Senior Officers Compensation Disclosures - Proposed Rule
April 13, 2012
Mr. Gary K. Van Meter, Director
Office of Regulatory Policy
Farm Credit Administration
1501 Farm Credit Drive
McLean, Virginia 22102-5090
Re: Proposed Rule – Compensation, Retirement Programs, and Related Benefits
RIN 3052-AC41, 77 FR 3172
Dear Mr. Van Meter:
I am writing to comment on FCA’s proposed rule regarding compensation disclosures (“say-on-pay” vote). I am a FCW stockholder who serves on a peer customer group that interacts with FCW management and board members on customer-stockholder matters. Most importantly, many of our Local Advisors serve on the committee that nominates candidates for election to FCW’s board of directors. I urge FCA to withdraw the proposed “say-on-pay” provision.
We are very concerned about the negative message “say-on-pay” votes would send to potential director candidates. As nominating committee members we search out director candidates from among our voting stockholders. Identifying individuals who are eligible, qualified and willing to become director candidates is important to the success of FCW. Plainly speaking, “say-on-pay” votes are excessive regulation and, from our perspective, the threat of those votes will discourage eligible and qualified individuals from becoming director candidates. This, in turn, will make it more difficult for our nominating committee to attract and nominate quality candidates for election to the FCW board.
FCW’s elected directors are first-and-foremost farmers or ranchers. Excluding outside directors, new directors do not necessarily bring with them expertise in the banking industry. It is through comprehensive training where they develop the knowledge and expertise necessary to fulfill their fiduciary responsibilities as bank directors. Moreover, they rely on outside directors, financial experts, and independent consultants to assure they carry out the technical aspects of their role in a safe and sound manner. It would be a step backwards for FCA to impose a popularity-vote on directors’ senior officer compensation decisions. Asking members to vote on compensation undermines the board’s governance responsibility and introduces uncertainty to its decision-making role.
The “say-on-pay” vote results in a stockholder referendum that puts directors in an untenable position. It subjects their diligently and carefully made decisions to a vote by farmers and ranchers that will not have sufficient information, despite the thoroughness of vote disclosure, on which to form an opinion. This undermines the effectiveness of board decisions and makes directorship at an association much less appealing to potential candidates. Furthermore, a negative “say-on-pay” vote will challenge directors with having to decide between fulfilling their fiduciary duty to all stockholders and confirming to the position of customer-stockholders, who never had all the information, or access to resources, board members had when they made the compensation decision. Indeed directors have a tremendous amount of compensation information and comparison data that is, for legal reasons, not generally available to the membership.
Additionally, “say-on-pay” votes will encourage boards to shy away from using incentive plans to attract and retain the management skills that effectively build the value of our cooperative. FCA should drop the “say on pay” vote proposal since it effectively discourages the use of incentive plans that ensure our cooperative can attract and retain the management talent it needs to be successful.
Finally, we know of no instance where the detailed disclosures on CEO and executive compensation plans as well as the administration of those plans was not seen as sufficient by customer-stockholder. No customer-stockholder has been asking for a “say on pay” vote. In fact, there has been no meaningful concern expressed by any customers, or groups of customers, about our executive compensation plans.
I see FCA’s proposed “say on pay” vote regulatory provision as inappropriate meddling in the relationship between directors and customer-stockholders, particularly engagement mechanisms like our Local Advisors shareholder peer group. FCA also does not seem to fully appreciate that the provision will have an immediate adverse impact on board governance and an FCS institution’s ability to attract qualified nominees to serve as directors. For all of these reasons, FCA should drop this adverse provision.
Thank you for this opportunity to comment on the proposed rule.