Live blogging SEC meeting on pay
We’re listening in this morning to the SEC’s Open Meeting on enhancing proxy disclosures, a subject that we cover frequently here at footnoted. You can listen to the hearing yourself here or follow my live tweets (and others who are listening in) here.
According to its just-released Fact Sheet, the Commission is “considering whether to propose a set of revisions to [its] rules that would improve the disclosure provided to shareholders of public companies regarding compensation and corporate governance matters when voting decisions are made.”
One group that will be at the hearing is the Center on Executive Compensation. According to its web site, the group “strongly opposes the rationale for and the impact of an annual vote on pay.”
Since executive compensation issues have gotten so much attention lately and affect not only executives, but also investors, employees, and the general public (we pay the price for those goods and services, after all), this should be an interesting hearing.
UPDATE: Now that the meeting is over, here’s the WSJ’s take. Was actually surprised that there weren’t many people — there’s a small community of people on Twitter interested in this sort of thing — who were following today’s events. We’ll post statements from the various commissioners as soon as they show up on the SEC site. So far, only Comm. Paredes’ statement is available.
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July 1st, 2009 at 8:31 pm
let me start by saying i don’t care how much a CEO makes if shareholders are getting weathy as well..what is beyond disappointing is that proposals to better align executive compensation with long term (meaning at least 5 years) performance have not emanated from the mutual fund, money management, pension fund camps — i.e., those who have suffered most from the decline in asset values. (Why is the market mechanism not functioning here?)
Gov’t has no business in the executive compensation-setting business. Since mutual funds and money managers generally receive a percentage of the assets they manage, a decline in asset values is a decline in income. Undoubtedly, these parties have incurred serious reductions in fee income. So why haven’t they bonded together to tell Wall Street and Boards that here is what we expect and effective on this date (perhaps 12 months in the future) we will stop buying your stocks, bonds, preferreds, convertibles, etc. if you are not incompliance. (Game of chicken? Perhaps, but I suspect if the industry bonded together with a set of rational principles, marketed properly to investors, companies that didn’t initially participate would suffer. Their Weighted Average Cost of Capital or WACC would go up as secondary offers would be priced lower than what their participating peers could get and interest on new debt would be higher vis a vis their participating peers.)
The bulk of executive pay should be back-end loaded, meaning can’t be monetized for a 5-10 period, including on a change of control event. This would force executives to build companies, make smart capital investments, develop succession plans, continuously train personnel and enter into mergers that truly create shareholder value.
Mutual funds, money managers benefit because the pie gets bigger, meaning that even if, for example, a mutual fund maintains the same market share, the value of all stocks and bonds would be larger, so their fee income would grow.
But these parties have been silent and sadly government has put its nose in another place it doesn’t belong. The question is why have these parties been so silent, why haven’t they been more outspoken?