Dec. 19, 2018
Executive Compensation Reform Follows Eight Years of Needless Delay
Statement of Bartlett Naylor, Financial Policy Advocate, Public Citizen’s Congress Watch Division
Note: On Tuesday, the U.S. Securities and Exchange Commission (SEC) finalized a rule mandated by the 2010 Wall Street Reform and Consumer Protection Act requiring publicly traded companies to disclose whether they allow employees to hedge their stock-based compensation, which pays when the value of a stock declines.
The final rule does little more than restate the statutory text. This copy-and-paste job could have been done in about eight minutes; it should not have taken eight years. While Public Citizen welcomes the SEC’s implementation of this modest rule required by Congress, the eight-year lag shows the agency’s woeful inattention to executive compensation reform.
The disclosure requirement was one of the simplest reforms in Dodd-Frank. All it asks is for companies to disclose whether executives can hedge their stock-based compensation against a downturn. As much as any other factor, destructive incentives caused the 2008 financial crash. Banksters reaped billions in bonuses by fueling a housing bubble whose rupture cost millions of Americans their jobs, savings and homes.
Meanwhile, other far-reaching steps that Congress mandated to prohibit reckless compensation schemes have been ignored. For example, Congress set a May 2011 deadline for a rule to decouple risky executive behavior from bonuses, yet the SEC and other responsible agencies won’t even list this rule on their formal agendas. The fact that most of the required reforms remain dormant speaks volumes about Wall Street’s grip on Washington. Much more action is needed.