The Advisors' Blog

– Broc Romanek

Here’s an excerpt from this column by NY Times Gretchen Morgenson:

It remains unclear, though, whether the company’s executives will take a financial hit for the failures that allowed thieves to steal Social Security numbers, driver’s license numbers and other sensitive data. Indeed, Equifax’s top managers may not feel any financial ill effects, given the company’s past compensation practices.

Over the last three years, when Equifax determined its top executives’ incentive compensation, it has used a performance measure that excluded the costs of legal settlements made by the company. If it follows this practice after dealing with the costs of settling legal claims arising from the security breach, Equifax’s top managers will essentially escape financial accountability for the blunder.

This troubles Charles M. Elson, a professor of finance at the University of Delaware and the director of its John L. Weinberg Center for Corporate Governance. “To the investors in the company, the legal settlement does impact earnings and stock price,” Mr. Elson said in an interview. “If the shareholders suffer because of this breach, why should management be excluded? These folks take home all of the upside and want none of the down.”