SEC Formally Postpones Dodd-Frank Rulemaking (And Rerun – Compensation Clawbacks and Political Mischief)

Executive Compensation Blog

First, I did not see an announcement, but the SEC updated the Dodd-Frank Implementation section of its website to delay the "planned" issuance date for the remaining rules required by the executive compensation provisions of the Act, which now appear as follows:

January - June 2012 (planned)

§951: Adopt rules regarding disclosure by institutional investment managers of votes on executive compensation
§952: Adopt exchange listing standards regarding compensation committee independence and factors affecting compensation adviser independence; adopt disclosure rules regarding compensation consultant conflicts
§§953 and 955: Propose rules regarding disclosure of pay-for-performance, pay ratios, and hedging by employees and directors
§954: Propose rules regarding recovery of executive compensation

July - December 2012 (planned)

§952: Report to Congress on study and review of the use of compensation consultants and the effects of such use
§§953 and 955: Adopt rules regarding disclosure of pay-for-performance, pay ratios, and hedging by employees and directors
§954: Adopt rules regarding recovery of executive compensation
§956: Adopt rules (jointly with others) regarding disclosure of, and prohibitions of certain executive compensation structures and arrangements for financial institutions

(Yes, a few of the rules appear as "planned" under both periods.)

Second, since it seemed like I received an out-of-office bounce back from nearly everyone on the list last week, I thought I would repost this blog on political mischief in the area of compensation clawbacks. On December 21, 2011, New York City Comptroller John C. Liu and certain union pension funds issued a press release announcing that they had filed shareholder proposals at three of the largest financial institutions requiring the "boards to hold senior executives financially accountable for losses that result from excessive risk-taking or improper or unethical conduct."

My first thoughts were, don't they read the papers? Aren't they aware that Dodd-Frank Act Section 954 already requires companies to adopt clawback policies (or will require, as soon as SEC issues final rules implementing Section 954)? The press release made no mention of Section 954, although Mr. Liu acknowledged that the targeted firms already have clawbacks.

Given the checkered history of union pension fund investing and politicians' apparently irresistible urge to use executives and/or their compensation as a punching bag, it is hard to know whether this is a serious effort or just another attempt to gain publicity and score political points. However, I must concede that there are a couple of nuances in the Liu/union proposal that are different from the requirements of Section 954 (although the SEC conceivably could add these requirement in its final rules), and that boards and compensation committees might want to add to their list of discussion issues (my list has 18 issues).

The proposal would require that the financial firms amended their current clawback policies to:

  • Require disclosure of any decision by their boards on whether or not to recoup executive compensation.
  • Strike the word "material" from the firms' current clawback policies to lower this "unrealistically high legal and financial standards" for clawback actions, which that protects executives from being held accountable.
  • Hold supervisors responsible for bad behavior by prohibiting a senior executive from benefitting when a subordinate engages in improper conduct that generates profits in the short-term, but that ultimately causes financial or reputational harm to the firm. 


On January 3, 1892, John Ronald Reuel Tolkien, was born (d. September 2, 1973). Tolkien was best known as the author of The Hobbit and The Lord of the Rings. In 1916, Tolkien volunteered for military service in World War I and was commissioned as a Second Lieutenant in the Lancashire Fusiliers. He served as a signals officer at the Battle of the Somme, where 60,000 soldiers were killed. He wrote: "I do not love the bright sword for its sharpness, nor the arrow for its swiftness, nor the warrior for his glory. I love only that which they defend."

Executive Compensation Blog


This entry has been created for information and planning purposes. It is not intended to be, nor should it be substituted for, legal advice, which turns on specific facts.