SEC urges clearer disclosure of pay

Corporations should better explain how they set pay for top managers and avoid repeating boilerplate sections, the Securities and Exchange Commission said in a report released Tuesday.

The SEC, which is reviewing how well new executive-compensation disclosure rules are working, said companies should use simpler language that investors could understand and should focus more on why pay decisions were made.

The regulator based its conclusions on a review of how 350 public companies are complying with the rules.

“A significant number of companies could improve their analysis of how and why they made certain executive-compensation decisions,” the SEC report said. “Careful drafting consistent with plain-English principles could result in shorter, more concise and effective” disclosure.

Under the SEC rules, companies this year began providing more information about stock option awards and the total compensation of their five highest-paid managers. The agency in August began sending letters to companies including General Electric Co., Schering-Plough Corp. and Prudential Financial Inc., asking questions about their disclosures.