Saturday, December 30, 2006

Are SEC and Incoming Oversight Chair Off to Rocky Start?

The SEC appears to have angered its incoming House oversight chair when it amended its executive compensation rules on December 22. However plausible the reasoning behind the regulations, and it is arguably plausible to align options disclosure with FASB standards, Rep. Barney Frank was none too pleased. The new chair of the Financial Services Committee issued a press release expressing his disappointment with both the substance and the procedure used to reach the SEC’s decision to loosen reporting requirements for the pay of the top executives of public corporations. He considered it especially ironic that the SEC would relax the rules regarding stock options at precisely the time that widespread abuses of the practice are coming to light. He emphasized that backtracking by the SEC on this important matter of stock options reinforces his determination that Congress must act to deal with the problem of executive compensation that is now unconstrained by anything except the self restraint of top executives.

These are strong sentiments and may portend hearings on the issues sometime soon. Given that executive compensation was already high, if not at the top, of the chair-designate’s agenda, I believe that we can probably expect a determined legislative response. And we should not forget that going back to the creation of the Financial Services Committee, when Rep. Billy Tauzin became chair of the Energy and Commerce Committee, it is Energy and Commerce that got jurisdiction over FASB. Could incoming Energy and Commerce chair John Dingell get involved in this issue through the FASB connection? It could prove very interesting if he did get involved. That, of course, presumes that the Tauzin compromise will hold. I think that it will since I recently read somewhere, may have been the Post, that Speaker Pelosi has indicated that the respective committee jurisdictions in the area of financial regulation will remain unchanged.