With the ink now dry on Dodd-Frank, corporate executives, board members and counsel are trying to determine what the financial reform legislation means in the real world, said Clarke Camper, head of government affairs and public advocacy at NYSE Euronext, in a speech to business leaders in Washington in September.
Some of the hot-button issues the law raises involve executive compensation. Dodd-Frank mandates that regulators delve into pay issues ranging from income disparity within corporations to say-on-pay votes.
For starters, it requires that companies have an independent compensation committee. What the Securities and Exchange Commission will have to determine over the next year is what constitutes independence for a board and for a company's consultants, Camper said.
Camper said the aspect of Dodd-Frank's compensation provisions that he finds "most potentially problematic" is the requirement that companies disclose in their annual proxies the relationship between executive compensation and the company's financial performance.
The statute doesn't specify the way corporations should gather or provide this information, he said, and companies will be watching each other to see how they handle this provision.
The legislation also requires companies to compare their CEO's pay with the average salary of employees. "That's going, to be interesting to say the least," Camper said.
In the say-on-pay votes mandated by Dodd-Frank, companies must give shareholders a chance to vote on executives' compensation once every three years. The rule also allows shareholders to get their nominees onto the proxy, but to do so, a shareholder or group of shareholders must own at least 3% of the voting shares for a three-year period. Camper says he believes the three-year period was designed to keep shareholders from "gaming the system."
Camper warned of another aspect of financial reform that's looming on the horizon: the prospect of a transaction tax. Bills in both the House and Senate would place a relatively small tax on every derivative and stock trade.
Camper said the tax could be a "brush fire" that affects investors of all sizes. No one is arguing against the concept, he said, because the tax would be a "pass-through" that hits investors making transactions, rather than financial institutions.