The US Treasury has announced the appointment of a “special master” to oversee executives’ compensation at U.S. companies receiving large amounts of government aid, with the power to reject pay plans deemed excessive. Kenneth Feinberg, a lawyer who oversaw payments to families of victims of the Sept. 11, 2001, terrorist attacks, will review the compensation for the top 25 salaried employees at firms that receive exceptional assistance under the $700 billion Troubled Asset Relief Program (TARP). Among the companies that could be affected would be Bank of America, General Motors and the American International Group.
On the same day, the SEC made a further announcement about its proposals on improving executive pay disclosure. Mary Schapiro, SEC chairman said in a statement: “the SEC is actively considering a package of new proxy disclosure rules that will provide further sunshine on compensation decisions. While these proposals would not dictate particular compensation decisions, they would lead companies to analyze how compensation impacts risk taking and the implications for long term corporate health of the behavior they are incenting.”
The SEC is said to be consideraing considering several proposals requiring greater disclosure about:
- About how a company — and its board — manages risks.
- About a company’s overall compensation approach. Incentive structures that rewarded short term risk taking without taking into account the potential long term effects on the company are widely believed to have contributed to the economic crisis.
- About potential conflicts of interest by compensation consultants, including disclosure of relationships between the consultants and the company and their affiliates, so both compensation committees and investors will be better able to assess the advice the consultants provide.
- And, about director nominees, including their experience and qualifications to serve on the board or on particular board committees — and about why a board has chosen its particular leadership structure.
The Treasury and SEC announcements came one day before both agencies, plus the Federal Reserve, were due to give testimony to a House of Representatives panel on pay issues. Committee Chairman Barney Frank says the hearing will focus on how to stop pay practices that encourage excessive risk-taking.