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.