Barbara Kay Stille
2000 Jacobssen Drive, Normal, IL 61761
Senior Vice President & General Counsel
Phone: (309) 268-0334 Fax: (309) 268-0335 Via Email to reg-comm@fca.gov
March 18, 2011
Mr. Gary K. Van Meter
Deputy Director
Office of Regulatory Policy
Farm Credit Administration
1501 Farm Credit Drive
McLean, Virginia 22102-5090
RE: ANPRM on Executive Compensation Disclosures – November 18, 2010
Dear Mr. Van Meter:
We appreciate the opportunity to comment on the Farm Credit Administration’s ANPRM regarding Farm Credit System (System) institution disclosures to stockholders and investors on executive compensation, which was published in the November 18, 2010 Federal Register.
First, we fully support and agree with the comprehensive comments submitted on this matter by the Farm Credit Council. These supplemental comments are submitted on behalf of our board’s compensation committee, which reviewed and discussed this ANPRM. In addition to the comments provided by the Farm Credit Council, we urge FCA to consider the following:
General Comments
We support the timely and accurate disclosure of financial and other information relevant to our Association’s safety and soundness, including compensation expenses, in accordance with GAAP and other applicable standards. In general, the disclosures required and voluntarily undertaken by Farm Credit System institutions appropriately inform shareholders about the executive and senior officer compensation programs. These disclosures, balanced with thorough oversight by the board’s compensation committee, assure that the association’s interests are protected. Our board of directors and compensation committee actively participate in matters of executive compensation, and review System and non-System compensation information as part of its review. To the extent any Farm Credit institution board is not performing its fiduciary duties, the FCA has the ability to cope with that institution. This targeted approach is more effective than imposing additional regulatory burden on the entire System.
Executive Compensation Disclosures
The Farm Credit System has not experienced significant problems related to executive compensation. As a system of cooperative organizations, Farm Credit has been designed to be accountable to its stockholders, who are both clients and owners of the institutions. Unlike many private or publicly-held companies, our association board consists of independent stockholders and other professionals whose duties to the association are not clouded by any management role. Because of our cooperative structure and the existing regulations, Farm Credit institutions do not offer stock options or other plans that could incent management’s manipulation of share prices to the detriment of the company.
Shareholder Vote on Executive Pay
The recent guidance to System compensation committees emphasized the level of performance and detailed analysis expected to be conducted by those committee members. The proposed shareholder vote on executive pay would undermine the board’s investment in the education and training of compensation committee members, and the investment many boards make in hiring independent consultants to provide advice on executive compensation matters. It would be unduly burdensome for our association to undertake educating all stockholders sufficiently to make a vote on executive compensation meaningful and relevant. We further believe our board should determine who is best suited to serve on our compensation committee, particularly in light of the fact that all our directors are independent of management influence.
We believe the current disclosures of individual CEO compensation and aggregate senior officer compensation are appropriate. From a human resources management perspective, detailed disclosure of individual compensation could provide valuable information to allow competitors to lure key senior officers away from the Association, depriving the System of the best executive talent. Such individual pay disclosures also may create morale issues among employees.
Director Compensation
Regarding director compensation in connection with restructuring, we support full disclosure of such compensation. If a potential conflict arises, impacted directors should recuse themselves, as they would in any potential conflict situation.
Audit Committee
Finally, we believe in the importance of audit committee autonomy, but do not support regulatory changes that would allow audit committees absolute discretion in allocating company resources. This ability could undermine the board. The current regulations contain the appropriate balance of allowing access to expert resources, while recognizing the board’s ultimate accountability to the stockholders for the safety and soundness of the System institution.
Conclusion
As cooperatives, Farm Credit institutions work under a governance model that provides board independence and accountability to shareholders—a dynamic not found in many of the publicly-traded and privately-owned financial institutions that experienced executive compensation abuses. We support timely and accurate financial reporting, and believe these disclosures should be clear and meaningful to stockholders. The current Farm Credit regulations regarding compensation disclosures appropriately inform stockholders of the institutions’ compensation practices, allowing stockholders to hold the board of directors accountable for executive compensation decisions through the director election process. For the reasons noted in the FCC comments and this letter, the concepts put forth in the ANPRM should not be adopted.
Again, we appreciate the opportunity to provide input on this ANPRM. If you have any questions about our association’s position, please contact me.
Respectfully submitted,
Barbara Kay Stille
Senior Vice President – General Counsel
1st Farm Credit Services
Copies: Board of Directors
Gary Ash, CEO Barbara Kay Stille
Senior Vice President and General Counsel | 1st Farm Credit Services bstille@1stfarmcredit.com | 2000 Jacobssen Drive, Normal, Illinois, 61761|
Office: 309.268.0334 | Fax: 309.268.0335
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