New York partner Marc Powers, leader of Baker Hostetler's national Securities Litigation and Regulatory Enforcement practice team, was quoted in the July 24, 2009, edition of the Bureau of National Affairs' Corporate Accountability Report in the article, "Draft Bill on Comp Committee Independence Needs Additional Fine-Tuning, Observers Say."
According to the article, the new legislation drafted by Obama administration officials, the Investor Protection Act of 2009, if enacted, will guarantee compensation committees the authority and financial resources to hire their own consultants and legal counsel, and will give shareholders in public companies a nonbinding vote on executive compensation and golden parachute packages. Public companies that violated standards of compensation committee independence could be prohibited by the SEC from listing their securities with the national securities exchanges and associations, according to the article.
"Given some of the excesses of executive compensation over the last decade, it is time for all public companies to listen more to shareholders, even if it means Congress has to mandate this," said Powers. From the perspective of investors, Powers said, "nothing in the draft legislation specifically provides shareholders with a private right of action to enforce the independence rules for executive compensation committee members. Also, it is too early to tell whether courts would be willing to review a case regarding this issue. It is likely that the SEC will be the sole enforcer of the new proposed independence rules."
To prepare for enhanced executive compensation disclosure rules, public companies should be proactive in terms of reaching out to shareholders and maintaining information transparency, Powers said. They should also hire reputable compensation consultants to aid compensation committees, and tie compensation to performance and retention for all executives, Powers said. Companies should consider holding informal or ad hoc meetings with shareholders—institutional or otherwise—for a buy-in on the reasonableness and adequacy of their compensation programs, he said.