Three years removed from major changes in how public companies disclose executive pay to shareholders, the Securities and Exchange Commission is making another run at refinements. It is proposing a number of changes, including requiring fuller disclosure of how incentives provided by compensation policies affect a company's risk and how those risks are managed.

But the proposal that would have the biggest impact on the average investor's perception of how much an executive makes involves how stock and option awards executives receive are reflected in proxy statements sent to shareholders.

The value of those awards -- as well as figures for salary, bonuses, pension benefits, perquisites and other elements of compensation -- are listed in a summary compensation table designed to provide a quick, itemized look at how a company's highest-paid executives are paid.

Typically, details for a company's five highest-paid executives are provided in the table. Proxy readers unwilling or unable to decipher dozens of pages of additional disclosure use the summary compensation table to determine what the highest-paid executives make.

Currently, the value of stock and option awards in the summary table is based on what a company expenses each year for stock and option awards, whether those awards where granted that year or in previous years. The SEC is considering replacing that accounting-based number with the estimated value of stock and option awards granted in a particular year, regardless of whether those awards ever vest or are earned in subsequent years. The estimated value is currently provided in a separate table farther back in the proxy.

An executive's pay can vary significantly depending on which formula is used.

Consol Energy President and CEO J. Brett Harvey made $8.2 million in 2008 based on the amount the coal producer expensed for his stock and option awards ($3.3 million), but $13.8 million if you rely on the estimated value of the stock and option awards he received early in 2008 ($8.9 million).

The Post-Gazette's Fortunate 50, an annual survey of the region's highest-paid public company executives, has used the estimated value of stock and option awards since the SEC's latest rules on pay disclosure took effect for the 2007 proxy season.

The SEC previously had required companies to use the estimated value in the summary table but changed that when it rewrote disclosure regulations in 2006. The rationale: The value an executive actually received from those awards could differ radically from the estimate.

That point was driven home last year. Stock and option awards are typically granted early in a company's fiscal year and are valued based on the stock price at that particular point in time. Since Wall Street's misery hit full stride only late last year, the estimated value of stock and option awards was overstated for most companies.

Take former Nova Chemicals CEO Jeffrey M. Lipton. His compensation included restricted stock that was valued at $6 million when it was awarded early in 2008. If the value had been estimated at the end of last year, the same restricted shares would have been valued at only $1 million, according to the company's proxy statement.

Similarly, in years when stock prices soar following the award date, using the estimated value understates the income executives receive from stock and options awards.

Those problems remain an issue. But the SEC believes that going back to the estimated value figure provides a better way for investors to evaluate the equity compensation executives receive.

Many experts agree. Executives of Pfizer and BorgWarner supported the change in comments to the SEC. So does Waltham, Mass., compensation expert Jack Dolmat-Connell.

"We think it's a great idea," he said. "It's much more representative of the intended value a board was willing to give a CEO in a given year."

Another compensation consultant, David E. Gordon of Frederick W. Cook & Co., told the SEC he supported the change even though it "is not a perfect solution to how to best disclose the value of an executive's compensation."

Reed Smith attorney John D. Martini, who specializes in employee benefits, does not support the change. He thinks the proposal may have something to do with the outrage over executive pay sparked by the collapse of AIG and other financial services companies.

"This is an overreaction, in my view, to the current compensation crisis," he said.

Mr. Martini believes that the expense-based number better reflects what executives receive in a given year. For many companies, reverting back to the estimated value will change which five executives a company lists in the proxy, he said.

The SEC is reviewing more than 100 comments it received on the proposal. Whatever changes it ultimately approves are expected to take effect for the 2010 proxy season.