Compensation committee strategies for the trump era: Dodd-Frank and CEO pay ratio reporting may not disappear, and new roles may be required of the compensation committee.

• Author: Becker, Irv
• Position: TRUMP TORNADO

There are lots of signals coming from the new administration in Washington, but wholesale changes to laws such as Dodd-Frank aren't likely, at least not overnight. That doesn't mean compensation committees shouldn't be prepared and agile.

Compensation committees must set priorities based on the most likely issues they will have to address, and here is guidance on where to place bets and allocate time and resources on key issues:

Dodd-Frank won't likely be going away any time soon. Talk about repealing Dodd-Frank made effective campaign fodder, and as a result compensation committees have expended considerable time determining how best to comply with associated regulations. But the realities of the legislative process suggest that we shouldn't expect wholesale repeal of this broad, far-reaching act; instead, anticipate the softening of specific executive pay rules that were formally adopted and inaction on rules that were only proposed. Thus, we predict that the SEC's proposals on clawback policies and pay-versus-performance disclosures will not be implemented, and that companies will continue developing their own fault-related clawback and pay-versus-performance sought by institutional investors.

While President Trump signed an executive order on Feb. 3 regarding "core principals" relating to rolling back Dodd-Frank, legislation (likely a new version of the proposed Financial CHOICE [Creating Hope and Opportunity for Investors, Consumers, and Entrepreneurs] Act being shepherded through the House by U.S. Rep. Jeb Hensarling) will be needed to accomplish much of this agenda. However, the potential for a filibuster in the Senate will likely result in delay and compromise.

In any case, one particular provision, say-on-pay, is here to stay. Now embedded in governance culture, this provision was demanded by investors and advisory firms, and it's unrealistic to think this power to weigh in on executive pay will be rescinded. Be prepared to comply with all required disclosures under Dodd-Frank and sit tight until President Trump's nominee for SEC chair. Jay Clayton, is approved by the Senate, which should spark actions by the agency and clarify priorities.

Hedge your bets on the CEO pay ratio disclosure rule. We have been advising clients to comply with the CEO pay ratio provision of Dodd-Frank which, while onerous and unpopular with comp committees, is law. Companies first would be expected to furnish disclosures starting in 2018, based on data...