Financial Choice Act 2.0 Introduced; HR Policy-Supported Compensation, Governance, and Proxy Advisory Firm Changes
April 21, 2017
House Financial Services Committee Chairman Jeb Hensarling (R-TX) this week introduced an updated version of the Financial CHOICE Act 2.0, which would substantially revise the 2010 Dodd-Frank Act and contains Association priorities of repealing the pay ratio and financial services incentive compensation requirements together with the implementation of a proxy advisory firm regulatory regime. Committee leadership has expressed a desire to move quickly on the bill, and announced a hearing on it next week. The relevant provisions in Choice 2.0 include:
- Full Repeal: The bill would repeal the following key provisions in Dodd-Frank: Pay Ratio (Section 953(b)), Financial Services Industry Compensation Limitations (Section 956), Hedging Disclosure (Section 955), Proxy Access (Section 972), and Conflict Minerals (Title XV).
- Proxy Advisory Firms: The bill includes the "Corporate Governance Accountability and Transparency Act," which imposes a strict regulatory regime on proxy advisory firms.
- Change to Say on Pay: The bill changes say on pay to require a vote only when a company has made a material change to executive compensation (Dodd-Frank Section 951).
- Change to Clawbacks: In the event of certain financial restatements, the bill holds bad actors responsible by limiting clawbacks of compensation to current or former public company executive officers who had control or authority over the company's financial reporting rather than all current and former executive officers (Dodd-Frank Section 954).
- Shareholder Proposals: The bill imposes a requirement that a shareholder must own at least 1 percent of a company for at least three years to submit a shareholder proposal.
- Shareholder Resubmission Thresholds: In order to resubmit an identical proxy proposal under the bill, a proposal must receive at least 6 percent shareholder support in the first year—up from 3 percent—followed by at least 15 percent support in the second year—up from 6 percent—and at least 30 percent in the third year—up from 10 percent.
The measure appears poised to move quickly, and the Association's Center On Executive Compensation will strongly advocate for pay ratio repeal and the other provisions important to Association members.