Reminder: Wall Street reform gives regulators power over executive pay

[ProSense]

Wall Street reform gives regulators power over executive pay

By Zachary A. Goldfarb

For the all the changes to the regulatory fabric contained in the landmark Dodd-Frank law, none might be more significant to the financial sector's health than Section 956(a).

That largely overlooked provision of the law gives federal agencies expanded powers to write regulations dictating pay at financial firms. How they choose to use these powers could have a major impact on whether banks pursue excessive risks.

"The financial crisis made patently clear that the direct regulation of the choices that banks make is bound to be imperfect because regulators are often following behind," said Lucian A. Bebchuk, a Harvard Law School professor who has advised the Obama administration on executive compensation issues. "It's valuable for regulators to have an extra tool to influence the private incentives that will shape executives' decision-making."

Banking regulators now face a set of choices as they seek to implement the financial pay provisions of the law, which requires action within nine months.

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Testimony Concerning Executive Compensation Oversight after the Dodd-Frank Wall Street Reform and Consumer Protection Act

[leveymg]

1. Cash compensation and stock options?

Without the latter, it's just a tax dodge.

[ProSense]

2. Every solution

is a problem waiting to happen.

He could get rid of all business and that would lead to another charge.

This is a first in this country and a start: Unfinished business of executive pay reform

Most analysts of the high-finance meltdown that ushered in the Great Recession have concluded that excessive compensation was a key causal factor. Outrageously high rewards gave executives an incentive to behave outrageously, to take the sorts of reckless risks that would eventually endanger our entire economy. Our nation's leading political players have sought, sometimes with grand fanfare, to confront this reality. The financial reform package enacted this July, for instance, codifies several long-term goals of executive pay reformers, most notably a “say on pay” provision that hands shareholders the right to take nonbinding advisory votes on executive compensation.

This reform could become a valuable tool for shareholder activists, particularly if such votes are required on an annual basis. However, there is little evidence that “say on pay” has had an impact on overall compensation levels in nations where it has already been in practice.

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From the 90s when the CEO pay loophole was created to now, this is progress.