The SEC's new executive compensation disclosure rules may have a new set of flaws after an accounting loophole for stock options and an 11th hour rule change may cloud the compensation of top executives. The loopholes, which were discovered by compensation analysts hired to draft these new filings, may undermine the SEC's ultimate goals and end up simply costing company's more money without seeing results. How so? Let's take a look...

The problems stem from a stock options accounting rule known as FAS 123R, which changed the way company's reported stock options expenses. Previously, stock options were not reported as expenses. FAS 123R changed this by saying that if companies gave stock options to executives, they had to subtract the total value of those grants from their earnings that year. This would obviously result in a huge windfall for companies issuing a lot of stock options - particularly in healthcare and technology. To avoid the huge windfall, some 900 companies changed their options vesting dates to occur before the rule went into effect. This enabled the companies to erase an estimated $8 billion of future expenses from their books - they could award these options without cost. Then right before Christmas, the SEC changed the rules again. Now allow companies to report the amount of stock options that vest per year rather than the total value of the options granted to an executive. Without the total value being reported, the summary tables on the new compensation disclosures can be extremely misleading, often changing the order of executives by compensation significantly. Since the new rules require only the top five executives in each company to report in the summaries table, there is room for many top executives to completely hide their compensation from shareholders.