WASHINGTON, D.C.— Stephen Hall, Legal Director and Securities Specialist at Better Markets, issued the following statement in response to the Securities and Exchange Commission’s (SEC) adoption of a final rule requiring public companies to disclose information on the relationship between executive compensation actually paid and companies’ financial performance:
“Executive compensation schemes can incentivize the worst behavior and lead to disastrous consequences, as the 2008 financial crash proved. That’s why few issues are more important to investors than information that enables them to better understand how executive compensation is structured and how it influences corporate leaders. That’s also why the Dodd-Frank Act instituted an entire collection of executive compensation reforms more than 12 years ago.
“We applaud the SEC for finalizing this rule and for adopting a number of provisions we supported in our March 2022 comment letter. In particular, as we urged, the SEC has expanded the metrics of financial performance to include not just ‘total shareholder return,’ which can be misleading, but also other measurements such as net income. In addition, as we argued, the SEC is requiring companies to list the financial performance measures that it determines are the most important, allowing for non-financial metrics as well.
“These provisions will give investors more comprehensive, comparable, and useful information on executive compensation. That information will enable shareholders to see what factors are driving compensation for the executives of the companies they own and ensure that compensation bears a reasonable relationship to company performance. In the end, this rule will help investors make more informed investment decisions, discourage bloated executive compensation packages, and curb high-risk activities aimed at boosting short-term pay-packages at the expense of long-term financial performance.
“As we applaud this rule, we also urge the SEC, through supervision and examinations, to be vigilant in monitoring the implementation of the rule to ensure that the letter and spirit of the law are fulfilled.”
Better Markets is a non-profit, non-partisan, and independent organization founded to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org.