Securities and Exchange Commission overhauls disclosure rules on compensation

MANILA, Philippines – The Securities and Exchange Commission (SEC) is overhauling its disclosure rules with respect to executive and director compensation as part of efforts to promote greater transparency.

In a speech before members of the Shareholders’ Association of the Philippines, SEC chairperson Teresita Herbosa said the corporate watchdog agency is considering requiring companies to provide a detailed breakdown of compensation, bonuses and benefits of every kind given to directors and top executives.

The move is intended to provide investors with a clearer and more complete picture of the highest paid executive officers and members of the company’s board of directors.

“When it comes to transparency, stockholders want their boards to be more transparent when it comes to executive compensation. The practice has been to disclose to the SEC, however, only aggregate figures,” Herbosa said.

Ensuring the availability of information regarding renumeration practices is an important part of ensuring good corporate governance and may also enhance the public’s trust in companies, Herbosa said.

Herbosa noted that in the US, investors are “actively avoiding those companies that are perceived to be doling out excessively large bonuses and salaries.”

The move is expected to spark protests from corporate executives on grounds that doing so would breach their rights to privacy and security of person.

Aside from this, the SEC is also considering requiring companies to change their external auditors every several years to prevent auditors from getting too cozy with their clients.

If enforced, rotation would break up many long-standing auditor-client relationships that in some cases have extended over decades. 

The audit industry is currently an oligopoly with only the top three or four handling the audits of majority of the companies listed on the stock exchange.

“Similar to the rotation of auditing firms, I also got several calls when the rumor of this itemized compensation came out,” Herbosa said.

Herbosa said the SEC is also looking at plugging the loopholes in the Securities Regulation Code and the Corporation Code to further safeguard the interest of the investing public. Among its proposals include making perpetual the existence or life of companies to allow the top corporate watchdog to orderly monitor SEC-registered companies.

Early this year, the SEC has implemented new rules aimed at enhancing the effectiveness of independent directors. For one, it set the term of an independent director for five consecutive years. Independent directors are also prohibited from serving in more than five companies within a conglomerate.

To give small investors a greater chance for representation on boards of corporations, former Philippine Stock Exchange president Francis Lim said minority shareholders must also have a say on the appointment of independent directors.

“The independent directors must be elected by the majority and minority shareholders. This way, independent directors not only owe loyalty to management but to the small investors as well,” Lim said.