April 12 Mondaq Business Briefing
For shareholders and those corporate governance activists who believe exorbitant CEO compensation was partly responsible for the financial crisis, the delay in issuing final rules for the compensation-related issues doesn’t bode well. When you consider that the rule calling for the stock exchanges to develop listing standards for independent compensation committees and compensation consultants is on the same track as non-governance related issues as the disclosure for conflict minerals or mine safety, it’s hard to believe there will be new rules anytime soon.
Remember that the proposed compensation independence rules were just approved by the full commission on March 30. And those rules weren’t even that stringent, as they included a loophole where companies without a compensation committee by the effective date would not have to abide. In fact, those rules missed an opportunity to follow the independence model set by the Sarbanes-Oxley Act regarding the regulation of audit committees. [See my March 31 blog post
If you remember, there was a similar delay in the launching of the whistleblower office that the SEC created under Dodd-Frank. Two months after announcing it would delay indefinitely the opening of the office due to budget constraints, it named Sean McKessy, a former corporate secretary for major public companies, as the first head of the office. So there may be some hope yet.
But most likely those compensation rules won’t become effective until the spring of 2012 since their implementation requires many SEC staff hours. The commission may have some more money to use for the rest of this calendar year since it received a 7 percent increase in its budget, but that only amounted to about half of what it had hoped for so it could implement the remaining Dodd-Frank rules. [Read the Wall Street Journal April 12
The interesting thing will be to see if the more political parts of the Dodd-Frank law (i.e. conflict minerals, mine safety and resource extraction disclosure) receive higher preference than the compensation rules. (By the way, for those of you wondering what conflict minerals are. That’s a term that shows up in the Dodd-Frank Act in describing those minerals that are mined in the Congo and other neighboring countries that are proved to be used to finance violence and exploitation in those countries. The idea is to expose those companies that use those minerals in their supply chain.)
Conflict minerals disclosure, mine safety disclosure, resource extraction issuer disclosure, new exchange listing standards for compensation committee and compensation consultant independence, pay-for-performance and pay ratios, clawback rules for executive compensation packages. Which one of these doesn’t belong?
Actually, it’s a trick question because actually they are all part of the voluminous Dodd-Frank Act. And that’s not the only thing they share in common. Final rules for those sections of the law have been delayed by the SEC at least until the end of this year. (In the case of a study on the use of compensation consultants, until July-December 2012.) [See the