Even Half Implemented, Say on Pay and Dodd-Frank Continue to Confuse

Executive Compensation
by Stephen Bruce, PhD, PHR
"Dodd Frank and its various “Say on” requirements offer 10 key challenges related to compensation, says consultant Deborah Lifshey. Although about half are not currently applicable, it’s still hard to plot a reasonable course."

The Dodd Frank Act (Dodd Frank Wall Street Reform and Consumer Protection Act) was signed in 2010 as a culmination of efforts to regulate and limit Wall Street as result of the mortgage fallout, says Lifshey, Managing Director at the New York Office of Pearl Meyer & Partners.

Lifshey’s tips came at a recent webinar sponsored by BLR and HR Hero.

Status of Dodd Frank Obligations

Two and one-half years after its signing, major parts of the law are still delayed. In the table below, Lifshey clarifies the status of the main aspects of Dodd-Frank that relate to compensation.


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Provision

Original DFA Scheduled Effective Dates

Current Status

Effective
for 2012
Proxy?

Shareholder advisory votes:
Say on Pay, Say on Frequency, Say on Golden Parachutes

Shareholders’ rights with respect to advisory votes

Proxy statements for meetings on or after
01/21/2011

SEC issued final rules Jan. 25, 2011

Yes

Financial Institution Excessive Compensation Rules

Restrict pay with special regulations (only regulate certain financial institutions)

Rules to be issued by 04/21/2011

Proposed rules issued April 2011
Final rules “pending”

final rules still pending

Compensation Committee &
Advisor Independence;
Committee’s Oversight Authority

Has to do with responsibilities for hiring advisors, rules governing advisors’ other relationships with the company or its executive officers

Effective by 07/16/2011

Proposed rules issued March, 2011
Exchanges issued rules in Sept.
2012. SEC to issue final rules by
June 2013

?

Disclosure of Compensation Consultant Conflict of Interest

Company needs to talk about whether there is conflict of interest and how comp committee considered independence of consultants

Proxy statements for meetings occurring on or after 07/21/2011

Final rules issued June 20, 2012

Yes

Clawback Policy

If there is a restatement and there were incentive payments, company has to get excess incentive payments back
Has been debated, is confusing, and right now is not required; however, some companies are addressing by saying that the board will look at the issue

None stated

Proposed and final rules “pending”

?

Pay-For-Performance Disclosure

“We still don’t know what it looks like and don’t know what it means.”
However, most companies did put language out showing some link between pay and performance.

None stated

Proposed and final rules “pending”

?


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Internal Equity Ratio Disclosure

This most ridiculous requirement calculates a ratio between CEO pay and median performance of all other employees. No one has figured out how to calculate or what it means.

None stated

Proposed and final rules “pending”

?

Disclosure of Hedging

Execs can’t hedge their company stock, (many companies already have this)

None stated

Proposed and final rules “pending”

?

Disclosure of COB/CEO Roles

Requires the company to reveal whether or not is has a separate CEO and Chairman.
If they are the same person, you have to state why you think it’s important to have it this way.

None stated, but it is so similar to 2010 rulethat most companies have complied in the
2012 proxy

SEC has not committed to dates for
guidance

Yes

Proxy Access

Batted around by SEC for about 10 years—hard for shareholder to get new director on the slate—court struck it down.

SEC issued final proxy rules August 25, 2010. Courts struck “universal” rule in July 2011. Companies may still submit proposals to change bylaws under Rule 14a-8

Rule 14a-8 currently implemented

Yes

In tomorrow’s Advisor, more on Say on Pay, Say on Frequency, and Say on Golden Handcuffs, plus an introduction to the most basic tool for your compensation toolbag—BLR’s unique SmartJobs.

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  1. Barb        
    December 20, 2012 12:57 pm

    Are the delays in implementation due to the efforts of lobbyists? You have to wonder if the amount of money and effort that goes into trying to defeat these efforts are really even worth it in the long run. Is this just a cash cow for the lobbyists?