Washington D.C. Employment Law Update : Washington D.C. Employment Lawyer & Attorney : Littler Mendelson Law Firm : Virginia, Tyson's Corner

The Securities and Exchange Commission (SEC) has adopted a final rule (pdf) implementing Section 952 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”), (pdf) which directs national securities exchanges/associations (e.g., NYSE, NASDAQ) to establish listing standards for public company boards of directors and compensation advisers. In general, these standards will require that compensation committee participants be members of the board of directors and meet a heightened standard of independence in order for the company’s shares to continue trading on those exchanges. The rule also amends proxy disclosure rules to include disclosures about the use of compensation consultants – including fees paid to such consultants – and conflicts of interest.

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The Securities and Exchange Commission (SEC) has published a chart outlining when it intends to issue new rules implementing sections of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). (pdf)  Notably, within the next six months, the SEC plans to issue a final rule implementing Section 952 of the Dodd-Frank Act, which requires the SEC to adopt new disclosure rules for companies to report the use of compensation consultants and potential conflicts of interest. In addition, this section of the Act directs national securities exchanges/associations (e.g., NYSE, NASDAQ) to establish listing standards requiring publicly traded companies to have their compensation committee participants be members of the board of directors and meet a heightened standard of independence in order for their shares to continue trading on those exchanges. The SEC issued a proposed rule governing § 952 in March 2011.  According to the SEC outline, the agency also plans to adopt the listing standards within a six-month timeframe.

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The Securities and Exchange Commission (SEC) has recently issued proposed rules with other agencies to implement various sections of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010  dealing with incentive-based compensation arrangements for covered financial institutions and listing standards for compensation committees and advisers.

Incentive-Based Compensation Arrangements

The first proposal (pdf) would require brokers, dealers or investment advisers with assets of at least $1 billion to design their incentive compensation arrangements to take risk into account. Section 956 of the Dodd-Frank requires that federal regulators prohibit incentive-based payment arrangements, or any feature of any such arrangement, at a covered financial institution that the agencies determine encourages inappropriate risks by a financial institution by providing excessive compensation or that could lead to material financial loss. Generally, as discussed in a press release, the proposal would require that these incentive compensation arrangements “appropriately balance risk and financial rewards, be compatible with effective controls and risk management, and be supported by strong corporate governance.” Such measures imposed by the proposal include:

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The Securities and Exchange Commission (SEC) has adopted a final rule (pdf) governing shareholder approval of executive compensation and “golden parachute” compensation arrangements required under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Among other things, the Dodd-Frank Act requires public companies subject to the federal proxy rules to provide their shareholders with a non-binding “say-on-pay” vote on executive compensation and a separate non-binding vote on how often such votes should occur. In addition, shareholders are entitled to an advisory vote on compensation arrangements and understandings in connection with merger transactions, commonly referred to as golden parachutes.

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The Securities and Exchange Commission (SEC) has released proposed regulations implementing some of the executive compensation provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act” or “the Act”).  While the Act, which was signed into law on July 21, 2010, focuses on overhauling the financial services industry, it also includes a number of broad executive compensation provisions that apply beyond this sector. Among other things, Section 951 of the Act provides for a “say-on-pay” shareholder advisory vote on executive compensation and golden parachutes. The proposed regulations – Reporting Of Proxy Votes On Executive Compensation And Other Matters (pdf) and Shareholder Approval Of Executive Compensation And Golden Parachute Compensation (pdf) – address these provisions.

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On Friday, the House Committee on Financial Services held a hearing on executive compensation oversight in light of new requirements imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203), the sweeping financial overhaul legislation signed into law on July 21, 2010 that contains a number of provisions impacting the regulation of executive compensation in publicly traded companies.  Panelists were asked their views on whether the compensation-related provisions would be effective in revising corporate incentive pay structures to reduce the incidence of risk-taking, and what federal regulators should take into consideration in drafting rules to implement these provisions. Although most of the witnesses focused on the Act’s impact on financial services companies only, one did address how the executive compensation provisions would impact all publicly traded companies.

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On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (H.R. 4173) (the "Act"), which is intended "to promote the financial stability of the United States by improving accountability and transparency in the financial system" and "to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes." While the Act is directed at the financial system, it incorporates broad executive compensation provisions that apply beyond the financial services industry. Publicly-traded companies need to understand and prepare for these new requirements. Included in Subtitle E of Title IX – Accountability and Executive Compensation ("Subtitle E") – of the Act are laws generally related to executive compensation practices of publicly-traded companies and certain financial institutions. The laws enacted under Subtitle E amend the Securities Act of 1933 and Securities Exchange Act of 1934 (the "Exchange Act"), and also direct the Securities Exchange Commission (SEC) and certain other Federal Regulators to adopt rules consistent with the new law.  Continue reading about this development in Littler's ASAP:  Executive Compensation and the Wall Street Reform and Consumer Protection Act by Nick Linn, Ilyse Schuman, and Ellen Sueda. 

Photo credit:   MBPHOTO, INC.
 

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Update:  On July 21, 2010, President Obama signed this bill into law.

On Thursday, the Senate voted 60-39 to pass the Dodd-Frank Wall Street Reform and Consumer Protection Act (H.R. 4173), the sweeping financial overhaul legislation otherwise known as the “Wall Street” reform bill. While the measure focuses on banking reform and consumer protection, it contains a number of provisions impacting the regulation of executive compensation in publicly-traded companies, limiting the imposition of mandatory arbitration agreements in certain situations, and expanding whistleblower protections for employees and other individuals who report securities law violations. The House passed this measure on July 1 after congressional committee members finalized the conference report reconciling varying versions of the bill. A full discussion of this measure’s provisions affecting the workplace can be found here. Earlier in the day, the Senate voted 60-38 to end debate on the bill, allowing the final vote to occur. Republicans Olympia Snowe (R-ME), Susan Collins (R-ME) and Scott Brown (R-MA) joined 57 Democrats to vote in the bill’s favor. Senator Russ Feingold (D-WI) was the only Democrat to vote against it. President Obama is expected to sign the bill into law as early as this afternoon.

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A number of federal agencies plan to issue an interim rule (pdf) that will require federal contractors and subcontractors to disclose executive compensation details and first-tier subcontractor awards on contracts expected to be $25,000 or more. This rule amends the Federal Acquisition Regulation (FAR) to implement the section of the Federal Funding Accountability and Transparency Act that requires the Office of Management and Budget (OMB) to create a free, public website that provides information about all federal contract awards. To that end, the rule requires that by the end of the month following the month the contract is awarded, and annually thereafter, the contractor or first-tier subcontractor must report the names and total compensation of each of the five most highly compensated executives for the contractor’s or first-tier subcontractor’s preceding completed fiscal year. Contractors and subcontractors whose gross income in the previous tax year was less than $300,000 are exempt from these disclosure requirements. The rule also requires contractors to report subcontracts of $25,000 or more, and any changes made to those contracts which impact data previously submitted. According to the interim rule, these reporting requirements “are sweeping in their breadth, and are intended to empower the American taxpayer with information that may be used to demand greater fiscal discipline from both executive and legislative branches of Government.”

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On Wednesday, the House voted 237-192 to approve the Dodd-Frank Wall Street Reform and Consumer Protection Act (H.R. 4173), the massive financial overhaul legislation otherwise known as the “Wall Street” reform bill. As previously discussed, this measure contains a number of provisions – including those impacting arbitration, executive compensation, and whistleblower protection – that would affect the workplace. Earlier in the week, supporters scrambled to revise the conference report (pdf) to find alternative means of paying for the $19 billion measure in order to gain sufficient votes for passage. In a compromise move, lawmakers decided to, among other things, end the Troubled Asset Relief Program (TARP) earlier than scheduled. Although President Obama had said he hoped to sign the final bill before the Fourth of July break, it is unlikely that the Senate will begin consideration of the bill before it reconvenes on July 12.

Photo credit:  MBPHOTO, INC.

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Last week, House and Senate committee members agreed to the terms of the Dodd-Frank Wall Street Reform and Consumer Protection Act (H.R. 4173), otherwise known as the “Wall Street” or “Financial Reform” bill. Now that the 2,319-page conference report (pdf) has been filed, both chambers will need to vote on the final measure. While the bulk of this massive overhaul bill deals with banking regulation and consumer protection, it does contain other provisions that impact the workplace. A number of sections address executive compensation regulation, arbitration limitations, and provisions that extend and strengthen current whistleblower protection laws. A summary of these provisions follows.

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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.

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This week, the Senate approved by a 63-36 margin an amendment (S. Amdt. 3962) to the Restoring American Financial Stability Act of 2010 (S. 3217) – the financial reform bill currently under Senate consideration – that would prevent mortgage brokers from receiving bonuses for signing borrowers to high interest loans. Introduced by Sens. Jeff Merkley (D-OR) and Amy Klobuchar (D-MN), this amendment would ban mortgage lenders and loan originators from accepting payments based on the interest rate or other terms of high-interest loans, and require lenders to document income and other underwriting standards to ensure that borrowers are able to repay their loans. According to a statement released from Sen. Merkley’s office, doing so would “end the damaging and deceptive practice of ‘no doc’ and ‘liar loans.’”

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Buried in the Restoring American Financial Stability Act of 2010 (S. 3217), the massive financial reform bill currently under Senate scrutiny, are provisions governing shareholder input on executive compensation and compensation committee independence. The 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.

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Sen. Bill Nelson (D-FL) has introduced legislation that would amend the tax code to create special rules for executive compensation paid at “systemically significant” financial institutions. The Wall Street Compensation Reform Act of 2010 (S. 3149) would condition an institution’s eligibility for tax deductions on ending certain compensation arrangements and adopting new, long term compensation standards. A financial institution would be considered “systemically significant” if it engages primarily in activities which are financial in nature (as determined under section 4(k) of the Bank Holding Company Act of 1956), and which either owns or controls assets greater than $25 billion, or owns or controls assets greater than $10 billion and maintains a ratio of debt to equity which is greater than 20 to 1. The bill’s provisions would apply to high-level executives and other employees whose actions affect the institution’s risk exposure. Employees that earn more than $1 million in applicable remuneration are presumed to fall under this category, unless they submit information returns describing their roles and responsibilities and the reasons why their actions within the company do not have a material impact on the taxpayer’s risk exposure.

