BILL ANALYSIS �
SB 1208
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Date of Hearing: August 8, 2012
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 1208 (Leno) - As Amended: May 7, 2012
Policy Committee: JudiciaryVote:6-2
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill expands the information that corporations are required
to disclose to the Secretary of State (SOS) regarding the
compensation of their executives. Specifically, this bill:
1)Requires that publicly traded corporations doing business in
California file a statement with the SOS that includes the
name and total compensation, as defined, of their five mostly
highly compensated retirees for the most recent fiscal year.
2)Replaces an existing requirement that corporations disclose
the compensation of their five most highly compensated
executives with a requirement that corporations disclose the
compensation of their Principle Executive Officer (PEO), their
Principal Financial Officer (PFO), and their three mostly
highly compensated executives who are not the PEO or PFO.
FISCAL EFFECT
The SOS would incur a one-time cost of about $50,000 to modify
current IT programs and business documents. Funding would come
from the Business Fees Fund.
COMMENTS
1)Background and Purpose: Under current law, California
corporations must disclose the compensation of their five most
highly compensated executives on what are known as proxy
statements. While that requirement includes the disclosure of
each executive's anticipated retirement plan, corporations are
not required to disclose any information about retirement
compensation after executives actually retire. In the author's
SB 1208
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words, this bill attempts to "address the lack of public
disclosure as to what highly compensated retirees at public
traded corporations are actually paid during each year of the
retirement."
This bill, sponsored by the Consumer Federation of California,
comes in the context of reports that executive compensation
has risen to historical levels, and that corporations are
protecting retirement benefits for executives even as they
forgo contributions to financially strained pension plans for
workers. (Ellen Schultz and Theo Francis, "Executives Get
Pension Security While Plans for Workers Falter," Wall Street
Journal, April 24, 2003.) This bill also comes in the context
of an emerging awareness of deferred compensation,
arrangements sometimes used by corporate executives that defer
compensation until executives have retired and thus pay taxes
at lower rates.
The objective of SB 1208 is twofold: Under current law, a
member of the public seeking to identify what a corporation is
paying to recently retired executives would have to examine
many years' worth of proxy statements, identify the executives
listed who have since retired, and then update their projected
retirement packages in accordance with the current market
values of any securities that compose those packages. Under SB
1208, the information will be readily available in a single
place, and in an easily digestible form.
Additionally, SB 1208 closes a potential loophole in current
law. A corporate executive currently has the ability to defer
compensation such that he or she is never among the top five
most highly compensated executives at a company - thus never
appearing on a proxy statement - but receives a retirement
package sufficient to place him or her among the top five most
highly compensated retirees. Under current law, the public is
unable to see the value of that retirement package; under SB
1208, it will.
2)Opposition: This bill is opposed by a broad coalition of
business associations. They note that requiring disclosure of
retiree compensation will take California out of conformity
with Securities and Exchange Commission (SEC) reporting
requirements. Opponents also argue that sufficient
transparency already exists because current law requires
publicly traded corporations to disclose the anticipated
retirement compensation of their top five most highly
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compensated current executives.
Analysis Prepared by : Jonathan Stein / APPR. / (916)
319-2081