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SEC Moves to Make Companies More Accountable to Shareholders
Under one proposed change, companies would be required to analyze for investors how their compensation policies might lead to risk-taking. Many analysts suspect that compensation practices at the largest financial firms rewarded top executives for booking short-term profits with investments that turned out to be toxic over the long-term.
Another proposal would require companies to describe the qualifications of directors and top executives, as well as those of board nominees, such as members of compensation or audit committees.
The proposals, which still must be approved by the SEC, seek to stop the practice of treating a seat on a corporate board as a reward, which could lead to board members not being aggressive about policing the practices of management.
The proposed changes would also require companies to disclose more about their use of compensation consultants and bolster reporting of stock and option awards. Companies would also have to post results of annual board meeting votes more quickly.
Paredes, who supported the changes, still warned about unintended consequences.
"As regulatory reforms are proposed to address excessive risk taking, it is important not to overlook that just as a company can assume too much risk, a company also can be overly cautious," he said.
A third proposal formalizes a requirement that companies receiving financial assistance from the government allow a shareholder vote on executive compensation.