BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 1208|
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THIRD READING
Bill No: SB 1208
Author: Leno (D)
Amended: 5/7/12
Vote: 21
SENATE JUDICIARY COMMITTEE : 4-1, 4/24/12
AYES: Evans, Blakeslee, Corbett, Leno
NOES: Harman
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SUBJECT : Publicly traded corporations: retiree
compensation:
disclosure
SOURCE : Consumer Federation of California
DIGEST : This bill requires publicly traded corporations
to disclose in their annual statement, the names and the
total annual compensation of the corporation's five most
highly compensated retirees.
ANALYSIS : Existing law provides for the formation and
regulation of corporations and requires that domestic and
foreign publicly traded corporations file annually with the
Secretary of State (SOS) a report disclosing the
compensation, as specified, to each of the members of the
board of directors, and the corporation's five most highly
paid executive officers. (Corporations Code Sections
1502.1(a)(4), 2117.1(a)(4).)
CONTINUED
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Existing law requires the number of shares issued, options
for the shares granted, and similar equity-based
compensation be reported in the board of directors' and
five most highly paid officials' compensation. (Corp. Code
Sections 1502.1(a)(4), 2117.1(a)(4).)
Existing law defines compensation as all plan and nonplan
compensation awarded to, earned by, or paid to the person
for all services rendered in all capacities to the
corporation and to its subsidiaries. (Corp. Code Sections
1502.1(b)(3), 2117.1(b)(3).)
Existing law requires the SOS to make the above
information, along with other information in the report,
publicly available, as specified. (Corp. Code Sections
1502.1(c), 2117.1(c).)
This bill defines "total compensation" as all plan and
nonplan compensation including the number of any shares
issued, options for shares granted, and similar
equity-based compensation, and all perquisite and other
personal benefits, granted or awarded to, earned by, or
paid to the person for all services rendered in all
capacities to the corporation and to its subsidiaries.
This bill requires that publicly traded corporations report
to the SOS the total compensation, as defined, of each
member of the board of directors, the principal executive
officer, the principal financial officer, and each of the
three most highly compensated executive officers other than
the principal executive officer or principal financial
officer who are not members of the board.
This bill requires publicly traded corporations to report
to the SOS the total compensation and names of each of the
corporation's five most highly paid retirees.
This bill identifies the five most highly compensated
executive officers as "the principal executive officer, the
principal financial officer, and each of the three most
highly compensated executive officers," in conformity with
Security and Exchange Commission regulations.
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FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 5/16/12)
Consumer Federation of California (source)
Alliance of Californians for Community Empowerment
California Labor Federation
California Nurses Association
California Professional Firefighters
California School Employees Association
Congress of California Seniors
OPPOSITION : (Verified 5/16/12)
California Bankers Association
California Chamber of Commerce
California Taxpayers Association
ARGUMENTS IN SUPPORT : According to the author's office:
In recent years, CEO pay at corporations across
America has grown exponentially, while wages for
workers have remained relatively stagnant. For
example, the average CEO of a large corporation in
1980 made approximately 42 times more than the average
worker. By 2011, that disparity had grown to 343 times
the pay of the average worker. In actual numbers,
average yearly compensation for a top executive at a
large corporation in the early 1980s ranged from
$700,000-$1 million. By 2000, that number escalated to
$5.2 million. In 2010, it was estimated at $11.8
million. Much of this increased pay comes in the form
of incentive compensation, which rewards an executive
for performance while on the job. Until recently, many
companies did not allow incentive pay to be added to
an executive's base salary for the purpose of
calculating retirement benefits. Recently, companies
have chosen to add incentive compensation to the
calculation, exponentially increasing the amount of
money executives and their surviving spouses are paid
every year for the rest of their lives. Additionally,
companies historically imposed a cap on the amount of
compensation retired executives could receive. During
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the 1980s and 1990s, they began to eliminate this cap,
allowing executives to receive dramatically higher
payouts in retirement. These two developments have
created an enormous, and often unfunded, liability for
corporations at the same time pension benefits have
often been reduced and reconfigured for average
workers.
Having publicly traded corporations disclose for the
first time how much they pay their retired executives
in a clear and understandable way will help increase
corporate transparency and inform the public and
shareholders during upcoming pension reform debates.
Given the growing income disparity between executives
and average workers, it is increasingly important for
the public and shareholders to understand how these
disproportionate increases are created and authorized,
so that better informed decision can be made regarding
future financial commitments and priorities.
ARGUMENTS IN OPPOSITION : Opponents of this bill state,
"While the SEC is expecting to adopt rules regarding
disclosure of pay-for-performance, pay ratios, and hedging
by employees and directors this year, there is no proposal
requiring corporations to report compensation of retirees.
Therefore, this disclosure puts California out of
conformity with the federal SEC reporting requirements.
Nonconformity to federal rules always leads to additional
compliance costs for taxpayers and enforcement costs for
the state. Also, adding new nonconformity to federal
reporting requirements exacerbates California's job-killing
reputation for excessively burdensome regulation of
business.
"Furthermore, because the information required to be
reported under SB 1208 is not currently public information,
the bill erodes important confidentiality that taxpayers
and their employees expect. No policy rationale for
violating the privacy of individuals who have severed ties
with a company through retirement has been offered, other
than the specious assertion that the arbitrary, capricious,
and gratuitous disclosure of compensation paid to the top
five named retirees would help investors make more informed
decisions. The utter lack of a similar disclosure
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requirement by the SEC, the regulatory body whose state
mission 'is to protect investors,' in part through
requiring the disclosure of 'meaningful financial and other
information to the public,' belies the sincerity of such
rationale."
RJG:J:nlm 5/17/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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