In addition to creating a new consumer protection regulator and revamping the derivatives trading model, as well as leaving the door open for a single fiduciary standard to be applied to all investment advisers, the Dodd-Frank Wall Street Reform and Consumer Protection Act will also shake things up in corporate boardrooms.
Pensions and Investments reports the financial reform legislation will increase boards' oversight responsibility with regard to compensation. It also enables shareholders to have a non-binding vote on executive pay and to nominate directors.
With regard to compensation, the the Dodd-Frank Act requires companies to disclose:
- the median annual compensation of all employees except the CEO, the annual compensation of the CEO, and the ratio between the two.
- the relationship between executive pay and return on company stock.
- details regarding executive compensation in proxy statements.
The new rights for shareholders will guarantee that they also have "year-round constant friction" with boards and management, according to Reed Smith partner John D. Martini. His New York-based Reed Smith colleague, Herbert F. Kozlov, said:
You may see a snowball effect. ... As proxy access becomes more successful (as shareholder nominees win election to boards) you may see companies facing more shareholder nominees.