Corporate Governance

ABA Business Law Section Spring Meeting: Moving from the Year of Outrage to the Year of Reform in Executive Compensation

By Charles Nichols

This blog's coverage of the ABA Business Law Spring Section Meeting continues with a program entitled 'Executive Compensation Update: What's New for Spring.'  This was a very impressive and timely panel, consisting of parters specializing in executive compensation from Milbank Twed Hadley & McCloy LLP and Alston & Bird LLP as well as a principal from the compensation consulting company, Compensia Inc.   This panel discussed December's proxy rule changes and a legislative update as it applies to executive compensation.

The proxy update stated that disclosures are, in large part, becoming more sophisticated and more streamlined according to the panel.  That said, many companies still have not filed proxies, so time will tell if this trend will continue.  Further, the panel noted that disclosure is less organized the first year after rule changes as companies try to interpret what is expected by new regulations.  Specifically, the panel discussed: 1) Equity award disclosure in summary compensation tables in light of constant 'staff interpretations'; 2) issues concerning target compensation v. realized compensation; 3) the timing discrepancy concerning equity and option awards and when to account for them; and 4) conflicts of interest regarding compensation consultants who consult on work other than compensation plans.

The panel then discussed a current overview of pending legislative changes that will impact the executive compensation area.  The panel listed and discussed the 11 sections of Senator Dodd's Reform bill that will effect executive compensation and corporate governance.  Although may of these requirements already exist in one way or another, the panel found a few to be in need of further development.  Those pending requirements are: Executive Compensation: 1) 'Say on Pay' requiring an advisory vote on compensation packages; 2) Independence of the compensation committee and advisors to it; 3) a link between compensation and performance (specifically a historical link between Total Shareholder Return ('TSR') and executive pay); 4) Disclosure of the ratio of CEO pay to that of the median employee; 5) Mandatory clawback provisions for exchange listed companies; 6) Disclosure of executives/directors hedging actions; 7) 'Excessive Compensation' by bank holding companies; 8) Prohibition on brokers from discretionary voting of proxies; Corporate Governance: 1) Majority voting in uncontested director elections; 2) SEC may prescribe proxy access rules; and 3) Leadership structure discussion as to why the CEO and Chairman positions are or are not combined.

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Full post as published by The Race to the Bottom on April 26, 2010 (boomark / email).