Federal Securities Law Blog

Climate Change Disclosure Guidance

Jack J. Gravelle — Mon, 25 Jan 2010 11:10:38 -0500

On January 27, 2010, the SEC will hold an open meeting to consider publishing an interpretive release to provide guidance to public companies regarding the Commission’s current disclosure requirements concerning matters relating to climate change. Current SEC requirements are unclear as to what, if any, climate change issues must be disclosed in SEC filings such as the annual report on Form 10-K. Many companies do not mention climate change in their filings; however, a growing number are disclosing climate-related risks such as the physical effects of climate change on the business and how government regulation of greenhouse gases would affect the business.

New guidance should provide clarification for companies potentially impacted by climate change as they prepare their annual reports on Form 10-K.

2010 Proxy Season

Jack J. Gravelle — Wed, 06 Jan 2010 13:50:02 -0500

As the 2010 proxy season gets started, below are changes implemented in 2009 that will affect proxy statements filed in 2010 (and a few changes likely to occur in 2010):

NYSE Rule 452. Under new NYSE Rule 452, brokers are no longer permitted to vote for the election of directors without instructions from their clients. The rule is effective for all shareholder meetings held in 2010 and beyond and affects all public companies because it applies to all brokers regulated by the New York Stock Exchange (essentially all brokers).

Delaware Corporate Law. Delaware corporate law now permits (but does not require) companies to adopt (i) a “proxy access” bylaw that would require the company to include shareholder nominees for director in the company’s proxy statement and (ii) a “proxy reimbursement” bylaw that would require the company to reimburse shareholders for the costs of proxy solicitation.

Executive Compensation and Risk Disclosure. Public companies must disclose whether and how their overall compensation policies create incentives that increase risk. Examples of information companies must consider disclosing include: (i) the general design philosophy of compensation for employees whose behavior would be most affected by the incentives established by such compensation policies; (ii) the company’s risk assessment or incentive considerations in structuring its compensation policies; and (iii) how the company’s compensation policies relate to the realization of risks resulting from the actions of employees in both the short term and the long term. The required discussion of the relationship between compensation and risk applies to all employees, not just named executive officers.

Compensation Consultants. Public companies must make a number of disclosures regarding compensation consultants, including fees paid for services, if consultant fees exceed $120,000 for all services not related to recommending executive/director compensation ("other services"). The rules are designed to prevent compensation consultant conflicts of interest.

Grant Date Value of Equity Awards. Public companies must report the aggregate grant date value of stock options and other equity awards, calculated in accordance with FASB ASC Topic 718 (formerly FASB 123R), instead of the amount recognized for financial statement reporting purposes. The SEC believes compensation decisions are generally made based on the grant date value, not the amount the company ultimately recognizes for financial statement reporting purposes. The grant date value of performance based awards will be based on the “probable outcome of the performance conditions.”

Voting Results. New SEC rules include a requirement to disclose proxy voting results in a Form 8-K filing within four business days after a shareholder meeting, instead of months later in a 10-Q filing.

Nominee and Director Disclosures. Public companies must expand biographical disclosures about directors and nominees, including disclosure of (i) any directorship held in the past 5 years, (ii) specific legal proceedings involving a director in the past 10 years, and (iii) whether nominating committees consider diversity, as defined by the company, as a factor in choosing director nominees.

Say on Pay. Some version of “say on pay” will likely be enacted by Congress in 2010 or 2011. Say on pay would most likely require a company to provide shareholders with an annual non-binding vote on the compensation policies and practices described in the proxy statement.

Proxy Access. The SEC has again proposed allowing shareholders of a certain size (e.g., 3% holders of companies with assets of $75-700 million) to be able to include nominees for directors on the company’s proxy statement. The Commission did not implement the proposed rules in time for the 2010 proxy season, but may implement them sometime during 2010.

Which Firm is Ranked Among 30 Elite Law Firms Nationally For Superior Client Service in BTI Survey?

Porter Wright — Wed, 09 Dec 2009 09:19:56 -0500

Porter Wright is deeply honored to be ranked among the 30 elite firms in the country when it comes to client service. In a national survey of in-house counsel at Fortune 1000 companies conducted by The BTI Consulting Group (BTI), Porter Wright ranked 22 out of 505 core firms named by in-house counsel.

