The first article covers new rules adopted recently by the SEC to force shareholder votes on large firms’ executive compensation plans every three years:
“… companies whose stock-market value exceeds $75 million must give shareholders the opportunity, at least once every three years, to voice their approval or disapproval of how top management is being paid.”
The votes are non-binding, but the article also reports on some interesting research that reveals that these votes still affect subsequent behavior:
“Ralph Walkling of the Center for Corporate Governance at Drexel University has found that voting against directors may discourage them from acting like rubber stamps. Each 1% increase in "no" votes knocks up to $222,000 off the excess compensation of the chief executive officer the next year -- and even raises the odds that the CEO will be replaced.”
The second article previews a proposal by the FDIC to force large financial institutions to hold a portion of executives’ bonuses for a three year period. The firms would be expected to monitor past performance during this period and adjust the employee’s bonus depending on how that performance appears after a longer period of time has elapsed:
“Under the proposal, the firms would have to review the results of trades or other business decisions tied to an employee's bonus pay over the deferral period. If losses occur, the firms would have to reduce or eliminate the delayed compensation accordingly. … The proposed rule also would instruct the boards of firms with more than $50 billion in assets to identify lower-rung employees who are capable of inflicting "material risk" on their company. The firms would have to defer a portion of bonus pay for these employees as well.”
Neither rule is ground-shaking in its impact alone. Taken together, however, they indicate a subtle shift in how executives are rewarded and introduce a little more accountability to the process.
Take care
David
Instructor Teaching Site: http://www.sagepub.com/strategiccsr/
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/
The Intelligent Investor: A Chance to Veto a CEO's Bonus
By Jason Zweig
808 words
29 January 2011
The Wall Street Journal
B1
U.S. Seeks To Defer Portion of Bonuses
By Victoria McGrane and Aaron Lucchetti
873 words
5 February 2011
The Wall Street Journal
B1
