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How does the Dodd-Frank Wall Street Reform and Consumer Protection Act address the...

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lcowan6 | Student, Undergraduate | Salutatorian

Posted September 24, 2013 at 1:13 PM via web

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How does the Dodd-Frank Wall Street Reform and Consumer Protection Act address the issue of executive compensation?

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kipling2448 | (Level 1) Educator Emeritus

Posted September 24, 2013 at 7:13 PM (Answer #1)

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Section 953 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Public Law 111-203) is the part of the newly-passed series of statutes intended to prevent a recurrence of the financial problems that triggered the banking crisis of 2008.  That section of the law deals with "Executive Compensation Disclosures," and required the U.S. Securities and Exchange Commission to issue a legally-binding "rule" pertaining to disclosure by businesses of the amount of salary and bonuses paid to executives.

Basically, because dictating to privately-owned companies in a democratic political system with free market economics how much they can pay their employees -- beyond establishing a minimum wage -- is anathema to many in Congress as well as the private sector, the Dodd-Frank legislation focused instead on forcing corporate boards to "shine a light" on their executive compensation practices.  Section 953 requires the SEC to require financial disclosures routinely issued by publicly-traded companies to include in such disclosures the total compensation paid to senior level executives, specifically, "the annual total compensation of the chief executive officer (or equivalent position)" as well as "the median of the annual total compensation of all employees" of the corporations in question.  In addition, and of particular disdain to business, the new law states that executive compensation be directly linked to employee wage scales.  The new law's intent is to establish a direct correlation between the amounts paid to employees and to employers.  

Because several years can routinely and legally pass before an Executive Branch or regulatory agency issues the final regulations or rules required by the underlying statute, the SEC is continuing, as of this writing, to refine its proposed regulation for executive compensation.  On September 18, 2013, the commission released its proposed amendments for implementing Section 953 of Dodd-Frank.  The business community will now have a period of time in which to submit objections or comments to the SEC for consideration prior to the finalization of the new binding rule. 

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