Porter Wright was honored as a “Leader of the Best” when it comes to advising clients on business issues. According to the report, “Porter Wright differentiates itself with clients by translating legalese into business speak — a key method to prove your commitment to help clients.” The report also cites specific comments from corporate counsel about Porter Wright’s commitment to client service, specifically, “They know our business and us. They have skilled people in a number of areas critical to our business.”

Based out of Boston, BTI is the leading provider of strategic market research to law firms and professional services firms. BTI’s analysis draws on candid feedback from 240 corporate counsel at Fortune 1000 companies to determine which law firms among 505 core firms nationally top the charts in client service. Corporate counsel ranked Porter Wright among the best in the country in 14 areas:

Anticipates the Client’s Needs
Breadth of Services
Brings Together National Resources
Commitment to Help
Deals with Unexpected Changes
Helps Advise on Business Issues
International Capability
Keeps Clients Informed
Legal Skills
Meets Scope and Budget
Provides Value for the Dollar
Quality Products
Understands the Client’s Business
Unprompted Communication

Click here for more information about this survey.

SEC Office of Inspector General Reports on Ongoing Internal Investigations

Jack J. Gravelle — Wed, 02 Dec 2009 16:54:02 -0500

On Monday the SEC Office of Inspector General released its Semiannual Report to Congress regarding ongoing and completed investigations at the SEC. As described here, the biggest investigation to come from the OIG this year was with respect to the Bernard Madoff Ponzi Scheme, but the Report also details several ongoing internal investigations.

The ongoing investigations range from somewhat minor allegations of misuse of email and failure to maintain a proper bar license to significantly more serious allegations of fraud, abuse of power, conflicts of interest, and investigative misconduct. Perhaps the most serious allegations involve two SEC attorneys accused of disclosing non-public information about SEC enforcement investigations to a corrupt FBI agent and short seller who have subsequently been convicted of several crimes.

SEC May Be More Open to Shareholder Climate Change Resolutions

Jack J. Gravelle — Fri, 20 Nov 2009 17:03:05 -0500

Last month the SEC issued Staff Legal Bulletin No. 14E, which among other things amends the Commission’s policy regarding risk-based shareholder proposals. The new policy may make it harder for a company to ignore a proposed shareholder resolution concerning climate change.

Under SEC Rule 14a-8(i)(7), companies are permitted to exclude shareholder proposals from the company proxy statement dealing with a matter relating to the company's ordinary business operations. Previously, the SEC permitted companies to exclude a proposal under this rule to the extent the proposal focused on a company engaging in an internal assessment of risk the company faces as a result of operations. The SEC has now clarified that the fact that a proposal requires an evaluation of risk does not mean it may be automatically excluded.

This change in analysis could be an opening for shareholder proposals regarding climate change risks for which the underlying subject matter of the proposal “transcends the day-to-day business maters of the company.” Such proposals may be more likely to gain entrance to the company proxy.

Dark Pools and the Two-Tiered Market

Jack J. Gravelle — Tue, 10 Nov 2009 17:05:19 -0500

Last month the SEC voted to issue rules to increase transparency of “dark pools” of liquidity. Dark pools are a way of trading securities without publicly displaying quotes or orders.

Dark pools exist because many securities traders do not want to publicly display their desire to sell or purchase large amounts of shares for fear of significantly moving stock prices before being able to execute the order. When an order is placed on an exchange, the exchange makes the order publicly available. Historically, sophisticated traders could avoid public disclosure by enlisting a broker-dealer to inquire among other traders, or on the floor of an exchange, about taking a large order (without disclosing enough information to move the market). Dark pools offer a modern, computerized way to confidentially search for a complementary trading interest.

Investors using a dark pool have access to information about potential trades that investors using public quotations do not, even though dark pools use the information from public markets to determine price. Dark pools also network with each other to execute trades. There are approximately 30 dark pools that transact in stock that trades on major US markets.

Dark pools raise the following concerns:

Dark pools hide the true value of securities traded on public exchanges by siphoning significant orders from public markets (the so-called “two-tiered market” in which the public does not have fair access to the best prices);
Dark pools create an information advantage for their operators and participants. This information could potentially be misused to trade securities in public markets to the detriment of other investors not privy to the information;
An unmonitored market is a target for market manipulation; and
The phrase "dark pool" just sounds nefarious.

The SEC solution would seek to alleviate these concerns by:

Requiring that information about an investor’s interest in buying or selling a stock be made publicly available, instead of just to participants in a dark pool; and
Requiring that dark pools identify the trades for which they are responsible.

The next step is for the Commission to seek public comment.

