OVERCOMPENSATING.(The Talk of the Town)

Markets thrive on information. The more investors know about a company, the more likely they are to figure out what that company is really worth. So when the Securities and Exchange Commission recently proposed a new set of rules requiring companies to disclose more information about exactly how much (and in exactly what ways) they pay their top executives, it seemed like a market-friendly no-brainer. Corporations are already required to issue statements detailing C.E.O. pay packages, but they often bury important data in footnotes or beneath mounds of obfuscatory language, so that even sophisticated investors find it hard to get a clear picture of how much C.E.O.s earn. The S.E.C.'s proposed rules will require companies to disclose more about executives' perks and stock-option grants and about their future pension benefits. Companies will also have to provide a single figure summarizing all the money an executive is scheduled to get. They can still pay their bosses as lavishly as they like. They'll just have to tell investors what they're doing.

The new rules seem sensible and inoffensive, but they've already come under fire. Some critics complained that the S.E.C. had no business meddling with internal corporate decisions, and that the cost of the regulations far outweighs any possible benefit. But the critics' real beef is that they think the rules are driven by politics, not economics. As Fred Smith, Jr., the head of the Competitive Enterprise Institute, put it, "This is playing to the simple egalitarian concern that a world where everybody gets paid the same amount would be a better world." Only crypto-Marxists and softhearted liberals, in other words, worry about how much C.E.O.s make. There's certainly plenty of populist concern about C.E.O. pay, perhaps because the average big-company C.E.O. now makes more than three hundred times what the average worker makes. But the S.E.C.'s commissioners (three of whom are conservative Republicans) came up with the new rules not because workers care about how much C.E.O.s make but because shareholders do. Big institutional investors and major value investors like Warren Buffett now pay far more attention to executive compensation than they once did. And when they speak the S.E.C. tends to listen.

In part, executive compensation matters to investors because executives now take so much money out of corporations every year. According to the economists Lucian Bebchuk and Yaniv Grinstein, between 1993 and 2003 the top five executives at fifteen hundred companies in the U.S. were paid three hundred and fifty billion dollars. That level of pay makes sense only if it leads to better performance. But plenty of executives are getting superstar pay for journeyman work. For one thing, executives are rewarded far ...