Getting Ready for Reform

Mark Borges, the well known compensation consultant with Compensia, gave a very interesting talk this week at a joint meeting of the Society of Corporate Secretaries and Governance Professionals and the Twin Cities Compensation Network. Mark was gracious enough to give me permission to post his presentation, which is full of useful updates on governance and compensation reform and tips on how to get ready. One of the interesting features is a time line showing the dates of adoption and introduction of various legislative and regulatory initiatives, as well as a preview of what's to come. As I've said before, watching the progress of these initiatives through Congress and the SEC reminds me of the arcade game where you can watch the little mechanical horses race around and around the track, with the lead constantly changing - as in this great video.

Mark made these points, among many others:

Given the amount of attention Congress is giving to health care reform, it is very possible that governance and compensation reform will be pushed to 2010 - unless there is some unforeseen crisis before then, which is always possible.

Mark, like me, had thought the Shareholder Bill of Rights Act (the Schumer Bill) introduced in the Senate had probably been swept aside or at least delayed by the passage by the House of the Corporate and Financial Institution Compensation Fairness Act (the Frank Bill). Now, he believes that the Schumer Bill may be getting new traction. The Schumer Bill is heavier on governance reform than the Frank Bill, and some of these provisions may be grafted onto a financial institutions reform bill.

Even though a shareholder advisory vote (Say-on-Pay) requirement likely will be part of any reform bill, it almost certainly will not be effective for the 2010 proxy season. Meanwhile, some major companies have voluntarily adopted other advisory vote models - in September, Microsoft adopted a triennial advisory vote, and in October, Prudential adopted a biennial advisory vote. If one of these approaches gains support, Congress may mandate one of these approaches rather than an annual vote on compensation.