Mr. Gary K. Van Meter, Director
Office of Regulatory Policy
Farm Credit Administration
1501 Farm Credit Drive
McLean, VA 22102–5090
Dear Mr. Van Meter:
I am writing to offer my comments on the Farm Credit Administration’s (Agency) proposed rule on “Compensation, Retirement Programs, and Related Benefits,” published January 23, 2012, in the Federal Register. As a director of the CoBank Board, I am deeply concerned about the proposed rule. It will have a significant, negative impact on effective board governance and constructive customer-shareholder involvement with their cooperative and duly elected directors.
I especially want to express my significant disappointment with the proposed non-binding stockholder advisory “say-on-pay” vote on executive compensation as it shows a lack of appreciation for the strength of the cooperative form of ownership. CoBank’sBoard retains ultimate responsibility for the oversight and approval of all senior officer compensation programs. The “say-on-pay” proposed rule interferes with this responsibility. This proposal goes against good governance and undermines the safety and soundness of my cooperative. It undercuts the Board’s ability to oversee the institution’s operations and executive compensation in the best interest of customer-shareholders. It forces a costly shareholder referendum on board compensation decisions. The non-binding vote is also directly contrary to the well-documented intent of Congress.
The Agency’s proposal ignores CoBank’s unique structure as a cooperative and treats it like a publicly traded company. There are no management “insiders” on the board at CoBank or other FCS institutions who can control and set their own compensation. All the directors either are elected by our cooperative shareholders or appointed by the elected directors. This same cooperative structure ensures that no director is beholden to management in any way. It is one of the governance strengths of the cooperative structure that the boards are truly and fully independent of management. Insisting on “say-on-pay” votes effectively requires an annual referendum on elected directors. Congress recognized this critical difference in passing the Dodd-Frank legislation, specifically exempting the Farm Credit System from the list of financial institutions required to conduct “say-on-pay” votes.
We know of no instance where a customer-shareholder has expressed any concerns about executive pay after receiving CoBank’s comprehensive and extremely transparent compensation disclosures. As a director, I am strongly committed to maintaining thoughtfully designed compensation, retirement, and related benefit programs that are consistent with market practices, aligned with shareholder value and sufficient to attract and retain high-caliber talent. It is this talent that ensures CoBank delivers lasting value to its customer-shareholders. I am also committed to transparency in our compensation practices and to strong, timely, and accurate compensation disclosures. In fact, CoBank consistently produces a high quality compensation disclosure that fully informs customer-shareholders.
We are proud of our current compensation and disclosure practices. Our practices are consistent with leading market standards, are equitable to our associates, are fully transparent to our shareholders, and result in a strong and well-managed bank. I see further regulating this area as not only inappropriate and unjustified but possibly harmful to recruiting and retaining the talent necessary for long-term financial stability.
The proposal adds unnecessary regulatory burden and costs with no benefit to the financial strength of the institution or appropriate engagement of customer-shareholders. It is also plainly inappropriate for the Agency to undermine and get in the middle of the relationship between directors and the customer-shareholders who elected them to the board. Requiring a shareholder referendum also undercuts the fundamental responsibility of the board to set the total compensation philosophy for the bank and to hold management accountable for administering a compensation program consistent with that philosophy. In a cooperative, if the directors do not ensure a sound compensation program that represents the best interests of all customer-stockholders, the next step that occurs is a change in leadership brought about through the election process. There simply is no need for FCA to regulate this area to mandate an advisory “say-on-pay” vote. I urge the Agency to drop the proposed “say-on-pay” provision in its entirety.
Daniel T Kelley Normal, Illinois