Auditor Ratification Votes Expected to Increase

Jack J. Gravelle — Tue, 03 Nov 2009 16:48:14 -0500

Following a change to New York Stock Exchange Rule 452 in July, brokers for investors who do not provide voting instructions will no longer be able to cast discretionary votes in uncontested director elections. Prior to the change, uncontested director elections were considered “routine” matters, and shares held in street name could be voted by brokers, at their discretion, if the beneficial owners failed to instruct the brokers how to vote. The new rule characterizes all director elections, including uncontested elections, as “non-routine” and applies to all annual meetings held after January 1, 2010. The rule affects all public companies because it applies to all brokers regulated by the NYSE.

One significant effect of the rule change will be increased difficulty in obtaining a quorum. If uninstructed brokers do not vote because all matters presented to the shareholders are non-routine, shares held in street name will not be treated as present for quorum purposes. Broker non-votes are only counted toward a quorum if stockholders will be voting on a routine matter.

The solution to the quorum problem appears to be including at least one routine matter on the proxy to ensure brokers vote. The most routine of all routine matters is auditor ratification, a proposal that many companies have abandoned but will likely revive.

Proxy Access Postponed

Jack J. Gravelle — Wed, 21 Oct 2009 11:01:17 -0500

Earlier this month, SEC Chairman Mary Schapiro said the Commission will postpone finalizing a proxy access rule that would allow investors to propose director candidates on the company proxy statement. The SEC is still committed to having a rule in place in 2010, but does not want to rush the process after receiving hundreds of comment letters. Previously, a proxy access rule was expected to be in place in time for the 2010 proxy season.

When the proxy access rule is finalized, large shareholders (most likely owning 1% or greater of large public companies) will be able to submit their nominations for directors to the company, and the company will have to include the nominations on its proxy statement (if certain requirements are met). The measure is supported by several members of Congress, but disagreement exists over how many shares must be owned (and for how long) to get access. Currently, shareholders can nominate their own slate of directors if they are willing to pay for the expensive cost of a proxy fight.

Proponents of proxy access claim it is a tool to stop management entrenchment and to empower shareholders currently hampered by the expense of proposing directors. Opponents argue that states should regulate proxy access (not the Feds) and that shareholders already have tools for fighting management entrenchment (for example, they can sell their shares). Despite opponents concerns, some form of proxy access is inevitable as it is supported by the SEC, Congress, and the Obama administration.

SEC Inspector General Report Finds Lack of Impartiality

Jack J. Gravelle — Wed, 30 Sep 2009 16:04:49 -0500

Recently the SEC’s Inspector General reported on recommendations to the Commission’s Enforcement Division to improve enforcement in direct response to the Bernie Madoff scandal. The report focuses on what went wrong that allowed the Madoff scandal to happen and what can be done to make sure it does not happen again.

The answers in the report to the question of “What went wrong?” can be separated into two categories: failures that resulted from the enforcement staff not having the proper tools and failures that resulted from the enforcement staff not using the proper tools it had.

How one designates a failure depends in large part on whether one wants to blame the actual investigators for shirking their duties or the policymakers for having ineffective systems for catching fraud. To some extent, the Inspector General blames both. For example, the IG recommends both (i) a better tip and complaint handling system with a record of how a complaint is vetted and who is accountable and (ii) increased resources and time for evaluating complaints.

Of all the findings, the most troubling is that 99 respondents (13.2%) to the IG’s questionnaire said they have been involved in a situation where they felt there was a lack of impartiality in the performance of official duties, such as preferential treatment toward former SEC employees or improper external influences. If true, this problem may require a culture change that cannot necessarily be fixed with increased resources or better control mechanisms.

SEC Proposes New Credit Rating Agency Rules

Jack J. Gravelle — Sat, 19 Sep 2009 10:59:05 -0500

Back in January when securities lawyers were predicting what 2009 held in store for the SEC, lots of people predicted more credit rating agency regulations. Thursday, the SEC followed through with a number of credit rating agency proposals.

The proposals with the most potential to shake up the current ratings environment are:

1. Create a system that allows competing rating agencies to obtain access to the same information about a structured finance product to enable competing ratings of the same product. The increased competition may result in more accurate ratings;

2. Require the disclosure of “preliminary ratings” obtained from a previous rating agency to discourage ratings shopping; and

3. Require that an issuer that includes a credit rating in a registration statement obtain the consent of the rating agency, thus resulting in potential liability for the rating agency under the Securities Act similar to how other experts are treated. The SEC acknowledges this could be a far-reaching change and is only seeking comment as to whether it should propose such a rule at this time.

