Connect with us

Business

In corporate crackdown, U.S. SEC takes aim at executive pay

Published

on

October 22, 2021

By Chris Prentice

WASHINGTON (Reuters) – The new Democratic leadership of the U.S. securities watchdog has a message for Corporate America’s highly paid executives: if your company screws up, your pay is at risk.

    Clawing back compensation is shaping up to be a key part of the U.S. Securities and Exchange Commission’s (SEC) agenda as it cracks down on corporate misconduct, raising the stakes for thousands of executives who could potentially lose millions of dollars in bonuses and stock sale profits.

Advertisement

“Clawbacks can be an important factor in accountability,” said John Coffee, a professor at Columbia University Law School. “If properly implemented, they can be much more effective than they currently are.”

    Last week, the SEC said it would revive a rule left unfinished from the 2007-09 financial crisis that would require U.S.-listed companies to implement a plan to recoup executive compensation in the event they have to correct financial statements due to compliance failures.

    But in behind-the-scenes enforcement talks with companies, the SEC has already dusted off a narrower clawback power created in 2002 following the Enron and WorldCom accounting scandals, according to four lawyers familiar with the private discussions.

    That rule allows the SEC to force a public company’s chief executive or chief financial officer to return bonuses or other incentive-based pay in the event the company restates its results due to misconduct.

In 2016, a federal court settled a lingering question over whether the SEC could recoup pay from executives who were not directly accused of wrongdoing. It said the agency could, because the executives should not profit from the proceeds of foul play.

Advertisement

    In nearly two decades, however, the SEC has used the 2002 clawback power sparingly overall, despite potentially hundreds of opportunities to so, and just 15 times to penalize executives who were not directly accused of misconduct, according to a new analysis by law firm Covington and Burling LLP.

Gerald Hodgkins, a partner in the firm’s Washington office and a former associate director in the SEC’s enforcement division, said it was unclear why the SEC had pursued so few such actions, but that “perceived unfairness” was one potential reason.

The SEC appears to be shifting its stance on the issue.

Its enforcement staff have recently proposed using the clawback power in private settlement negotiations over cases involving financial restatements where the CEO and CFO are not accused of misconduct, said four attorneys involved in the separate cases, in what appears to be a change in strategy.

Among them is Joseph Dever, a lawyer with Cozen O’Connor LLP and a former SEC enforcement attorney.

Advertisement

“Staff seems to be raising this remedy far more frequently now than in the past,” he said.

On one occasion, staff proposed clawing back an executive’s compensation after the issue with the company had been resolved, said one of the three other attorneys, adding that was highly unusual.

The three attorneys asked to remain anonymous to discuss private matters.

Reuters could not ascertain how frequently overall the SEC was proposing clawbacks in settlement discussions.

But Allison Lee, a Democratic Commissioner who was a senior enforcement attorney with the agency from 2015 to 2018, told Reuters in an interview that the 2002 power has been “underutilized.”

Advertisement

    While Lee said she could not comment on enforcement probes over which she now has no oversight, she said of the power: “I’d like to see us ensure we are vindicating the recourse it provides for shareholders.”

ACCOUNTABILITY

Cracking down on corporations is a priority for Democrats who say the SEC has long been too soft on big business.

When properly enforced, clawbacks can improve accountability in an era where writing checks to appease regulators is seen by companies as a cost of doing business, say advocates.

Over the past decade, investors have pushed for corporate clawback policies for a range of missteps, but companies have struggled to get the cash back once it is out the door, said Coffee.

Advertisement

Goldman Sachs Group Inc, for example, failed to recoup compensation from former Chief Operating Officer Gary Cohn over the Wall Street bank’s involvement in Malaysia’s 1MDB sovereign fund corruption scandal. He gave the money to charity instead.

That is why tougher regulatory clawback tools are important, say experts.

Last week, the SEC reopened to public comment an additional clawback rule it first proposed in 2015 but never finalized. The comment period closes on Nov. 22.

