Mercer recently released a “Financial Services Executive Compensation Snapshot Survey” finding that in 2011, “14% of global banking organizations have ‘clawed back’ compensation payments made to employees while a further 3% of organizations have reclaimed the payments but have yet to receive the pay back.” The Survey looked at compensation structures in 63 global financial services companies, including banks and insurance firms.
One commentator opined that because “only 17%” of financial institutions clawed back compensation, “the results may suggest that the regulators are not achieving the objectives of their persistent call for banks to implement clawback policies.” In fact, we believe the survey shows – and our experience confirms – exactly the opposite. In our view, the fact that 17% of financial institutions clawed back compensation in one calendar year – a year in which the Dodd-Frank compensation clawbacks were not yet legally required – is remarkable. I highly doubt that 17% of companies outside the financial services sector clawed back compensation in 2011.
On a related point, Vicki Elliott, Mercer’s global financial services human capital leader observed that: “It’s worth remembering that the majority of banks have also introduced ‘malus conditions’ on deferred compensation. This can result in reduced, or no payouts, of deferred monies.” Indeed, so-called “malus” conditions (the opposite of “bonus”) and compensation holdbacks have become a common feature of executive compensation programs at financial institutions.
As I said during my testimony before the Senate Banking Committee in February, financial institutions have become the thought leaders in corporate America on issues such as pay for performance and mitigating the potential risks created by incentive compensation programs. No one who has worked through a Horizontal Review by the Federal Reserve could conclude otherwise.
We have seen financial institutions transform their compensation practices in response to the financial crisis, the Dodd-Frank Act, board oversight requirements and other recent rules and regulations. Large financial institutions have, for the most part, embraced principles of safety and soundness and profoundly changed their executive compensation practices in response to these developments. Financial institutions, especially larger institutions, have reacted vigorously and proactively by modifying their compensation programs and adopting best practices in corporate governance for executive compensation.
As readers of this blog know, the area of compensation clawbacks is very complex and requires companies to balance many legitimate but competing interests. And, of course, we are still waiting for proposed or final rules from the SEC on the compensation clawback provisions of Dodd-Frank Section 954. We will keep you apprised of developments.
On August 28, 1963, Dr. Martin Luther King Jr. delivered his "I Have a Dream" speech from the steps of the Lincoln Memorial during the March on Washington for Jobs and Freedom. If you have the time, it is worth reading the entire speech again – or better yet, watch the video. However, a shortened version is below:
"I have a dream that one day this nation will rise up and live out the true meaning of its creed: 'We hold these truths to be self-evident, that all men are created equal.'"
"I have a dream that my four little children will one day live in a nation where they will not be judged by the color of their skin, but by the content of their character."
"I have a dream that one day on the red hills of Georgia the sons of former slaves and the sons of former slave owners will be able to sit down together at a table of brotherhood."
"This is our hope. This is the faith that I go back to the South with. With this faith we will be able to hew out of the mountain of despair a stone of hope. With this faith we will be able to transform the jangling discords of our nation into a beautiful symphony of brotherhood. With this faith we will be able to work together, to pray together, to struggle together, to go to jail together, to stand up for freedom together, knowing that we will be free one day."
"Now is the time to lift our nation from the quicksand of racial injustice to the solid rock of brotherhood. Now is the time to make justice a reality for all of God's children."
"Let freedom ring. And when this happens, and when we allow freedom ring—when we let it ring from every village and every hamlet, from every state and every city, we will be able to speed up that day when all of God's children—black men and white men, Jews and Gentiles, Protestants and Catholics—will be able to join hands and sing in the words of the old Negro spiritual: "Free at last! Free at last! Thank God Almighty, we are free at last!"