Disclosures regulations in the US - Essay Example

This paper will attempt to explain these regulations, as well as provide an example of these regulations by showing how the executives of Pfizer, a pharmaceutical giant, complies with the CFR. Body According to the SEC, all corporations must disclose any renumeration made to the CEO, CFO and the three most highly paid officers (Right2Info). The rules apply to the following disclosures: “(1) tabular disclosures regarding executive remuneration and director remuneration;(2) narrative description of other types of remuneration and any information material to an understanding of the tabular information, and (3) a Compensation Discussion and Analysis (“CD&A”)” (17 C.F.R. § 229.402(b) (2008)) .

The way that all companies must disclose this information is through their annual proxy statement, which the SEC's website makes available on-line (17 C.F.R. § 229.402(b) (2008)). The information on executives in the tabular disclosures required is information about the salary, bonuses, equity awards and deferred compensation. For directors, the disclosures are similar, although not as detailed with regards to the equity awards. The SEC has started requiring, since 2006, that its compensation discussion and analysis (CD&A), that corporations begin disclosing the following with regards to executive compensation: “(i) the objectives of the company’s remuneration programs; (ii) what the remuneration programs of the company are designed to reward; (iii) what is each element of remuneration; (iv) why the company chooses to pay each element of remuneration; (v) how the company determines the amount for each element of remuneration; and (vi) how each element of remuneration and the company’s decisions regarding that element fit into the company’s overall compensation objectives and affect decisions regarding other elements of remuneration.” (17 C.F.R. § 229.402(b)(1) (2008)) .

The reason why the SEC has started requiring this information is so that investors can get the justification for the salaries and bonuses that executives receive, whereas before this requirement, corporations simply had to disclose numerical data without justification. This is important, as a corporation has to make these justifications, especially into today's climate of anger about executive salaries. Investors and the public have a right to know exactly why a certain executive is making a certain salary and receives certain bonuses.

Additionally, there are other regulations that are designed to increase transparency about executive and director compensation. For instance, there are regulations that require disclosure regarding “(i) beneficial ownership of public company securities by persons owning 5% or more of any class of the company’s voting securities and executives and directors; (ii) transactions between the company and related persons (generally defined to include officers, directors, 5% beneficial holders, and close family members of these individuals); and (iii) disclosure regarding a company’s processes and procedures for the consideration and determination of executive and director remuneration.” (17 C.F.R. § 229.407 (2008)).

As an example of the disclosures that are required by the SEC under the promulgated CFR rules, one can look to the SEC disclosures for Jeffrey Kindler, who is the CEO of Pfizer. On this website, the company details the remuneration for Mr. Kindler, as well as detailed several pages of justification for why Mr. Kindler is being