Schapiro's Open Letter to Broker-Dealer CEOs Questions Incentives

Jack J. Gravelle — Fri, 11 Sep 2009 17:48:04 -0500

SEC Chairman Schapiro has reminded broker-dealer CEOs in an Open Letter dated August 31, 2009, that they have a responsibility to oversee the sales practices of their registered representatives. Schapiro states she is concerned with reports of offers of compensation inducements such as large up-front bonuses to prospective registered representatives. The fear is that enhanced compensation for hitting increased commission targets will encourage registered representatives to “churn customer accounts, recommend unsuitable investment products or otherwise engage in activity that generates commission revenue but is not in investors’ interest.”

The sentiment of the letter parallels current congressional and agency discussions regarding executive compensation: Beware incentives for employees that are counter to the goals of investors.

ABA Sues FTC over Red Flags Rule

Jack J. Gravelle — Tue, 01 Sep 2009 13:27:48 -0500

Corporate clients still need to comply with the FTC’s Red Flags Rule by November 1, 2009, but it’s their lawyers who are really unhappy about the regulations. Last week the American Bar Association sued the FTC to stop the FTC’s enforcement of the Red Flags Rule against attorneys. The FTC says the law applies to creditors, which includes lawyers who extend credit by billing for services previously rendered. The ABA counters with some compelling arguments:

There’s no rational connection between the practice of law and identity theft;
Traditionally, states regulate lawyers, not the FTC;
Compliance with the Rule will increase legal costs and impede the attorney-client relationship; and
Lawyers should not be considered “creditors” simply because ethics rules generally prohibit receiving payment in advance.

Despite the ABA’s legal fight, it should be relatively easy for most lawyers to develop written policies to ensure their clients are not using identity theft to procure legal advice. A court may soon decide if lawyers will need to implement their own red flags policies.

Option Backdating Goes Unpunished

Jack J. Gravelle — Fri, 21 Aug 2009 14:26:56 -0500

Earlier this week the Wall Street Journal reported that a study from the University of Houston’s C.T. Bauer College of Business reveals as many as 141 companies that likely engaged in option backdating have never been investigated. The study joins a list of research projects going back to the mid-1990s that conclude option backdating occurs (or numerous companies are extraordinarily gifted at granting stock options when stock prices are at their lowest).

Stock Option backdating is the process of looking back over a prior time period and deeming employee stock options to have been granted on a date when the stock price was low. The practice has the effect of causing the options to be automatically “in the money” because they have been deemed to have been granted at the most advantageous time.

As is true of many compensatory schemes, the practice itself is not necessarily illegal, but failing to disclose it, account for it, and pay appropriate taxes is illegal. A host of potential illegal activity is involved, including (a) falsifying documents, (b) failing to properly account for option expenses which results in misrepresenting the company’s financial condition to investors, (c) misleading shareholders by granting options in violation of shareholder-approved stock option plans, and (d) improper tax treatment.

For a minimum of the past three years the SEC has actively pursued option backdating cases, and reports such as this new study are likely to continue to fuel enforcement.

Proposed Four-Day Rule for Disclosing Shareholder Votes

Jack J. Gravelle — Fri, 14 Aug 2009 15:03:14 -0500

In its recent rule proposals regarding proxy disclosures, the SEC has asked for comment regarding a requirement that shareholder voting results be disclosed on a Form 8-K within four business days. Currently shareholder voting results are disclosed on the next Form 10-Q or 10-K, which could take as long as a few months before filing occurs. The rule also provides that non-definitive voting results in contested director elections can be disclosed as preliminary and finalized by a subsequent 8-K amendment.

The best reason articulated by the SEC for the proposed rule is that if a matter is important enough to require a shareholder vote then it is important enough to warrant current reporting of the results of that vote. For companies that want to disclose shareholder votes as soon as possible, technological advances in shareholder communications have made even four days seem like a long time.

Broker Discretionary Voting

Robert J. Tannous — Fri, 31 Jul 2009 17:46:39 -0500

On July 1, 2009, the SEC approved a proposed rule change to amend NYSE Rule 452 and Section 402.08 of the NYSE Listed Company Manual to eliminate broker discretionary voting for the election of directors. The amendment will be in effect for all elections of directors held at stockholder meetings held on or after January 1, 2010. Note that the amendment does not apply to a stockholder meeting that was originally scheduled to be held prior to January 1, 2010, but was properly adjourned to a date after January 1, 2010.

