CEO ‘pay’ definition remains unclear as SEC struggles to meet Dodd-Frank deadlines

Many Dodd-Frank related rules have yet to be proposed by the SEC – even though deadlines have passed.

The Dodd-Frank act is a far-reaching law that impacts many U.S. companies. It became effective on July 21, 2010, and part of it covers “Accountability and Executive Compensation.”

The Securities and Exchange Commission (SEC) was supposed to come up with rules applying the law to specific issues on the topic, but the SEC has been tardy. As of this year, the SEC has adopted final rules on two of the provisions, proposed rules on two others areas, and has yet to propose rules on three other provisions.

In a recent post on a Harvard Law School blog, Joseph Bachelder, a special counsel in the Tax, Employee Benefits & Private Clients group at McCarter & English, explained where everything stands.

The SEC adopted final rules on “Shareholder Vote on Executive Compensation Disclosures” (including “say-on-pay”) and “Compensation Committee Independence.”

Also, the SEC proposed but did not adopt final rules on disclosure of CEO pay ratio (the ratio of “the annual total compensation” of the CEO to the median “annual total compensation” of all other employees) and enhanced compensation reporting by covered financial institutions.

In addition, the SEC has yet to propose rules on “Disclosure of Pay Versus Performance,” “Recovery of Erroneously Awarded Compensation” and “Disclosure Regarding Employee and Director Hedging.”

In fact, about one-quarter of the 398 rule-making requirements under the far-reaching law have yet to be proposed by regulators, according to the Davis Polk law firm. As of April 1, 280 Dodd-Frank rulemaking requirement deadlines passed. Of these 280 passed deadlines, 128 (45.7 percent) were missed and 152 (54.3 percent) led to finalized rules. In addition, 206 (51.8 percent) of the 398 were finalized, while 98 (24.6 percent) requirements were not yet proposed.

When it comes to disclosure about the topic of "pay versus performance" at public companies, one recent report from The Fiscal Times said that boards and management need to provide "a clear description" to shareholders of "the relationship between executive compensation actually paid and the financial performance of the issuer.”

The Conference Board and Ira Kay, a managing partner at Pay Governance, want a revised meaning of performance pay, and the word "paid."

“A recommendation shaped by Kay would ignore signing bonuses, pensions and perks — including company airplane, car, driver, club memberships and home security systems — along with out-of-the-money stock options when making pay-for-performance assessments,” the report said.

On April 14, Kay and others met with the SEC's Division of Corporate Finance to push for the changes.

"This is not a piece commissioned by management or CEOs. It's in the interests of investors and companies that are interested in these issues," Jim Barrall, a member of the Conference Board working group on the issue, and who co-chairs the Latham & Watkins benefits and compensation group, told The Fiscal Times. "Clearly the agency needs to draft rules on pay versus performance. We hope they look at what we've done and I suspect they're watching what we do."

But some are looking at the proposed changes skeptically.

"If you're stripping out pension valuations and other things, you're cooking the books," Jesse Fried, who teaches at Harvard Law School, told The Fiscal Times.

In 2013, three quarters of members of the National Association of Corporate Directors' Executive Compensation Advisory Council said, “pay-for-performance analysis should include pension benefits, perks and other non-cash earnings,” the report adds.

On the other hand, Kay's approach does provide “shareholders a more up-to-date reading of executive pay,” the report noted.

Earlier this year, InsideCounsel reported that most directors (91 percent) and shareholders (97 percent) believe the executive pay model stayed the same or changed for the better since say-on-pay votes were required – based on a survey from Towers Watson and Alliance Advisors.


Further reading:

SEC rejects whistleblower claims for failing to follow Dodd-Frank rules

Directors, investors diverge on executive pay

Dodd-Frank ruling causes concern among federal aides and officials


Contributing Author

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Ed Silverstein

Ed Silverstein ( is a veteran freelance writer and and editor for magazines, websites and newspapers. He writes frequently for ALM Media's

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