The Dodd-Frank Wall Street Reform and Consumer Protection Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act, as reconciled, has been passed by the House and could be voted on in the Senate shortly. President Obama has indicated that he would sign the bill. The current bill includes a number of provisions relating to executive compensation in public companies, including the following:

Shareholders must be allowed (effective six months after enactment):

  • o a non-binding vote on executive compensation at least once every three years, and if directed by shareholders, more frequently (and institutional investment managers generally must disclose their votes); and
  • o a separate non-binding vote on compensation arrangements for named executive officers related to a change in control (i.e., golden parachute packages).

Compensation committee members must (or risk being de-listed):

  • o be independent, as determined under rules to be developed by the SEC;
  • o be responsible for the appointment, compensation, and oversight of the committee’s compensation consultants, independent legal counsel, and other advisers; and
  • o consider factors affecting independence that are to be identified by the SEC in selecting compensation consultants, legal counsel and other advisers.

The company must:

  • o develop, implement and disclose a clawback policy to recover incentive compensation from executive officers in the event of accounting restatements due to non-compliance with financial reporting requirements. The clawback period would be three years.

The company’s proxy statement must disclose:

  • o whether the compensation committee has retained or obtained the advice of a compensation consultant, whether the compensation consultant’s work has raised any conflict of interest, and the nature of the conflict and how it is being addressed;
  • o information showing the relationship between named executive compensation and the company’s financial performance;
  • whether any employees or directors are permitted to purchase financial instruments that would hedge the value of company securities; and
  • o information about average employee compensation, CEO compensation, and the ratio of average employee compensation to CEO compensation.

The Act would also require regulators to impose additional disclosure requirements on covered financial institutions.