Required by the 2010 Dodd-Frank Act, that rule would go further than the 2002 power, capturing a broader range of corporate roles and situations in which incentive-based compensation could be recouped.

While it puts the responsibility of implementing and enforcing the clawbacks on companies and exchanges, Lee said it could be a “powerful” accountability tool.

Advertisement

“It’s based on the common-sense notion that you shouldn’t get to keep incentive-based comp that wasn’t actually earned,” she said in a follow-up statement. “I’m glad we’re finally moving toward implementing that mandate.”

(Reporting by Chris Prentice in Washington; Editing by Michelle Price and Matthew Lewis)

Continue Reading
Advertisement

Business

Yen shines, Aussie sags as Powell turns hawk despite Omicron uncertainty

Published

on

December 1, 2021

By Kevin Buckland

(Reuters) – The safe-haven yen held steady on Wednesday, while the risk-sensitive Australian dollar languished near a one-year low after Federal Reserve Chair Jerome Powell signalled a faster taper of stimulus despite the risks around the Omicron COVID-19 variant.

Investors fear that hasty monetary tightening could choke off the nascent economic recovery, with little still known about Omicron’s potential to evade current vaccine protection or how deadly it might be.

Advertisement

“Investors are staying cautious,” said Shusuke Yamada, chief Japan FX strategist at Bank of America-Merrill Lynch.

“It’s very difficult to make a judgement about the impact of Omicron when we don’t have a lot of information.”

Global markets fell sharply on Tuesday after the head of drugmaker Moderna said existing COVID-19 vaccines would be less effective against the new variant, although BioNTech’s chief executive struck a cautiously positive note, saying the vaccine it makes with Pfizer would likely offer strong protection against severe disease from Omicron.

The Aussie weakened 0.12% to $0.71245 after dipping as low as $0.7063 of Tuesday for the first time since Nov. 3, 2020. The New Zealand dollar was largely flat at $0.68195 after also touching the lowest since early November of last year at $0.6773 in the previous session.

The greenback ticked 0.09% higher to 113.26 yen, but still within sight of an overnight low of 112.535, a level not seen since Oct. 11.

Advertisement

Powell said in testimony to Congress on Tuesday that Fed officials will discuss at their Dec. 14-15 policy meeting whether to end bond purchases a few months earlier than had been anticipated. The Fed chief finally did an about face on a long-held contention that inflation would be “transitory.”

Powell expressed confidence that the impact from Omicron will be far less than in the spring of 2020, when the pandemic erupted.

In response, traders wound up interest rate hike expectations, with money markets now almost fully priced for tightening at the June meeting.

Powell’s testimony continues later Wednesday.

“Powell’s unexpectedly hawkish tone overnight, essentially asserting that inflation risk has primacy over growth/Omicron risks, should leave the (dollar index) forging ahead,” Westpac strategists wrote in a client note.

Advertisement

The index, which measures the dollar against six major peers, traded at 95.921 after sliding to 95.544 on Tuesday for the first time since Nov. 18, weighed down largely by an unwinding of bearish bets on the euro, the most heavily weighted component in the basket.

Westpac recommends buying dips in the index down to the mid-95 level.

The single currency slipped 0.04% to $1.1331, down from a two-week high of $1.1387 overnight.

Sterling traded not far from an 11-month low of $1.31945 reached overnight, last changing hands at $1.32955.

(Reporting by Kevin Buckland; Editing by Shri Navaratnam)

Advertisement

Continue Reading

Business

OPEC+ begins two days of talks amid oil rout

Published

on

December 1, 2021

LONDON (Reuters) – OPEC and its allies begin two days of meetings on Wednesday to decide whether to release more oil into the market or restrain supply amid an oil price rout and fears the Omicron coronavirus variant could weaken global energy demand.

Oil prices fell to near $70 a barrel on Tuesday from as high as $86 in October, posting their biggest monthly decline since the outset of the pandemic, as the new variant raised fears of a supply glut.

For November, Brent fell by 16.4%, while WTI fell 20.8%, the biggest monthly fall since March 2020.