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On Monday, Senate Banking Committee Chairman Chris Dodd (D-CT) introduced comprehensive financial reform legislation that includes provisions providing public corporate shareholders with an advisory vote on executive pay, and allowing them to nominate members of the board of directors through proxy ballots. Such “say on pay” provisions have been included in bills introduced in both the House and Senate in recent months (H.R. 3269, S. 3049).  The 1,336-page Restoring American Financial Stability Act of 2010 (pdf) would also ensure the independence of corporate compensation committees, and require public companies to set policies to take back executive compensation based on inaccurate financial statements.

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Senator Dick Durbin (D-IL) and Representative John Conyers (D-MI) have introduced legislation that would strengthen the ability of employees to recover wages and benefits and restrict the awarding of bonuses in the event of their employer’s bankruptcy. According to a press release, the Protecting Employees and Retirees in Business Bankruptcies Act (S. 3033, H.R. 4677) would, among other things, “ensure that back pay awarded through [the Worker Adjustment and Retraining Notification (WARN) Act] damages would be given priority in the bankruptcy claims process.” Specifically, as stated in the release, the bill would do the following:

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While many firms in the financial industry are expected to announce potentially record-setting bonuses this month, members of Congress and the President have unveiled initiatives to curb and/or generate revenue from this sector. On Tuesday, Rep. Peter Welch (D-Vt.) introduced the Wall Street Bonus Tax Act (H.R. 4426), a measure that would levy a 50 percent tax on large bonuses paid to employees of firms that have received financial assistance through the Troubled Asset Relief Program (TARP). This tax would apply to all bonus compensation – both cash and stock awards – exceeding $50,000, and would be used to fund a new direct lending program administered by the Small Business Administration (SBA). According to a press release, this bill mirrors similar measures already taken in Great Britain and France to tax excessive bonuses.

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Last week, Rep. Lloyd Doggett (D-Tex.) introduced a bill that aims to close tax loopholes that enable companies to provide highly compensated employees with generous retirement benefits at the expense of lower- and middle-income workers. The Retirement Fairness Act of 2009 (H.R. 4126) adds two sections to the Internal Revenue Code (IRC) to modify the rules relating to the nondiscrimination requirements in qualified pension plans and to include part-time employees in determining the minimum coverage requirements for these plans. The net effect of these changes would be to limit the use of Qualified Supplemental Executive Retirement Plans (Q-SERPs), which permit certain highly paid executives from paying themselves additional retirement benefits funded through their workers’ pension plans.

This bill has been referred to the House Committee on Ways and Means.

Photo credit:  Kameleon007

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The Senate Finance Committee, after two weeks of much-publicized markup, has released its final version of healthcare reform legislation. Introduced by Sen. Max Baucus (D-Mont.) on September 16, America’s Healthy Future Act (pdf) has been considered the most conservative of the healthcare overhaul bills, as it contains neither a public health insurance option nor an employer mandate requiring the provision of health benefits. The bill does, however, impose on employers certain obligations. Specifically, the latest version of the bill would require the following:

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The House of Representatives has voted 237 to 185 to approve the Corporate and Financial Institution Compensation Fairness Act of 2009 (H.R. 3269), a measure that would give shareholders of public companies an advisory vote on executive compensation. Earlier this week, the House Committee on Financial Services voted 40-28 to advance this “Say-on-Pay” legislation.

In addition to providing shareholders with a nonbinding approval vote over executive compensation and golden parachutes, this bill would direct federal agencies to establish regulations requiring certain financial institutions to disclose the structure of their incentive-based compensation arrangements to determine whether such arrangements encourage inappropriate risk. This bill would also prohibit covered financial institutions from rewarding their executives and corporate officers with compensation structures that encourage risky behavior. Moreover, if enacted into law, this legislation would require the members of public company compensation committees to be independent, and would establish authority for such committees to use independent consultants and counsel. While it took only ten days from the date of introduction for this bill to clear the House, it will face a more difficult path in the Senate, where many have voiced concern that the measure would allow the government to unnecessarily intrude on private business operations.

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A bill that would provide shareholders of public companies with an advisory vote on executive compensation and golden parachutes and that has additional special provisions regarding incentive compensation and risk management applicable to certain financial institutions has been given the green light to move to the House floor. The House Committee on Financial Services voted 40-28 on Tuesday to advance the Corporate and Financial Institution Compensation Fairness Act of 2009 (H.R. 3269).  In addition to providing shareholders of public companies with the ability to vote their approval of such executive compensation packages, this legislation requires members of public company compensation committees to be independent, and establishes an ability for the compensation committee to engage the services of independent consultants and counsel. Separately, in sections affecting financial institutions, this bill would require reporting of incentive compensation and its relationship to risk management and would authorize regulators of such institutions to prohibit compensation structures that encourage inappropriate risks. 

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