Today is the 10th anniversary of the Dodd-Frank. We explore how the rules impacted executive compensation, what worked, and what didn't.
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Dodd-Frank: 10 Years Later
Dear Friend,
This week marks the 10th anniversary of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd Frank). Dodd-Frank became the most comprehensive set of financial rules since Sarbanes Oxley in 2002. At roughly 2,300 pages of legislation, with 16 major areas of reform, including executive compensation, we asked ourselves, “How did the rules impact executive compensation?” “What worked?” “What didn’t?” And, “What lies ahead?”
I thought it made sense to look back on the past ten years of legislation and consider what lies ahead. Despite the fact that Dodd-Frank has not yet been fully implemented, and the Say on Pay (SOP) vote for US companies is non-binding, one could argue that Dodd-Frank has improved the reliability and safety of the capital markets. This is because it is often the intent of the law, and not the letter of the law, that is most meaningful.
To that end, I am including Farient’s hot off the press, Farient Update: Ten Years of Dodd Frank…What’s Next? This Update explores five distinct areas where the legislation led to better alignment of management and shareholder interests. At the same time, Dodd-Frank accomplished some, but not all, of what it set out to do. New issues have arisen that Dodd-Frank never contemplated. As a result, there is still considerable work that lies ahead. Key areas of concern are achieving reasonable pay for performance alignment and paying for the delivery of stakeholder, not just shareholder, value. This is especially relevant in a world more concerned with environmental, human capital and governance issues than ten years ago.
Please enjoy this month’s special newsletter and think about ways your company can further address disclosures, transparency and doing the right things for all stakeholders in an unpredictable world.
As we reflect on 10 years of Dodd-Frank, we ask ourselves “What worked?, ” “What didn’t?” and “What lies ahead?” Explore the successes of the legislation and how companies can start thinking about those areas beyond Dodd-Frank that have become significant issues over the past few years. The road to aligning management, board and stakeholder interests continues to show signs of progress.
In a recent Agenda article on how boards are thinking about bonus pay this year (in the year of Covid-19) I point out that: “Usually those questions about ‘how are we doing on the plan?’...might be an informational item in the summer, but they are normally a focus item in the fall….Now we’re in summer and people really want to see the numbers and they want to see the likelihood that there’ll be a payout or not.”
A section of the Financial Times included a Farient analysis that showed just 59 companies mentioned diversity and/or inclusion in their executive pay plans last year, typically as a metric to which short-term incentives were tied. This is a metric to watch for 2021’s proxy season and beyond, as boards come up with new ways to incentivize performance on stakeholder value as well as shareholder value.
Major banks are implementing new measures that help clients consider ESG metrics when managing their portfolio. UBS Global Wealth Management announced this month that it will begin assessing all long-only equity and bond funds, including ETFs, on the firm’s non-U.S. platform next year.
With Covid-19 disrupting the global economy, the question is how this may shape ESG going forward. One thing is clear: company disclosures will become even more important. This virtual World at Work, Expert Insights session, which I will be leading with my Global Governance and Executive Compensation Group (GECN) Colleague, Gabe Shawn Varges, addresses these issues within the context of the current environment. This program is limited to a small number of attendees. For your complimentary guest pass, please contact info@farient.com.
Robin is Farient's Founder and Chief Executive Officer. She is the author of the book entitled, “Fair Pay Fair Play: Aligning Executive Performance and Pay” and is a frequent presenter for well-known organizations including Council of Institutional Investors, Society for Corporate Secretaries and Governance Professionals, the National Association of Corporate Directors (NACD), and The Conference Board, among others. Robin has written extensively on the topics of performance management, incentive plan design, goal setting, and corporate governance. She has been quoted by several business and industry publications including, The New York Times, The Wall Street Journal, and The Washington Post. Learn more about Robin.
Farient Advisors LLC Is an independent executive compensation, performance and corporate governance consultancy. Farient provides a comprehensive array of services, including compensation program design, board of directors compensation and investor communications. Farient is located in Los Angeles, New York, Louisville and Dallas and covers clients in more than 30 countries through its partnership in the Global Governance and Executive Compensation Group (GECN). For additional information, please contact us at info@farient.com.
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This week marks the 10th anniversary of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd Frank). Dodd-Frank became the most comprehensive set of financial rules since Sarbanes Oxley in 2002. At roughly 2,300 pages of legislation, with 16 major areas of reform, including executive compensation, we asked ourselves, “How did the rules impact executive compensation?” “What worked?” “What didn’t?” And, “What lies ahead?” 
