Tuesday, December 20, 2011

It's hard to effectively regulate pay

Insurers that cover directors and officers may be pushing back on clawbacks. Allowing regulators to recoup undeserved rewards from executives is central to recent financial reforms. But in addition to more standard risks, directors and officers policies are now covering salaries and bonuses lost in this way — at shareholder expense. ...

Meager fines for errant corporations haven’t satisfied the public’s lust for rolling heads. That is one reason the Dodd-Frank and Sarbanes-Oxley laws provide for clawbacks. The idea is that at least part of senior executives’ hefty pay packages can be recovered if they run banks that fail or receive remuneration based on bad numbers. ...

Clawbacks also created a business opportunity. Insurers began offering policies in April to cover them, even before regulators issued the first applicable rules under Dodd-Frank. Dozens of companies, banks, hedge funds and private equity firms have bought policies covering clawbacks, worth millions of dollars, for annual premiums of a few tens of thousands.
--Reynolds Holding and Una Galani, Reuters, on the invisible hand rising to meet demand