2012.July.17 SEC Commissioner IDs 3 Challenges from Dodd-Frank re Executive Compensation
Before an audience focused on corporate governance, SEC Commissioner Paredes made three observations about Dodd-Frank's executive compensation provisions. The full text of those observations appears below (in excerpts from his speech), with the highlights being --
- Re disclosure of the CEO pay ratio to median employee pay: "regulation needs to be workable in practice ... [and] not impose excessive obligations on companies that yield little marginal benefit."
- Re clawbacks:
- "Section 954 appears to operate as a “no-fault” provision. ... I can understand why many might find this troubling."
- Note that, coincidentally, a W.D. Texas court is about to rule on a motion to dismiss an SEC clawback case under SOX 304, with the argument being that the SEC has not alleged any fraud or misconduct by the ArthroCare executives at whom the SEC has aimed its clawback suit. Just let me know if you want to receive today's BNA article and the associated motion to dismiss.
- "Section 954 raises other possibilities that could prove to be problematic and not in the best interests of companies or their shareholders. ... The unintended consequences could be costly."
- Re executive compensation generally:
- "Executive compensation does not lend itself to one-size-fits-all approaches, but instead demands a textured, company-by-company analysis."
- "Proxy advisory firms should keep this in mind too given the understandable concern that has been raised that the recommendations of proxy advisory firms are too often based on a one-size-fits-all view of things. . . . it seems to me that the role of proxy advisory firms needs to be addressed."
Overall, Commissioner Paredes seems to be delivering sound messages about the primary unintended consequences of Dodd-Frank's executive compensation provisions, namely: an administratively burdensome CEO pay ratio requirement, an overly-broad clawback mandate, and a homogenization of decision-making and analysis. Compliments would seem in order not only for a fair assessment, but also for a signaling of key issues for attention, debate, and improvement.