SEC Chair Jay Clayton Pledges Focus on Public Company Burdens While Rules Drop Off Rulemaking Agenda

Executive Pay Legislation and Regulation, Executive Pay Plan Design

In the first major speech of his tenure last week, SEC Chairman Jay Clayton reaffirmed the agency's commitment to its core mission, and the SEC's regulatory agenda released this week reinforced his focus as three executive compensation rules were removed from the list of those expected to receive final action in the next year.  In his speech, Chairman Clayton avoided discussing any specific policy initiatives or specific rules, such as pay ratio.  There are however, several notable takeaways from the speech, given before the Economic Club of New York, including:

• Bid to Boost Public Company Numbers:  Chairman Clayton echoed a mainstream GOP theme—the U.S. needs to boost the number of public companies.  He stated that the path to accomplishing this goal is to reduce excessive burdens and disclosure requirements, a priority for his tenure.
• Departure From Socially-Oriented Rulemaking:   In reinforcing the SEC’s traditional mission and approach to regulation, Mr. Clayton appears to be signifying a stark move away from the socially-oriented rulemaking approach of the SEC under President Obama.  Thus, it would appear promulgation of rules pertaining to Environmental, Social or Governance ("ESG") matters is unlikely.  It is not yet clear how the SEC will address Congressionally-mandated rules like the pay ratio, which clearly do not meld with the SEC's mission.  However, in explaining another of his principles—"the costs of a rule now often include the costs of demonstrating compliance"—he stated that the SEC should have "a realistic vision for how rules will be implemented as well as how we and others intend to examine for compliance."
• Foreshadowing the Retrospective Review of Rules:  Noting the SEC's rulemaking process "does not end with rule adoption," Mr. Clayton foreshadowed the possibility that the SEC will review rules currently in effect in an effort to be "introspective and self-critical." The SEC is likely to seek to identify situations "where a rule's effects may not be consistent with expectations."

Meanwhile, the SEC released its semiannual regulatory agenda this week.  Three Dodd-Frank executive compensation rules were notably absent from the rules expected to receive action in the next twelve months: the financial services incentive compensation rules under Section 956, a joint rulemaking with five other agencies, clawbacks and pay for performance.  Although the list is not binding on the agency, it is unlikely that these rules will receive action before the end of the year.