NEW ORLEANS (CN) – Amid growing concern over executive compensation during the economic crisis, a director of the Securities and Exchange commission last week outlined new limits on executive rewards of companies who were part of the government rescue plan, indicating that restrictions on executive compensation are quickly becoming widespread.
John White, the director of the SEC’s Division of Corporation Finance, explained how the recently passed Emergency Economic Stabilization Act severely restricts golden parachutes and reduces the tax deductions for executive compensation.
Under the act, the Troubled Asset Relief Program mandates that compensation committees meet regularly with senior risk officers of the company to ensure that executives aren’t incentivized to put the company at risk.
It also requires that companies comply with the executive compensation provisions before their troubled assets are bought by the U.S. Treasury, meaning that executive compensation policies are changing rapidly.
White acknowledged that with the new legislation comes an increased role of the SEC in regulating public financial institutions, stressing that the SEC will increase its annual review to include all of the largest public companies in 2009.
He focused on what is typically covered in the annual proxy disclosure, defining when companies must disclose executive compensation and performance targets to shareholders.
Companies falling under the new compensation laws in particular will have to be very thorough in their explanation for any executive compensation decisions.
White then urged companies, as he did last year, to clearly explain in their annual reports how any withheld information would harm the company if made public.