The conference report retains the numerous “say on pay” provisions previously discussed. These terms 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. As explained in a summary (pdf) of the conference report, sections 951 through 957 of the bill – Accountability and Executive Compensation – provide for the following:
- Vote on Executive Pay and Golden Parachutes: Shareholders are given a say on pay with the right to a non-binding vote on executive pay and golden parachutes.
- Nominating Directors: The Securities and Exchange Commission (SEC) is provided the authority to grant shareholders proxy access to nominate directors.
- Independent Compensation Committees: These terms stipulate that standards for listing on an exchange will require that compensation committees include only independent directors and have authority to hire compensation consultants in order to strengthen their independence from the executives they are rewarding or punishing.
- No Compensation for Lies: These provisions require that that public companies set policies to take back executive compensation if it was based on inaccurate financial statements that do not comply with accounting standards.
- SEC Review: The SEC is directed to clarify disclosures relating to compensation, including requiring companies to provide charts that compare their executive compensation with stock performance over a five-year period.
- Enhanced Compensation Oversight for Financial Industry: Provisions require federal financial regulators to issue and enforce joint compensation rules specifically applicable to financial institutions with a federal regulator.
Certain sections of the Dodd-Frank bill seek to regulate the use of mandatory arbitration in specific instances:
- Section 921 – Authority to restrict mandatory pre-dispute arbitration. This section 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 – Authority to restrict mandatory pre-dispute arbitration. This section 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 to 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 and for the protection of consumers. The Bureau would not be able to restrict consumers from voluntarily entering into post-dispute arbitration agreements.
Several provisions implement a new whistleblower program designed to motivate people who are aware of securities law violations to report these violations. The bill also expands existing whistleblower laws.
- Section 922 – Whistleblower protection. This section establishes the new whistleblower protection program. In essence, it provides monetary rewards to those who contribute original information that leads to recoveries of monetary sanctions of $1,000,000 or more in criminal and civil proceedings. This program awards whistleblowers with between 10% and 30% of any monetary sanctions that are collected based on the original information provided by the whistleblower. “Original information” is defined as information that is derived from the independent analysis or knowledge of the whistleblower and is not derived from an allegation in court or government reports nor exclusively from news media. The SEC has discretion in determining the amount and whether or not a whistleblower is to be awarded. This section also includes various protections for whistleblowers, including a prohibition on discharging, demoting, suspending, threatening, harassing (directly or indirectly) or otherwise discriminating against an employee for providing information to the SEC or assisting in an investigation or judicial or administrative action relating to the information provided. The bill would allow one who has been retaliated against to bring an action against his or her employer in federal court for reinstatement, double back pay plus interest, and attorneys’ fees and litigation costs.
- Section 929A – Protection For Employees of Subsidiaries and Affiliates of Publicly Traded Companies. This section extends the whistleblower protection provisions in the Sarbanes-Oxley Act of 2002 (SOX) to employees of subsidiaries and affiliates of publicly-traded companies. Section 806 of the Sarbanes-Oxley Act creates protections for whistleblowers who report securities fraud and other violations.
- Section 748 – Commodity Whistleblower Incentives And Protection. This section would amend the Commodity Exchange Act by adding a “Commodity Whistleblower Incentives and Protection” section that provides whistleblower incentives protections similar to those set forth in Section 922.
- Section 1057 – Employee Protection. This section provides protection against firings of or discrimination against employees who provide information or testimony to the Bureau. Specifically, this section stipulates that:
No covered person or service provider shall terminate or in any other way discriminate against, or cause to be terminated or discriminated against, any covered employee or any authorized representative of covered employees by reason of the fact that such employee or representative, whether at the initiative of the employee or in the ordinary course of the duties of the employee (or any person acting pursuant to a request of the employee), has –
(1) provided, caused to be provided, or is about to provide or cause to be provided, information to the employer, the Bureau, or any other State, local, or Federal, government authority or law enforcement agency relating to any violation of, or any act or omission that the employee reasonably believes to be a violation of, any provision of this title or any other provision of law that is subject to the jurisdiction of the Bureau, or any rule, order, standard, or prohibition prescribed by the Bureau;
(2) testified or will testify in any proceeding resulting from the administration or enforcement of any provision of this title or any other provision of law that is subject to the jurisdiction of the Bureau, or any rule, order, standard, or prohibition prescribed by the Bureau;
(3) filed, instituted, or caused to be filed or instituted any proceeding under any Federal consumer financial law; or
(4) objected to, or refused to participate in, any activity, policy, practice, or assigned task that the employee (or other such person) reasonably believed to be in violation of any law, rule, order, standard, or prohibition, subject to the jurisdiction of, or enforceable by, the Bureau.
A “covered employee” would include any individual performing tasks related to the offering or provision of a consumer financial product or service. Any predispute arbitration agreement seeking to resolve a complaint under this section would be deemed invalid and unenforceable.
An employee aggrieved under this section would have 180 days to file a complaint with the Secretary of Labor. An employee would have a viable cause of action if the Secretary determines that any of the employee’s actions described in paragraphs (1) – (4), above, constituted a “contributing factor” to the alleged adverse employment action. In its defense, an employer would have to demonstrate “by clear and convincing evidence” that it would have taken the same adverse actions regardless of the employee’s conduct.
Section 731 – Registration and Regulation of Swap Dealers and Major Swap Participants. This section provides that a swap dealer or major swap participant that acts as an advisor to a special entity, including an employee benefit plan, has a duty to act in the best interest of the special entity.
Final votes on the Dodd-Frank bill could occur as early as this week. More information on this bill can be found at the House Committee on Financial Services’ web page.
Photo credit: Ramy Majouji