December 01, 2017
With the nominees for SEC Commissioner awaiting a full Senate vote after unanimous Senate Banking Committee approval, Senator Tammy Baldwin (D-WI) threatened to force a more lengthy Senate confirmation process unless the nominees answer a series of questions about their views on the pay ratio, stock buybacks, and hedge fund activism. In separate but similar letters sent to Republican nominee Hester Peirce and Democrat Robert Jackson, Sen. Baldwin, a frequent critic of executive pay and the author of past letters to previous SEC leadership, refused to agree to approve the nominations by unanimous consent unless the nominees respond to her questions. Sen. Baldwin demanded the nominees commit to completing the Dodd-Frank clawbacks and pay for performance rules and asked whether they believe that stock compensation has distorted public company pay. Additionally, Sen. Baldwin asked whether the nominees "believe reducing the ratio of CEO to median worker pay is a worthy goal." Perhaps most interestingly, Baldwin asked whether using "actual realized gains" in valuing stock compensation would be a "more accurate representation" of CEO pay than the "estimated fair value" (the accounting expense which is currently used in the Summary Compensation Table), presumably alluding to the fact that these amounts are just estimates made when the stock compensation is granted. According to several news reports, neither nominee responded to requests for comment about the letters. The letters are an attempt by Sen. Baldwin to further slow down the Republican-led SEC's ability to engage in rulemaking, which would require three Republican Commissioners to avoid quorum issues. Additionally, the framing of the issues in her letter may provide insight as to how Democrats will criticize executive pay once the pay ratio takes effect, including that stock compensation leads to over-sized payouts, a theme also used by stakeholders in criticizing the complexity of executive pay which has been percolating worldwide.