Advertisement

“The threat to oil demand is genuine,” said Louise Dickson, senior oil markets analyst at Rystad Energy. “Another wave of lockdowns could result in up to 3 million bpd (barrels per day) of oil demand lost in the first quarter of 2022.”

Also pressuring prices, Federal Reserve Chair Jerome Powell said the U.S. central bank likely will discuss speeding its reduction of bond purchases amid a strong economy and expectations that a surge in inflation will persist.

The Organization of the Petroleum Exporting Countries (OPEC) will meet on Wednesday after 1300 GMT, followed by a meeting on Thursday of OPEC+, which groups OPEC with allies including Russia.

Several OPEC+ ministers, including from Russia and Saudi Arabia, have said there was no need for a knee-jerk reaction from the group.

But some analysts have suggested OPEC+ might put plans to add 400,000 barrels per day (bpd) to supply in January on hold.

Advertisement

The group was already weighing the effects of last week’s announcement by the United States and other countries to release emergency crude reserves to temper energy prices.

OPEC+ has been gradually winding down record supply cuts of 10 million bpd implemented last year and currently has some 3.8 million bpd of reductions still in place.

The increase in OPEC’s oil output in November has again undershot the rise planned under a deal with allies, a Reuters survey found.

(Reporting by OPEC team, writing by Dmitry Zhdannikov, editing by Richard Pullin)

Advertisement
Continue Reading

Business

New York accuses Amazon of backsliding over worker safety, seeks monitor

Published

on

December 1, 2021

By Jonathan Stempel

NEW YORK (Reuters) -New York state’s attorney general on Tuesday asked a state judge to appoint a monitor to oversee worker safety at an Amazon.com Inc fulfillment center in New York City, citing the retailer’s alleged rollbacks of COVID-19 safety measures that were “already inadequate.”

Letitia James, the attorney general, also wants a court order requiring the rehiring of Christian Smalls, who Amazon fired for allegedly violating a paid quarantine by leading a March 2020 protest over conditions at the Staten Island facility.

Advertisement

James, a Democrat running to become New York governor, sued https://www.reuters.com/article/us-amazon-com-complaint/new-york-attorney-general-sues-amazon-over-covid-19-shortfalls-idUSKBN2AH0C2 Amazon in February in a New York state court in Manhattan over its safety protocols for thousands of workers at the Staten Island facility and a distribution center in the New York City borough of Queens.

She said Amazon is valuing profit over safety and “acting as if the pandemic is over” by rolling back safety protocols even as the Omicron variant https://www.reuters.com/business/healthcare-pharmaceuticals/omicron-variant-could-outcompete-delta-south-african-disease-expert-says-2021-11-30 of the COVID-19 virus threatens to increase transmission rates.

The alleged rollbacks include making the Staten Island facility “mask-optional” for vaccinated workers while not requiring masks for unvaccinated workers, and failing to enforce social distancing.

In her motion for a preliminary injunction, James said the proposed monitor would oversee upgraded cleaning, hygiene and social distancing procedures.

“While case rates, hospitalizations, and deaths rise, Amazon rescinds protections and packs in more workers for its holiday rush,” James said in her motion. “Amazon’s ongoing – and worsening – failure to protect workers must be halted.”

Advertisement

Amazon said in a statement it has taken a “comprehensive approach” to COVID-19 safety.

“It’s disappointing that the Attorney General is seeking to politicize the pandemic by asking for ’emergency’ relief now despite having filed this lawsuit nine months ago,” Amazon said.

The Seattle-based company is appealing a judge’s refusal in October to dismiss James’ lawsuit.

Amazon on Nov. 15 reached a separate settlement with California https://www.reuters.com/legal/government/amazon-settles-california-claims-it-concealed-covid-19-cases-workers-2021-11-15 over claims it violated a state “right-to-know” law by concealing from warehouse workers and local health agencies the numbers of workers being infected with COVID-19.

(Reporting by Jonathan Stempel in New York; Editing by Matthew Lewis and Stephen Coates)

Advertisement

Continue Reading
Advertisement

Trending