Legislative Intent Behind Section 953
This Act is not the first time Congress has attempted to address matters of executive compensation. As recently as 2002, Congress passed Public Law Number 106-204 resulting in the enactment of the Sarbanes-Oxley Act (“Sox” or “Sarbox”). While Sarbox was primarily aimed at addressing matters of corporate governance and responsibility, section 402(a) also introduced several provisions as it relates to loans, other credit transactions and use of certain “fringe” benefits (such as company planes, cars) by corporate executives. Whereas Sarbox implemented strict rules with absolute prohibitions on certain types of EC, Dodd-Frank focuses more on clarity of EC disclosure to shareholders. This section is still powerful, however, in that it goes beyond the expressed “Wall Street Reform” intent of the Act by subjecting all corporations (both financial and non-financial companies) to new EC regulations. President Obama clarified this expressed intent when he signed the bill into law on July 21, 2010. However, requiring all public companies to disclose duplicative EC figures to shareholders does nothing to further the ends of Wall Street Reform. Nor does it further “consumer protection”, the other expressed legislative intent of this Act. Id at 4. In fact, the GAO estimated $2.9 Billion implementation cost for this act seems to indicate it is having the reverse consumer effect.
As described above, a number of executive compensation disclosures have been required by the SEC for many years. In 1939, when President Roosevelt railed against the “entrenched corporate greed” of corporate executives, the Department of Treasury caused a national scandal by issuing a list of executives who earned the then staggering sum of $15,000 per year. That same year, the SEC started requiring corporations to include a detailed disclosure of executive compensation to their shareholders. More specifically, the EC table requirements (P5, infra) have been required by the SEC since 2006, so requiring duplicative EC disclosure requirements in the Act may be viewed as repetitious and unnecessary. However, because the Act specifically emphasizes clarity of disclosure, the existing EC disclosure statements (although available to all shareholders via public filings with the SEC) are no longer hidden within large and complex statements that the average shareholder will not take the time to dissect. By implementing the new rules as dictated in section 953, the drafters of the Dodd-Frank Act sought to make the EC figures (and ratios to “rank-and-file” employees) available with greater clarity.
The clarity, simplicity and transparency goals of section 953 are evidenced by the use of language not seen in other Dodd-Frank disclosure provisions. For example, the use of the phrase “clear description” in section 953 as opposed to simply “shall disclose” used in other Dodd-Frank provisions, shows that the legislative intent was aimed at de-mystifying the complexities of EC into layman terms in an effort to ease readability and enhance comprehension. Id. This clarification process, coupled with the “ratio of CEO pay to median employee pay” requirement, makes clear that section 953 targets the protection of the average, layman investor.
By further requiring that these figures be disclosed “in any filing of the issuer” the drafters made clear that this information is important and therefore needs to be clearly and readily available on any filing document made at any time by the issuing company. Again, this seems to be a misdiagnosis by the drafters – this time, in the form of overreaching. Whatever effect the clear disclosure of EC may have on public companies, EC abuse certainly will not be more or less likely to occur by repeating the disclosure on every SEC document.