On Thursday evening, the Senate approved by a 59-39 margin the Restoring American Financial Stability Act of 2010, the massive financial reform bill commonly referred to as “Wall Street Reform” legislation. Earlier that day, the chamber was able to secure the 60 votes needed to limit debate on the measure, after failing to do so on Wednesday. Although the bulk of this legislation focuses on banking regulation and consumer financial protection, a handful of the bill’s provisions and amendments touch on employment-related issues.
For example, the section entitled: Subtitle E — Accountability and Executive Compensation governs shareholder input on executive compensation and compensation committee independence. These so-called “say-on-pay” provisions would provide for a shareholder vote on executive compensation disclosures, and require that each member of the company’s compensation committee be an independent member of the board of directors. A few of the subsections in this chapter of the bill include:
- Section 951, which provides that any proxy, consent, or authorization for an annual or other meeting of shareholders must include a separate resolution subject to a shareholder advisory vote to approve the compensation of the organization’s executives. The result of this vote would not be binding on the board of directors or management.
- Section 952, which requires members of the compensation committees of the company’s board of directors be a member of the board, and be independent so as to avoid conflicts of interest. Specifically, this section would amend the Securities Exchange Act of 1934 to prohibit the listing of any company’s stock if that company does not comply with independent compensation committee standards. In determining whether a director is independent, the national securities exchanges are directed to consider the source of compensation of a member of the board of directors, including any consulting, advisory, or other compensatory fee paid by the company to such member of the board of directors; and whether a member of the board of directors is affiliated with the company, a subsidiary of the company, or an affiliate of a subsidiary of the company. Additionally, any compensation counsel or adviser is required to be independent. The company’s proxy or consent materials must disclose whether the compensation committee has relied on the advice of a compensation consultant and whether the committee has raised any conflict of interest.
- Section 953 would require annual proxy statement disclosure of any compensation required to be disclosed under the Securities and Exchange Commission (SEC) executive compensation forms and any information that indicates a relationship between the executive compensation and the financial performance of the company, taking into account the change in the value of the shares, dividends and distributions.
- Section 954 requires public companies to have a policy in place for the purposes of recovering money that was erroneously paid in incentive compensation to executives as a result of material noncompliance with accounting rules.
Aside from the executive compensation provisions, certain sections would regulate the use of arbitration in specific instances. Section 921, for example, gives the SEC the authority to conduct a rulemaking to prohibit, or impose conditions or limitations on the use of, agreements that require customers or clients of any broker, dealer, or municipal securities dealer to arbitrate any dispute between them.
Section 1028 gives the Bureau of Consumer Financial Protection (CFPB or “Bureau”) – an independent consumer entity within the Federal Reserve created by the legislation – the authority to restrict mandatory pre-dispute arbitration in certain circumstances. Specifically, the Bureau would be required conduct a study and provide a report to Congress on the use of mandatory pre-dispute arbitration agreements as they pertain to the offering or provision of consumer financial products or services. The Bureau would be vested with the authority “to prohibit or impose conditions and limitations on certain arbitration agreements between a covered person and a consumer consistent with the results of the study if it is in the public interest.” The Bureau would not be able to restrict consumers from voluntarily entering into post-dispute arbitration agreements.
Other miscellaneous provisions include:
- Section 929A – Protection For Employees of Subsidiaries and Affiliates of Publicly Traded Companies – which extends Sarbanes-Oxley Act of 2002 (SOX) whistleblower protections to employees of subsidiaries and affiliates of publicly-treaded companies.
- Section 731 – Registration and Regulation of Swap Dealers and Major Swap Participants – which imposes a fiduciary duty on dealers who enter into “swap” trades with pension, endowment, or retirement plans.
While more than 400 amendments were proposed to the bill, only a couple of employment-related amendments were approved, including:
- Senate Amendment 3962, which bans mortgage lenders and loan originators from accepting payments based on the interest rate or other terms of high-interest loans, and requires lenders to document income and other underwriting standards to ensure that borrowers are able to repay their loans.
- Senate Amendment 3840, which extends whistleblower protections to employees of nationally recognized statistical ratings organizations (NRSROs).
Now that the Senate has approved this bill, it will need to be reconciled with legislation the House of Representatives cleared in December 2009, then voted on once again by both chambers.