Pay disclosure rules lead to fewer executive perks

When details about Dennis Kozlowski's $6,000 shower curtain emerged, which was paid for by his company, investors were outraged. How could you possibly justify a corporation paying for such an exorbitant and unnecessary perk for an executive?

In response to complaints from investors about this and other incidents like it, the SEC passed a rule requiring that companies disclose any perks paid to officers and directors that exceeded $10,000. The rule took effect at the beginning of the year and, according to BusinessWeek, it may be working: "The median value of benefits and perks received by chief executive officers at nearly 100 of the nation's largest companies fell 1.3% in 2006, to $334,433, according to the analysis by Equilar, a Redwood Shores (Calif.) research firm. And the median declined in three of the five perk categories Equilar studied. (There's a one-year lag in compensation disclosures, so this year's proxy filings quantified the perks received in 2006, and last year's proxies detailed those received in 2005.)"

Forced to disclose excessive perks, many companies have decided they would rather avoid the embarrassment. After all, isn't it easier to buy your own shower curtain, rather than give Dan Loeb ammunition to come after you if he ever takes a stake in your company?

The securities laws in the United States are based on disclosure and they appear to be working. If the SEC can force companies to tell shareholders what they're doing, we are increasingly gaining the willingness to stand up and demand change.