Wednesday, December 27, 2006


Recently I lamented the passing of the old staid and reliable SEC. Once the rosy-cheeked avuncular Kris Kringle of federal agencies, it’s morphing into just another regulatory Bad Santa. Take the agency's announcement last Friday of last-minute “interim final rules” changing how stock options get reported under the new compensation disclosure regime.

The Commission now wants companies to put an executive’s options in the proxy compensation table as they vest rather than showing the whole slew in the year of grant. I guess you can argue for doing it either way. Me, I like the report-it-now approach better, and not just because the Chamber of Commerce really hates it. The SEC says it prefers the report-as-they-vest method because it conforms to financial reporting, but I kinda think that if you’re awarded something now you should report it now, and also that just because your accountant is doing something doesn’t mean you should too.

Asked to explain the agency’s late-day, pre-holiday change to rules everyone thought were finalized last summer, SEC Chairman Cox declared that really he’d always wanted the rules to work this way, but “it came out differently from that when we adopted it.”

As a less than skillful cook, I have a soft spot for the “it came out differently than it was supposed to” excuse, especially when applied to pecan pie. So I regret having to point out that when the SEC adopted the rules earlier this year, it rejected lots of requests to treat options exactly as it’s now treating them, and specifically pooh-poohed the notion of kowtowing to the financial reporting rules. It was “more consistent with the purpose of executive compensation disclosure,” said the agency then, to disclose the options to investors all at once than to dribble the news out like molasses.

We'll have to see how the molasses approach pans out in next year's proxy statements. The only thing I know is that adding that stuff to pecan pie can make it very gooey.