Under the current NYSE Rule 452, the election of directors was considered a "routine" matter, which allowed brokers to vote on such matter if the broker did not receive specific voting instructions from the beneficial owner within ten days of the stockholder meeting. The elimination of the election of directors as "routine" matters could have an impact where companies have adopted majority vote provisions or where companies are targets of "just vote no" or "withhold" campaigns.

Cuban Insider Trading Case Dismissed

Jack J. Gravelle — Mon, 20 Jul 2009 11:38:38 -0500

On Friday the Federal District Court in Dallas dismissed the SEC’s insider trading case against Dallas Mavericks owner Mark Cuban. Cuban was accused of selling stock in an internet search company (Mamma.com) on the basis of material nonpublic information in breach of a confidentiality agreement. The Company was about to issue additional stock that was expected to decrease the stock price and dilute current owners.

Several commentators viewed the SEC’s position with skepticism, including five law professors who filed amici curiae on behalf of Mr. Cuban. The district judge agreed and ruled that promising to keep information confidential is not the same as promising not to trade on the basis of such information. Cuban only promised the former, and such a promise alone does not create a duty between Cuban and Mamma.com sufficient to amount to insider trading if such a duty is breached. If there was no duty, there can be no breach, and Cuban is not guilty of insider trading unless the SEC can allege new facts to establish the duty.

New SEC Executive Compensation Proposal Requires More Than Just Additional Disclosures

Jack J. Gravelle — Fri, 10 Jul 2009 18:02:10 -0500

The SEC has released a new rule proposal for executive compensation disclosures for next proxy season. In broad strokes, the proposal calls for disclosing information about “the relationship of a company’s overall compensation policies to risk, director and nominee qualifications, company leadership structure, and the potential conflicts of interests of compensation consultants.” All these items seem like things a shareholder would want to know about.

But, as the SEC lays out the arguments for the new rules in the release, it becomes clear that the Commission is concerned with more than just accurate disclosure of compensation. The SEC is also apparently interested in influencing issuer behavior and changing the way issuers compensate.

For example, on page 8 of the release, the Staff explains that there is a concern that “compensation policies have become disconnected from long-term company performance because the interests of management and some employees, in the form of incentive compensation arrangements, and the long-term well-being of the company are not sufficiently aligned.” The SEC’s solution is a requirement for new disclosures about “how a company’s overall compensation policies for employees create incentives that can affect the company’s risk and management of that risk.”

One interpretation of this requirement is the SEC just wants shareholders to know how companies think about risk when they compensate employees. A more meddlesome interpretation is that the SEC wants issuers to stop using compensation to create short-term incentives that don’t benefit the company in the long-term. But, whether an issuer's compensation system is good or bad is theoretically the kind of thing that can be decided by shareholders, as long as they have full disclosure.

The tacit message from the SEC’s language is more than just a request for information about risk, but rather a push for new compensation schemes, which is not in the SEC’s job description.

Congressional Insider Trading

Jack J. Gravelle — Tue, 30 Jun 2009 16:55:58 -0500

On Friday the Cleveland Plain Dealer reported that members of the U.S. House Financial Services Committee bought and sold financial stocks last fall, at the same time that the Committee was approving the bailout, and in the same companies that the Committee would later criticize for incompetence and greed. The article points out two potential problems:

1. The potential for conflicts of interest; and
2. The potential for trading on material, non-public information.

Some of the trades resulted in avoiding significant losses; while perhaps more troubling, some trades resulted in increased losses, which may at least be proof there was no impropriety.

In any event, such trades do not appear to violate Congressional ethics rules (although, arguably they could violate broad rules against using one’s office for “improper advantage”); however, the securities rules are more troublesome. If a member of Congress trades in securities based on material, non-public information provided by a corporate insider, the representative faces possible liability under a tipper/tippee theory assuming other elements of the offense are met. But, if the representative trades based on material, non-public information that results from the representative knowing about a new regulation or government program that will affect a company, liability depends on whether the representative has breached a duty to the source of the information, presumably Congress or some other source to which no duty is owed.

Congressional staffers are not so lucky, as they potentially owe a duty to their representative, the source of the information.

This is not a new issue. The Stop Trading on Congressional Knowledge Act aims to close this loophole but has failed to pass despite annual tries since 2006. Also interesting is the fact that two SEC lawyers got in trouble about a month ago for trading in the securities of issuers under investigation, and the Commission quickly enacted rules to stop the practice. Congress has been at least 3 years slower.

