April 27, 2009
Schumer’s Major Governance Legislation: Say-on-Pay-and-Severance, Etc.
– Broc Romanek, CompensationStandards.com
According to this WSJ article from Saturday, Sen. Schumer intends to introduce legislation this week that would overhaul a number of governance areas. This is the legislation that we all have been expecting since the financial crisis broke – and, with a few exceptions, its components should come as no surprise since most of them have been proposed before in one form or another before.
According to the article – whose authors saw a draft of the legislation – it will include these significant provisions (bear in mind that actual proposals could change from the draft):
1. Say-on-Pay – require companies to give shareholders an annual nonbinding vote on executive pay practices
2. Say-on-Severance – give shareholders a nonbinding vote on severance packages for executives following mergers or acquisitions
3. Proxy Access – buttress potential SEC rules that would make it easier and cheaper for investors to nominate their own directors (article says SEC is considering a number of “proxy access” techniques and could issue a proposal in mid-May)
4. No More Classified Boards – require companies to hold annual director elections rather than putting only a portion of the board up to vote each year
5. Majority Vote Standard for Director Elections- require directors to resign if they don’t win a majority of shares voted
6. Independent Board Chairs – require board chair to be independent
7. Risk Management Board Committees – require boards to appoint special committees to oversee risk management
The article says that House Financial Services Committee Chair Barney Frank is working on say-on-pay legislation as well. And we already have seen SEC Chair Schapiro’s ambitious agenda for governance rulemaking that will take place in the near term.
This is all quite notable, particularly when combined with the high likelihood that the SEC will approve the NYSE’s proposal to eliminate broker non-votes in director elections which, according to this WSJ article, may come as soon as this week!
It will be interesting to see how hard corporate lobbying groups will fight the pay components of Schumer’s bill. There are numerous examples that reflect little change in executive compensation practices. For example, see today’s Bud Crystal note on Six Flags.
And speaking of Sen. Schumer, he and Sen. Shelby introduced an amendment to an existing anti-fraud bill last week that would increase the SEC’s budget by $20 million to allow it to hire 60 additional Enforcement Staffers and upgrade its technology.