December 2, 2010

CII Releases White Paper on Wall Street Pay Practices

A new white paper commissioned by the Council of Institutional Investors and prepared by The Corporate Library notes some improvement in pay practices at Wall Street firms since the financial crisis, but indicates that improvement is still needed in tying compensation to long-term value growth. Ted Allen notes in the RiskMetrics Governance Insight blog:

The Council of Institutional Investors (CII) released a new report today that concludes that Wall Street’s executive compensation practices have improved somewhat since the global financial crisis, but warns that major banks still are not tying pay to long-term gains in performance.

“While many banks have strengthened their pay practices, there’s still a long way to go,” Ann Yerger, CII’s executive director, said in a press release. “The report suggests they need to do more to make sure that executive compensation rewards performance over the long term.”

The report was prepared by written by Paul Hodgson, a senior research associate at the Corporate Library.

The report’s findings include:

– Total CEO compensation at major Wall Street institutions in 2003-2007 was two to three times the level of pay at other Fortune 50 companies during the same period. The differential was driven mainly by big dollops of time-restricted stock in Wall Street pay packages.

– Pay at these banks was structured to incentivize executives to deliver strong performance–over the short-term. But lavish cash bonuses, high absolute levels of pay, and excessive focus on short-term annual growth measures had damaging consequences for shareowners over the long-term.

– Compensation structures on Wall Street has improved since 2008, but the banks still are not tying compensation to long-term performance metrics.

The Case of the Forged Comment Letters

We have all observed the often annoying letter writing campaigns that are spawned by the SEC’s (or another agency’s) request for comments on rulemaking proposals where the people writing the letters don’t seem to have any idea what the rule proposal is actually about, but now it appears that a group has taken the letter writing campaign to a whole new level. This Bloomberg story discusses a recent situation where some comment letters submitted to the CFTC on one of its Dodd-Frank Act rulemaking were allegedly forged, and the CFTC has now referred the matter to the Justice Department.

November-December Issue: Deal Lawyers Print Newsletter

This November-December issue of the Deal Lawyers print newsletter was just sent to the printer and includes articles on:

– The 2011 Outlook for Deals & Governance: Back to the Future
– “Clear and Simple”: SEC Proposes Say-on-Golden Parachute and Enhanced Disclosure Rules
– Delaware Supreme Court Upholds Net Operating Loss Poison Pill
– Top-Up Options: Looking Better and Better
– M&A Due Dilgence: The Effect of Restatements

If you’re not yet a subscriber, try a “Rest of ’10 for Free” no-risk trial to get a non-blurred version of this issue on a complimentary basis.

– Dave Lynn