Big changes coming to executive pay
Shareholders may soon be able to vote on the pay packages for top executives of financial firms, according to a report from Bloomberg today. The Obama administration is expected to seek new powers for the Securities and Exchange Commission to force financial firms to give shareholders the right to vote on executive pay packages.
Congress would have to approve this plan, and you can expect a major lobbying effort to stop it. But given the mood of Congress toward the financial industry, I suspect a bill on compensation in the financial industry has a good chance of passage.
The new powers are expected to cover everything from bonuses and salaries to severance packages. Treasury Secretary Timothy Geithner blames pay practices keyed to short-term profits as a major contributor to the worst financial crisis since the 1930s.
But don't expect the changes to impact things immediately. "It'll kind of be novel the first year, maybe the first two, and then likely be a little bit more serious in future years," Irv Becker of the Hay Group told Bloomberg.
The announcement of the plan could come as early as today after Geithner meets with SEC Chairman Mary Schapiro, Federal Reserve Governor Daniel Tarullo and executive-compensation specialists at the Treasury. Geithner said yesterday that the Fed and other bank regulators will define "standards and principles that supervisors would use to help bring about reforms in compensation practices in the financial industry."
The push will be to tie compensation packages to long-term investment and return. Also the administration wants banks to take measures to control risk better.
Pay package changes is just one small part of the Obama administration's plans to overhaul U.S. financial rules. President Obama plans to unveil his proposals on June 17, but don't expect any major changes in the current mix of regulatory agencies. Obama seems to be stepping away from the turf wars, adding a layer of overseers rather than reducing the number of agencies.
The Treasury department is expected to name Washington lawyer Kenneth Feinberg to review compensation at companies that have received government cash. Feinberg is a mediator and is expected to take the job without pay. He's best known for his work as special master of the September 11th Victim Compensation Fund, which made payments to victims after the September 11 attacks.
Lita Epstein has written more than 25 books, including Reading Financial Reports for Dummies and Trading for Dummies.