August 5, 2011
Timothy J. Bartl
Executive Pay Legislation and Regulation
Claiming that “[i]mproper incentives were intrinsic to nearly every facet of the financial crisis,” Public Citizen has released a report criticizing business organizations for filing comments seeking to make more workable the overbroad regulations proposed under section 956 of the Dodd-Frank Act, which gives financial regulators the authority to intervene in the boardroom. The report, “Just Not Us: Wall Street’s ‘Two Cents’ on Pay Rule: Self- Preservation, Not Principle” reviews the comments of 24 business organizations and companies, including the Center on Executive Compensation, which filed comments in part out of concern that the provision, which applies only to financial services companies, would spread to all companies. Public Citizen claims that the proposed rule affords boards of directors “exceedingly broad discretion already,” and suggests that the comments would considerably weaken and contradict the core intent of section 956. Rather than supporting its position that these rules will stop a future financial crisis, Public Citizen criticizes the organizations seeking a more practical approach to the regulations to avoid severe, unintended consequences, such as imposing costly burdens or driving talent away from covered financial institutions. Instead of keeping the merits of the issues under discussion, the Public Citizen report spends considerable time analyzing the organizations’ lobbying expenditures and whether their lobbyists were former government employees. The lack of substantive arguments by Public Citizen and other proponents of this rule is evidence that there may be an opening to reform or repeal it. This week, Reuters
reported that incentive compensation was one of five Dodd-Frank endangered provisions. There is mounting concern over the flaws in the SEC’s economic analysis on the rule because that analysis was disproportionately focused on the administrative burdens instead of the competitive burdens. The SEC announced this week that the final rules will be issued between January and June 2012, making it highly unlikely that the provision will take effect before 2013.