On June 10, 2009, the Treasury Department announced its support for “Say on Pay” legislation to authorize the Securities and Exchange Commission to require annual non-binding shareholder votes on compensation at all publicly traded companies. Online copies are available 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.
These new rules – and the Administration’s desire to legislate and regulate in this arena – will greatly affect how every publicly traded company does business by “bringing compensation practices more tightly in line with the interests of shareholders and reinforcing the stability of firms and the financial system”, according to Treasury Secretary Geithner.
The Administration believes that “Say on Pay” votes by shareholders will achieve 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.
These goals will be promoted both through legislation and regulation, and will build on Sarbanes-Oxley to regulate corporate behavior. The Administration’s proposal will affect all publicly traded companies – not just those that participate in the so-called “TARP” program and were required to allow “say on pay” votes by shareholders this year.
Unless your voice is heard and heeded, major changes to corporate governance will be implemented in ways that will greatly affect how your company operates and how your executives are compensated.
McGuireWoods LLP and McGuireWoods Consulting stand ready to assist you to comment upon the proposed legislation and any related SEC rules and to assist you in preparing to respond to the major changes in corporate governance that they would bring to corporate America.