Executive Compensation: Updates

Brief on my own forty-two cents this go-'round, but heavy on the inbox house-cleaning ...

Backdating

Juniper Networks settled a shareholder derivative suit for $169 million. This is the third largest settlement for such suits (United Health at $900 million, Comverse at $225 million, followed by fourt-place Broadcom at $160 million). Speaking of Broadcom, while the SEC dropped its litigation against several Broadcom execs and general counsel, legal analysts have chastised the company for capitulating to shareholders due to "litigation fatigue."

Business Bankruptcy

Recently U.S. Bankruptcy Judge Kevin Carey approved one of several compensation proposals submitted by the Tribune Company (think Chicago Tribune and LATimes). Objections were filed to the plan, but the Judge found 11% of the company's 2009 cash flow as apportioned to 720 managers in bonuses "incentiv[izing]". A little tongue-in-check there, but it amounts to $45.6 million in manager bonuses.

Bank of America (BofA)

Let's start with the uncontroversial: formerly of Merrill Lynch, John Thain finally found work. As a fellow job seeker, *yay* John.

The Cuomo complaint is making the rounds: allegations that BofA and outside counsel Wachtell had in fact agreed to disclose 4Q08 Merrill losses, but the decision was reversed later by Mayopoulos alone; Wachtell "marginialized." Allegations also include Mayopoulos being fed inaccurate information by BofA executives regarding the losses (and therefore affecting his judgment as regards disclosure).

And so it's no suprirse then, that S.D.N.Y Judge Rakoff has not only refused to approve the newly proposed $150 million settlement, but gave SEC counsel a hard time over why NYAG Cuomo's complaint is different, and has recently asked for ALL discovery materials regarding BofA's former general counsel Mayopoulos' dismissal.

Oh, and if any of this behaviour suggests that a substantial bonus payment to various BofA employees would be a PR nightmare, you apparently would be wrong: $4.4 billion goes out to Ibanking employees for their 2009 performance (that's an average bonus of $400,000 per person). Though in fairness: those who are receiving larger bonuses will receive stocks vesting over a several year period.

Compensation Czar

So AIG paid-out contractually agreed to bonuses this year, and the whole of D.C. is trying to determine how to stop it.

Pay Practices

But AIG has heard enough of the populist outcry, and so re-jiggered its pay practices. Analysts and commentators still suggest the jiggering will not satisfy regulators.

Barclay's also tweaked their pay packages and structures. The President and Chief Executive waived their 2009 bonuses; other executives' compensation was deferred and other bonuses were paid in stock.

Mr. Blankfein at Goldman, however, took a $9 million all stock bonus for 2009. The bonus is considered conservative, as Blankfein took a $67.9 million bonus in 2007. No "magic formula" apparently.

Re-Regulation

The Administration's banking plan has Wall St. upset, mostly because cash cow proprietary trading is on the chopping block. Paul Volcker has been quite clear: either have access to federal backing or continue the proprietary trading.

It is little wonder lobbying efforts are up. Is "up" a dimunitive term here? FWIW: Former Treasury Secretary Henry Paulson doesn't like the plan.

The Administration's bank plan also contains disincentives for banks that grow too large to fail. On this theme: JPMorgan got a little bit bigger recently, and then one of its Athens' offices was bombed.

Recall rampant media discussion about the Webb-Boxer Taxpayer Fairness Act - the "Jobs Bill?" A banker tax may be included among the amended provisions. Proposed as a windfall bonus tax, the first $400,000 is exempt.

Separately, Senator Dodd's bank reform legislation has an impasse to overcome ...


Photo credit: Oliviadei.

Investor Protection Act of 2009

Because last week was hot for re-regulation, I promised a summary of what I saw. So here goes ...

The Investor Protection Act of 2009 was proposed by Treasury in July, and will probably be voted out of the House Committee on Financial Services this week for a House floor vote later this fall. Some of the more rockstar aspects of this bill include:

Should advisers and broker-dealers owe the same fiduciary duty to investors? Currently, investment advisers must act in the best interests of the client; broker-dealers, on the other hand, are only legally required to provide a suitable product for investment. Keep in mind the distinction here: investment advisers offer financial advice to individuals or asset management to funds or corporations; broker-dealers actually trade shares to benefit their own accounts (whether as an agent for a client or as a principal on their own behalf).

The bill creates new SEC powers, in two ways. First, it amends the Investment Company Act of 1940 to require mutual funds to disclose more information to investors. Second, the bill also creates an Investor Advisory Committee that represents investor interests within the SEC.

Also-also: there are whistle-blower provisions that offer protections and compensations; and investment advisory firms with assets of less than $100 million will forthwith be regulated by state securities agencies.

UPDATE (11.05.2009, 145p): The legislation was voted out of Committee yesterday (11/04) and is headed to the House floor for a vote. Controversial meat on that bone is the Garrett-Adler amendment that was successfully attached to the bill. The amendment permanently exempts small businesses from a requirement that outside auditors review a company's internal control and environment (as regards issues of accounting, fraud, and waste). Small business is defined as companies with a market value less than $75 million. This will exempt approximately half of all publicly-traded companies. Brief background: the outside auditor requirement exists as part of the post-Enron Sarbanes-Oxley ("SOX") regulation. Historically, smaller firms have been exempted from the auditor requirement due to cost concerns.