Treasury Secretary Timothy Geithner says regulators will consider whether supplemental retirement packages properly align the interests of executives and shareholders at public companies.
Geithner lumped supplemental retirement benefits together with golden parachutes in a section of a statement about compensation, which appeared shortly before the Treasury Department posted an interim final rule that sets standards for compensation and corporate governance at companies receiving aid from the Troubled Asset Relief Program.
In the statement, Geithner says he, U.S. Securities and Exchange Commission Chairman Mary Schapiro, Federal Reserve Governor Dan Tarullo and others met today to “examine how we can better align compensation practices – particularly in the financial sector.”
The Treasury Department will be asking Congress to give public company shareholders a non-binding vote on executive compensation packages, Geithner says.
Treasury also will propose legislation giving the SEC the power to ensure that compensation committees are more independent, Geithner says.
Inside the Obama administration, the President’s Working Group on Financial Markets will “provide an annual review of compensation practices to monitor whether they are creating excessive risks,” Geithner says.
“We are not capping pay,” Geithner says. “Instead, we will continue to work to develop standards that reward innovation and prudent risk-taking, without creating misaligned incentives.
Geithner says good compensation programs should:
- Properly measure and reward performance.
- Be structured to account for the time horizon of risk.
- Be aligned with sound risk management.
- Be set with transparency and accountability in mind.
A look at golden parachutes and supplemental retirement programs should be another major component of the compensation review effort, Geithner says.
“Golden parachutes were originally designed to align executives’ interests with those of shareholders when a company is the potential target of an acquisition,” Geithner says. “Often, they have been expanded beyond that purpose to provide severance packages that do not enhance the long-term value of the firm. Likewise, supplemental executive retirement benefits can make it more difficult for shareholders to readily ascertain the full amount of pay due a top executive upon leaving the firm.”