Dodd-Frank and Executive Compensation - Part 1: Status Update
It’s been over five years since the signing of the Dodd-Frank Wall Street Reform and Consumer Act (“Dodd-Frank”) and we are still waiting for the U.S. Securities and Exchange Commission to finalize rules on several provisions related to executive compensation. Below is a summary of the current landscape of Dodd-Frank as it relates to key executive compensation provisions. Over the coming months, we will be posting a series of blog posts addressing some of the nuances of these provisions. Stay tuned for more.
| Provision | Summary | Status of Rulemaking |
|---|---|---|
| Pay Ratio Disclosure | Requires disclosure of the ratio between the compensation of the company's median employee and the CEO | Final *Disclosure required for first fiscal year beginning on or after January 1, 2017 (i.e,. 2018 proxy statements) |
| Say on Pay | Requires companies to hold shareholder advisory votes on executive compensation along with votes on how often to conduct such say on pay votes | Final *Currently Effective |
| Say on Golden Parachutes | Requires disclosure of and a shareholder advisory vote for any "golden parachute" payments in a transaction where shareholder approval is sought | Final *Currently Effective |
| Compensation Committee Independence | Requires enhanced independence standards for compensation committee members along with specific disclosure requirements | Final *Currently Effective |
| Compensation Committee Advisors | Requires compensation committees to evaluate the independence of consultants and advisors | Final *Currently Effective |
| Clawbacks | Requires companies to develop policies to recover incentive compensation that was awarded based on erroneous financial information | Proposed |
| Hedging Policy Disclosure | Requires disclosure of whether the company allows employees and directors to engage in certain hedging transactions | Proposed |
| Pay-versus-Performance Disclosure | Requires disclosure of the relationship between executive compensation actually paid and company financial performance (i.e., TSR) | Proposed |
| Financial Institution Incentive Compensation | Requires disclosure of incentive compensation and a prohibition on certain arrangements that encourage inappropriate risk taking | Proposed (joint-rulemaking between the SEC and several other agencies) *New proposed rules were issued on April 21, 2016 and can be found here. |
For the full text of the Securities and Exchange Commission proposed/final rules and the corresponding rules adopted by the securities exchanges, click here and then on the “Executive Compensation” link in the Mandatory Rulemaking Provisions section.
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