Potential Executive Compensation Proxy Disclosures

Jack J. Gravelle — Thu, 18 Jun 2009 17:26:52 -0500

A variety of sources are now proposing new rules for financial markets and corporate governance. Just recently President Obama released a “white paper” for financial regulatory reform. Before that, Congressman Gary Peters introduced the Shareholder Empowerment Act of 2009, and before him, Senator Charles Schumer touted a “Shareholder Bill of Rights.”

Tangentially related to all such proposals (and an easy way to resonate with constituents), is the idea that executive compensation needs to be revamped as well. The SEC has not ignored this issue. Most recently, On June 10, 2009, Chairman Mary Schapiro issued a statement considering several proposals requiring greater proxy disclosure of the following:

How a company and its board manages risk
What is the company’s overall compensation approach? (the goal of this question being to discourage incentive structures that reward short-term risk taking without accounting for long-term effects)
Potential conflicts with compensation consultants; and
Board of director leadership structure

Such proposals are likely to have the same effect as the rules of the past few years requiring a Compensation Discussion & Analysis. The rules are instituted under a mantle of protecting investors by ensuring they have information needed to make investment decisions, but they are also passed with an eye toward influencing issuer behavior and pushing it in a particular direction. For example, a requirement that a board disclose its overall compensation approach has the same effect as a requirement that a board actually have an overall compensation approach (which it may in fact have but not discuss in those terms). Such proposals may encourage desirable behavior, but the SEC risks entrenching flawed compensation systems as opposed to simply requiring accurate disclosure about a compensation system that is fully within the purview of each individual company.

Geithner announces support for executive compensation reforms, but Congress might have its own agenda

Karim A. Ali — Fri, 12 Jun 2009 16:46:07 -0500

On Wednesday, June 10, Secretary of the Treasury, Timothy Geithner outlined the Obama administration’s new proposals on executive compensation. The proposals focused on greater independence of corporate compensation committees and giving shareholders a nonbinding vote on executive compensation, commonly known as ‘say on pay’ provisions. Geithner outlined five guiding principals for executive compensation, namely:

compensation plans should properly measure and reward performance;
compensation should be structured to account for the time horizon of risks by aligning executive (and highly compensated individual) pay with long-term value creation;
compensation should be aligned with sound risk management;
golden parachutes and supplemental retirement packages should properly align the interests of executives with the interests of shareholders; and
the compensation setting process should promote transparency and accountability.

Geithner promoted the administration’s support for legislation requiring greater compensation committee independence for companies listed on the national securities exchanges. The proposed legislation would require compensation committee members to meet the stringent independence standards required of audit committee members under the Sarbanes Oxley Act. In addition, the proposed legislation would provide compensation committees with the right to (i) hire compensation consultants, (ii) hire legal counsel, and (iii) require each company to “appropriately” fund the compensation committee to allow it to execute its independent compensation oversight responsibilities.

In addition, Geithner promoted the administration’s support for legislation requiring non-binding ‘say on pay’ votes by shareholders. The legislation would require all public companies to include a proposal to allow shareholders to approve or disapprove of the compensation arrangements listed in a company’s annual proxy statement. It is unclear whether the proposed legislation would require annual non-binding shareholder votes to affirm previously approved executive compensation plans.

Noticeably absent from the newly announced proposals were the threatened executive compensation caps similar to those that the Treasury Department imposed on the largest recipients of TARP funds in February. According to Geithner, the proposed legislation seeks to avoid compensation caps or precise prescriptions for how companies should set compensation.

Less than a day after Geithner announced the administration’s executive compensation proposals, however, Rep. Barney Frank, Chairman of the House Financial Services Committee, and other committee Democrats indicated that they were less interested in merely reforming the independence of the compensation committee and requiring non-binding resolutions. Rep. Frank stated that he would prefer a bill that altered the structure of executive pay. Rep. Frank flatly rejected the administration’s “hope” that compensation committee independence would lead to greater oversight and curtail excessive risk taking. In addition, Rep. Brad Sherman voiced his support for binding ‘say on pay’ shareholder votes.

To its credit, the administration’s proposals have the full support of both FED Chairman Ben Bernanke and SEC Chairman Mary Schapiro. In addition, many commentators have voiced relief and support for the seemingly modest executive compensation proposals. It is clear, however, that some of the Congressional Democrats will require more convincing before they can sign-off on the executive compensation proposals.