Axne and Sherman Call on SEC to Cease Delay on Executive Compensation Clawback Rules
Washington, D.C. – Today, Congressman Brad Sherman (D-Sherman Oaks), Chair of the House Financial Services Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets, joined Congresswoman Cindy Axne (D-IA) in sending a letter to Securities and Exchange Commission (SEC) Chair Jay Clayton, calling on the SEC to finish its long overdue rulemaking on executive compensation “clawbacks.” The Dodd-Frank Act, signed into law over ten years ago, directed the SEC to implement rules obligating companies to establish policies to require executives to pay back certain incentive based compensation when a company is found to have overstated its financial performance. These “clawback” requirements offer an important safeguard for investors by removing the incentive for executives to abuse performance based compensation programs by inflating financial statements.
While the Commission issued a proposed rule in 2015, under the Trump Administration, the SEC has failed to act, at the cost of investors. Executives, like the Valeant Pharmaceuticals CEO, J. Michael Pearson, have been allowed to keep millions in compensation after signing off on public financial statements found to be highly misleading to investors. During his time as CEO of Valeant, Pearson received over $150 million in compensation and in 2016 a $12 million golden parachute severance package, after being forced out by the board over questions of Valeant’s accounting and business practices. Under a settlement reached this summer, Pearson was required to pay back only $450,000 to Valeant.
“It is well beyond time for the SEC to close the door on this flaw in the incentive based compensation model,” said Congressman Sherman. “Executives should not be rewarded for acting in bad faith and putting their personal financial gain above the interests of shareholders.”
“Given the extent of the wrongdoing at Valeant during this time, a $700,000 settlement for a CEO who walked away with more than $150 million is just a slap on the wrist, and does little to prevent this kind of behavior in the future,” said Congresswoman Axne. “Pharma CEOs getting rich by hiking prices of life-saving drugs makes me furious, and it’s even worse to know the SEC should have done more to discourage executives from this kind of behavior. Instead of finalizing this rule to protect investors, this SEC has focused their attention on making management unaccountable to shareholders.”
The letter was signed by Reps. Stephen Lynch (MA-08), Bill Foster (IL-11), Carolyn Maloney (NY-12), Lacy Clay (MO-01), Ed Perlmutter (CO-07), Rashida Tlaib (MI-13), Sean Casten (IL-06).
The full text of the letter is available here.