NEW YORK (TheStreet) -- It's easy to bash many aspects of the Dodd-Frank banking reform legislation, but Congress sure got it right when requiring "say-on-pay" for shareholders.
The Dodd-Frank Wall Street Reform and Consumer Protection Act -- signed into law by President Obama in July 2010 -- has certainly created a rocky landscape for the banking industry, with numerous threats to revenue streams and confusing and contradictory requirements -- such as the Volcker Rule -- which even has the Federal Reserve and other regulators scratching their heads.
Under the Securities and Exchange Commission's final rules, publicly traded U.S. companies are required to provide shareholders with an advisory vote on executive compensation at least once every three years, and beginning in 2011, with shareholders also voting to decide whether to hold say-on-pay votes annual, every two years, or every three years.
The rules also require "say-on-parachute," with companies required to provide additional disclosure regarding compensation arrangements with executive officers in connection with merger transactions."While the shareholder advisory votes are non-binding, former Citigroup (C) Chairman Richard Parsons wasn't just pandering when he said on April 17 that shareholders' vote against the company's 2011 executive pay package -- which included total compensation of $14.9 million for CEO Vikram Pandit -- was a "serious matter." Coming out of the credit crisis, following government bailouts and obscene losses for long-term investors, the last thing a large bank wants is a shareholder lawsuit against its executive pay packages. While Citigroup's board of directors hasn't yet taken any action to address shareholder concerns, investors expect the company to meet with some major stockholders and try to sort out an agreement. Investors traditionally neglect to send in their annual proxies, leaving their brokers free to vote on their behalf, usually rubber-stamping whatever a company's board of directors decides to recommend. This is obviously changing in the wake of Dodd-Frank, and this can only be a good thing. Mark Poerio -- a partner in the employment practice at Paul Hastings -- points out that even an advisory vote has "high litigation risk," since during 2011, "there were 40 companies that failed to get a majority vote" on say-on-pay, with "about 20% of the companies failing to get a majority vote getting sued for breaching fiduciary duties."
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV