Saturday, September 5, 2015

Dodd-Frank of 2010

I have decided to give the CPA examination a shot. I plan on taking the Business Environment and Concepts section first. This post reviews some of the requirements of the Dodd-Frank Act of 2010.

One requirement the Dodd-Frank Act established is all members of the compensation committee of public companies must be independent. Remember the compensation committee is suppose to review and approve CEO compensation based on meeting performance goals. Can you imagine what type of ethical dilemas might come up if the compensation committee is not independent from the CEO and company--we'll probably see more golden parachutes, ridiculous bonuses, etc. The compensation committee is also responsible for making recommendations to the board with respect to incentive and equity-based compensation plans. The committee should attempt to align incentives with shareholder objectives and risk appetite.

This act also requires other things such as share holds must be allowed a nonbonding vote on executive compensation at least every three years. I think this requirements was thrown in there just incase the independence requirement was not met.

Comment below, let me know your thoughts on the Dodd-Frank Act of 2010. Is it improving corporate governance in publicly held companies?