December 21, 2009

How to Fix Executive Compensation: November-December Issue of The Corporate Executive

We just mailed the November-December Issue of The Corporate Executive, which includes a comprehensive recap of important things said at our recent “6th Annual Executive Compensation Conference,” among other things:

– Treasury Speaks about Executive Pay
– Consultant Independence and Accountability
– Fixing Benchmarks and Internal Pay Equity
– Say-on-Pay and Plan Design
– Risk Assessment & Pay
– What Compensation Committees (and Consultants and Counsel) Should Now Be Doing
– Hold-Through-Retirement and Clawbacks
– How to Implement Say-on-Pay Successfully
– SEC Staff: No More “Free Passes” on Material Noncompliant Disclosure
– One Final Reprieve on Section 6039 Returns–And Our Guidance
– Trap for the Unwary: Grant Date Under Section 423
– Section 162(m): The Buck Stops Here

Act Now: As all subscriptions expire in two weeks, please renew now for 2010 – or try a no-risk trial if you are not yet a subscriber.

What is the “Shareholder Communication Coalition”?

Recently, a mailing by the Shareholder Communication Coalition to the CEOs of the S&P 500 – asking for general support on proxy plumbing issues – led a number of members to ask me for more information about this organization. In this podcast, I caught up with Niels Holch, Executive Director of the Shareholder Communications Coalition, to learn more about the activities of the Shareholder Communication Coalition, including this white paper that outlines the Coalition’s recommendations for reforming the proxy voting and shareholder communications system:

– What is the Shareholder Communication Coalition? How – and why – was it formed?
– What has been its focus to date? Can you tell us about the letters that some CEOs recently received?
– Any other activities on the near horizon?
– How can members of the associations involved in the Coalition give their input to the Coalition? Where can people sign-up for email alerts to keep up with Coalition activities?

SEC’s Rating Agency Regulatory Scheme Heighten Risk of Insider Trading

You can’t imagine how difficult it is to draw up rules and cover all the possible implications until you try it yourself. There is always some unintended consequence hiding around the corner. That’s why federal agencies are required to allow the public to comment on proposed rules.

A few months ago, Floyd Norris nailed what he thinks is a crucial flaw in the SEC’s attempt to regulate the rating agencies in this column. Here is an excerpt from that column:

It did that in the name of reforming the credit rating agency system. The new rule shows the dangers of trying to solve one problem without thinking about others. At the heart of the problem is that it is legal for companies and other issuers of securities to give confidential information to rating agencies. Back before the crisis, the fact the agencies had access to such information served to enhance the respect given to their opinions.

Now we know that the major rating agencies — Standard & Poor’s, Moody’s and Fitch — disgraced themselves in rating structured finance products. They relied on bad assumptions, and in some cases may have been lied to by issuers. Their models turned out to be spectacularly wrong. A lot of people think a root cause of the problem was the conflict of interest created by the fact the agencies were paid by the creators of those products, and therefore were dependent on their good will for additional business.

But regulators are unwilling to outlaw the old system, in part because that would leave investors without access to ratings unless they paid for them. So the solution chosen by the S.E.C. is to encourage other rating agencies to rate the products. The rule adopted last week says that whatever information is given to the agency hired by the issuer to rate the structured finance security must be given to other rating agencies, including those that provide analyses only to investors who pay for them.

The result will be that analysts for the other rating agencies, like Egan-Jones Ratings, will have access to information not available to the general public, and their analyses will go only to clients. Those clients will have the benefit of nonpublic information, or at least of their agent’s analysis of what it means.

– Broc Romanek