Senior Officers Compensation Disclosures - Proposed Rule
April 14, 2012Mr. Gary K. Van Meter
Office of Regulatory Policy
Farm Credit Administration
1501 Farm Credit Drive
McLean, VA 22102-5090
Re: Proposed Rule – Compensation, Retirement Programs, and Related Benefits
77 FR 3172
Dear Mr. Van Meter:
As a member of my organization’s Compensation Committee, I would like to further emphasis key points on the Farm Credit Administration’s (FCA) proposed rule related to Compensation, Retirement Programs and Related Benefits. I have reviewed the comments submitted by CoBank, Farm Credit Council, and American AgCredit and endorse those comments as well. I generally oppose this rule based on matters of safety and soundness.
Stockholder Advisory Voting. First, the cooperatives within the Farm Credit System are unlike public companies, which have members of management amongst their board and committees. Our organization goes through a process of selection and training of members to sit on the Compensation Committee. We utilize outside firms to guide us in establishing compensation programs that reflect the marketplace. These programs are periodically evaluated, as is the actual compensation paid to our executive management team, to confirm we are commensurate with market. It is unclear to me how individual shareholders of the organization would have the information necessary to better evaluate compensation for our organization. My understanding is that we have been placed in the role of members of the organization’s Compensation Committee to represent the shareholders interests. I believe providing a stockholder advisory vote only serves to confuse the existing process and our responsibilities as a Committee, and accordingly, do not believe it is appropriate.
Compensation Disclosures. I believe the compensation reporting requirements currently in place are adequate. Our external accounting firm indicates each year they are satisfied with the reporting that is currently in place through their unqualified opinion of the System and individual organization’s financial statements. The rule as set forth in Section 620.6(c)(2)(ii) requiring us to provide notice to all shareholders in the annual report we will upon request supply the details of compensation paid not only to the senior officers of the Association but also the same details for any other employees of the Association that might be among the five highest paid is overreaching. The proposal to disclose severance in instances of separation of senior officer compensation will only serve to limit the organization’s ability to deal with discharge matters including maintaining settlements confidential. The Board and Compensation Committee are apprised of these matters.
I believe these added reporting requirements will only serve to provide outside competition with more information to solicit our valued employees, and provide information on matters that are internal.
Significant and Material Event Disclosure. I do not understand the need for further emphasis on disclosing significant and material events. Our external accounting firm provides guidance and direction to our reporting functions on matters that require disclosure in accordance with generally accepted accounting principles of reporting including proper reporting for events that have happened subsequent to the period being reported. I believe this disclosure is adequate. Reporting events related to individual’s employment may be a violation of their privacy. Our organization has a comprehensive succession plan to provide for smooth transitions when key personnel are no longer with the organization. This plan is periodically updated with middle and executive management involved and reviewed with the Board and Compensation Committee Chairmen.
Compensation Committee Responsibilities. As a Committee member, I can attest personally to the amount of time and resources devoted by the organization annually, to comply with the guidance already established by Farm Credit Administration. I believe if our internal policies and procedures meet the broad requirements of the regulator and comply with industry standard, and we have a process that incorporates into them best practices that in our judgment make sense for our organization, we have accomplished our mission as a Committee and should be free to continue it.
The proposed rule contains language that appears to discourage the use of short term incentive plans by system institutions. Our short term incentive plans are part of a well reasoned compensation package designed to provide our employees with market rate compensation. I disagree with these proposed rules, as again, our Committee needs to be allowed to work with outside firms to guide us in establishing compensation programs that reflect the marketplace.
Summary. We maintain an education program to insure that our Board members have the necessary knowledge to perform their roles and make informed decisions on all areas of concern, including, but not limited to compensation. I believe the knowledge level of the Board in the areas of audit, compensation and corporate governance is far in excess of that held by the average shareholder. This is a testimony to the structure currently in place.
I urge FCA to follow its mission statement. This proposed rule does not "ensure a safe, sound, and dependable source of credit" for our shareholder-borrowers. It puts our valued and experienced employees on the auction block for competing institutions by communicating exactly how our compensation programs work, ultimately driving compensation higher and increasing compliance costs. It forces more regulation on us for unnecessary votes, processing and reporting. All these will result is higher cost and burden, working against our shareholder-borrowers and the mission statement you advocate.
In conclusion, I respectfully request FCA withdraw its proposed regulation and adopted additional guidance in the areas of corporate governance and compensation, and place its emphasis as a regulator on the examination of System institutions for safety and soundness.
John A. Engelland
Director, American AgCredit Compensation Committee
John A. Engelland, Director
Mobile: 620-278-6014 http://www.agloan.com