Will They or Won’t They? Anticipating the Future of Dodd-Frank, Corporate Governance, and Executive Compensation

With the new administration in place, the rumblings are getting louder that the Dodd-Frank Wall Street Reform and Consumer Protection Act may be rescinded, and with it all or most of the pending provisions.

So, what does this mean for executive compensation? Of the more than 900 Dodd-Frank provisions, less than 10 specifically address executive compensation. Say on Pay (SOP), which was implemented in 2011, has been a huge success with less than two percent of all companies failing their SOP vote in a given year. The other pending provisions of Dodd-Frank, including Pay for Performance Alignment and Clawbacks, have not been implemented; however, most companies have voluntarily included these disclosures in their Compensation, Discussion, and Analysis (CD&A). The pending CEO to Median Employee Pay Ratio provision is on hold and may not see the light of day amid concerns that there are too many variables to make it a viable way to compare median pay across companies.

What will this mean for Compensation and Discussion Analysis disclosures going forward? Over the past few years, the majority of public companies have been reporting on CEO pay and performance alignment, and a growing number of companies have disclosed some type of clawback for ill-gotten gains at the expense of shareholders. Today, we see companies working closely with their advisors to engage shareholders, proxy advisors, and stakeholders to better communicate disclosures and shareholder value.

Overall, the market issues that keep executives and directors awake at night probably won’t surprise you: goal setting and risky incentives, compensation committee processes, short-termism, activist investors, managing equity, succession planning, cybersecurity and a host of other issues. What might surprise you is how a little proactive thinking, the right information at the right time, and the right executive compensation advisor, can help you align the interests of all stakeholders in a meaningful and defensible way. Farient is ready to help, and through our Partners in the Global Governance and Executive Compensation Group (GECN), we are well positioned to seamlessly address your challenges in more than 30 countries.