Business Leaders - Practitioner - Executive compensation - Say-and-Pay

            In the wake of the recession of 2008, instead of actually doing something to limit the speculation of Wall Street Banks, such as repealing the Gramm-Leach-Bliley Act of 1999, our congress, in its infinite wisdom, gave us the Dodd-Frank Wall Street Reform and Consumer Protection Act. The act, which tops 800 pages, introduces a plethora asinine of regulations on many types of businesses, not simply those on Wall Street. Even non-profit municipal cooperatives are affected by this legislation. It should be no surprise that Senator Chris Dodd, one of the drafters of the bill, was in the  “Friends of Angelo” VIP program at Country Wide financial, aptly named after the ever-glowing CEO, Angelo Mozilo. Being in the VIP program allowed Dodd to receive below market interest rates on his mortgages. Some might say the epitome of congressional corruption; I’ll let you be the judge of that.

            Buried deep within the legislation, section 951 to be exact, shareholders were “gifted” with the so called ‘Say-on-Pay’ clause. A remarkably toothless clause, it requires that companies must put the compensation of executive officers up for vote, at least once every three years. This is usually done at an annual meeting. I’m going to go out on a limb and assume that most companies only do this the minimum amount of times required (once every three years). The reason the clause is a waste of everyone’s time, is that it’s simply and “advisory” vote, and it’s non-binding. You read right. Every three years the company holds a straw vote that’s not binding in any way. Binding, no, but definitely thorns in the sides of some companies. Out of the thousands of public companies, only about 40 “failed to receive majority support on their say-or-pay votes” (Ghegan 51). Despite the fact that these votes are non-binding, some shareholders have taken it upon themselves to sue, claiming that the boards have breached their fiduciary responsibilities, despite section 951 saying the clause "May not be construed to create or imply any additional fiduciary duties for such issuer or board of directors" (HR 4173, 2010). Instead of focusing on maximizing shareholder value in today’s tough economy, the executive team is too busy worried about defending the lawsuits, not to mention, their utilizing company resources to defend themselves.

            It’s ironic to say the least that Congress only had a 25% approval rating at the time the bill was drafted. It later dropped to 9% in some polls. Meanwhile, Dodd was getting sweetheart interest rates from Countrywide Financial, which had been swallowed up by Bank of America 2008. The bill was sold to Americans as the end of Wall Street excess, and the public bought it hook line and sinker. After all, it is called the Dodd-Frank Wall Street Reform and Consumer Protection Act. It can only help us right?

Works cited:

 

Ghegan, David. "Trends in 'Say-on-Pay Lawsuits." Financial Executive. Nov 2011: 51-3. Print.

Dodd-Frank Wall Street Reform and Consumer Protection Act, HR 4173, 111th Congress, Second Session (2010)