to stockholders the total compensation provided to the three highest paid executives who earn more than $40,000 annually. The proposed changes would require a company to report the salaries of the five highest paid executives regardless of the amount of the salary. Furthermore, the company would be required to list the next five highest paid executives if each individual earns more than $150,000 a year.

Multinational corporations are particularly alarmed about the SEC proposal because the disclosure requirements would apply to the executives of wholly owned subsidiaries of the parent company as well as to the parent company itself. Thus, if the manager of a foreign subsidiary of a U.S. firm qualifies as one of the five or ten highest paid executives, the company would have to report that manager's salary to the SEC. According to the Wall Street Journal, many businesses fear that such a requirement would expose highly salaried heads of subsidiaries overseas to kidnapping and terrorist acts.

In the past, the SEC has been reluctant to require companies to report on their foreign activities. Under existing regulations, a company is not required to completely disclose the names and locations of its foreign subsidiaries. For example, ITT merely lists the names of the major ITT subsidiaries and the number of foreign operations that carry on the same line of business as the major subsidiaries. The names of the foreign operations or the countries in which they are located are not disclosed. Tougher reporting requirements would provide a clearer picture of the global activities of multinationals. -G.R.