Adjunct Law Prof Blog

Editor: Mitchell H. Rubinstein
New York Law School

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Wednesday, June 10, 2009

Executive Pay And Say To Play Rules

Overseer To Set Executive Pay At Rescued Companies is an important June 10, 2009 article from the NY Times. It reports that the Obama Administration has appointed a compensation czar to oversee executive compensation at firms which received stimulus funds. That is not surprising and has been in the works for a while. Much more importantly, the article also reports that Secretary Geithner wants publicly traded corporations to adopt “say on pay” legislation giving shareholders the ability to hold non-binding votes on compensation levels. As a Senator, Obama reportedly supported such legislation. 

Specifically, the Department of the Treasury is seeking legislation to authorize the Securities and Exchange Commission to require annual non-binding shareholder votes on compensation at all publicly traded companies.  I have included copies of Secretary Geithner's statement, the U.S. Department of Treasury's "Say on Pay" Fact Sheet and the Providing Compensation Committees New Independence fact sheet.

The Administration believes that such legislation is necessary to achieve the following five goals:

 First, compensation plans should properly measure and reward performance.Second, compensation should be structured to account for the time horizon of risks. Third, compensation practices should be aligned with sound risk management.Fourth, golden parachutes and supplemental retirement packages should be reexamined to align the interests of executives and shareholders.Fifth, transparency and accountability in the process of setting compensation should be promoted.

The legislation will build on Sarbanes-Oxley to regulate corporate behavior. This proposal does not just those corporations that participate in the so-called "TARP" program and were required to allow "say on pay" votes by shareholders this year.

The information provided is a bit vague, but it is apparent that this will become an important part of corporate and employment law.

Mitchell H. Rubinstein

http://lawprofessors.typepad.com/adjunctprofs/2009/06/executive-pay-say-to-play-rules.html

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