There’s no doubt shareholders have made great strides in gaining more information and power. They’ve won more disclosure on a series of points, including the experience and skills of director candidates, what the board does to oversee risk management, the role of compensation consultants, and the structure of board leadership, just to name a few. Yes, shareholders have worked long and hard to obtain relevant information, and to wield greater influence on what happens in the boardroom.
The financial regulatory reform law known as Dodd-Frank goes even further to empower shareholders. Say-on-pay votes for shareholders are now a requirement, and while voting results aren’t binding, the measure is viewed as a long-desired step forward, extending to severance payments as well as more routine executive compensation. The law sets in motion requirements for additional independence standards for compensation committees and for engaging compensation consultants. It also mandates new disclosures on the relationship between compensation and company performance and on the ratio of compensation paid to the CEO and median pay for all other employees. Additionally, Dodd-Frank contains clawback provisions that go beyond those in Sarbanes-Oxley (misconduct won’t be a criterion for a clawback) and new disclosure requirements on hedging of company equity securities, among other rules.
