Federal regulators voted Wednesday to require companies to reveal more information about how they pay their top executives amid a public outcry over compensation.
The Securities and Exchange Commission voted 4-to-1 to expand the disclosure requirements for public companies.
Company policies that encouraged excessive risk-taking and rewarded executives for delivering short-term profits were blamed for fueling the financial crisis.
The SEC also changed a formula that critics say allowed companies to understate how much their senior executives are paid. At issue is how public companies report stock options and stock awards in regulatory filings. Such awards often make up most of top executives' pay.
The new requirements include information on how a company's pay policies might encourage too much risk-taking.
Separately, the agency voted unanimously to require thousands of investment advisers who have custody of clients' money to submit to annual surprise exams by outside auditors.
The surprise audits would allow independent accountants to review the books and verify that the money is there. The snap audits would apply to about 1,600 investment advisers that don't use third-party custodians, out of roughly 11,000 advisers registered with the SEC.
This move is aimed at plugging gaps that allowed disgraced money manager Bernard Madoff to deceive investors.
The expanded executive pay disclosure rules will take effect next spring, when companies send annual proxy disclosures to shareholders.
The changes will help investors make better-informed voting decisions for the companies in which they hold stock, SEC Chairman Mary Schapiro said.
"By adopting these rules, we will improve the disclosure around risk, compensation and corporate governance, thereby increasing accountability and directly benefiting investors," Schapiro said before the vote.
But Commissioner Kathleen Casey said she opposed some of the new requirements, such as added information on directors' qualifications, that she said could be "unduly burdensome."
As a result, Casey said she was voting against the rule as a whole.
It was the first final rule adopted by the SEC this year under Schapiro's tenure. Numerous proposals have been made by the commissioners.
The Obama administration imposed pay curbs on banks that received federal bailout money. Since then, eight of the largest such banks have either repaid or said they will repay their federal money, largely to escape caps on executive pay.
The Federal Reserve has set a February deadline for the 28 biggest U.S. banks — including Goldman Sachs, JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. — for submitting 2010 compensation plans. The Fed also will be encouraging, though not requiring, banks to revise this year's pay plans if they are out of step with principles the Fed has proposed to limit risk.
Anger over lavish Wall Street pay has led some U.S. banks to take pre-emptive action. Goldman Sachs, for example, has said it won't give cash bonuses to 30 top executives. Instead, the bonuses will be paid in stock that can't be cashed in for five years.
Companies will have to disclose how pay is determined in departments involved in the riskiest activities — or departments that produce a big chunk of company profits.
The new requirements were proposed by the SEC and opened to public comment in July. They build on rules the agency adopted in 2006.
Under current rules, companies don't have to reveal the full value of stock options they give an executive. Instead, they must disclose in their annual proxy statements only the portion of an options award that vests that year.
The new rule will require companies to show in a summary table the estimated value of all stock-based awards on the day they are granted. The SEC's 2006 rules had relegated those totals to a separate table that investors often overlook or find hard to decipher.
An example is the case of a company that decides its CEO deserves $10 million worth of stock options, to vest in equal installments over four years. Under current rules, the company would have to include only $2.5 million — one-fourth of the total of the $10 million total — in the summary table.