SEC Commissioners Take Conflicting Public Stands on Proposed Compensation Clawbacks

SEC Commissioner Kara M. Stein issued a statement supporting the proposed rule that would require “the majority of listed issuers to adopt a recoupment, or clawback, policy for when an executive’s incentive-based pay is based on erroneous financial reports.”

Commissioner Stein declared that this proposed rule would further develop the Dodd-Frank Act’s original attempts to increase executive accountability and refocus executives on long-term results by mandating that “the issuer clawback erroneously or incorrectly awarded compensation.” She stated that the rule would also discourage artificially inflated financial statements by requiring companies to clawback incentive-based executive compensation if there are material errors in its financial statements. Furthermore, the proposal expands the definition of incentive-based pay to include metrics (such as stock price and total shareholder return) that, according to Commissioner Stein, often constitute crucial factors in determining incentive-based pay. Additionally, the proposed rule provides that disclosures be tagged in eXtensible Business Reporting Language (“XBRL”), which Commissioner Stein firmly believes enables more comparability across companies and improves investors’ searches for company information.

In marked contrast, SEC Commissioner Daniel M. Gallagher vehemently refused to recommend the proposed rule. He declared that it was a considerable waste of time and resources. First, he argued that “subjecting a broad swath of executive officers to a no-fault recovery mandate creates the potential for substantial injustice,” especially with no “relief valve,” and casts the corporate board “as the enemy of the shareholder.” Second, he objected to the inclusion of weaker entities unable to bear the cost of compliance such as smaller reporting companies (“SRCs”), emerging growth companies (“EGCs”), foreign private issuers (“FPIs”), and registered investment companies (“RICs”). Finally, he disagreed with basing the required compensation to be clawed back on inconclusive share price metrics such as Total Shareholder Return (“TSR”).

Commissioner Gallagher stated that he could accept a “reasonable clawbacks rule,” but that the unveiled proposed rule is like the “newest Goya, tortured and and nightmarish.”

Chairman Fischer Discusses Lessons from Financial Crises

Speaking at the International Monetary Conference in Toronto, Canada, Vice Chairman of the Board of Governors of the Federal Reserve System (the “FRB”) Stanley Fischer discussed lessons he has learned from the financial crises of the last two decades.

Drawing from three academic papers the Chairman published in 1999, 2011 and 2014 while working at the International Monetary Fund, the Bank of Israel and the FRB, respectively, Chairman Fisher discussed the following lessons:

  • Negative Interest Rates – Contrary to pre-Great Recession economic theory, central banks may use monetary policy to reduce interest rates below zero, although perhaps not much below minus one percent;
  • Active Fiscal Policy – Fiscal policy “works well, almost everywhere,” and can likely be made more expansionary at low real cost by borrowing to finance public works;
  • Financial Stability – The United States should experiment with using monetary policy (i.e., the interest rate) to address financial stability, in addition to macroprudential tools;
  • Moral Hazard – Resolution procedures for “too big to fail” financial institutions must permit equity and bond holders to lose all or most of the value of their assets; and
  • Continued Supervision – The United States must not allow successful reforms to breed complacency, and must continue to disincentivize bad conduct by, e.g., punishing individuals “severely” for misconduct personally engaged in.

The Finance Class That’s ‘Guaranteed’ to Get You a Job on Wall Street

In this Business Insider article by Portia Crowe, we are taken inside the Johns Hopkins University classroom of Professor Steve Hanke.

According to the professor, his applied economics and finance class guarantees its alumni top jobs on the Street. Professor Hanke, who’s been at Hopkins for 45 years, created the course two decades ago. It’s evolved but has always focused on “producing the top people in the country.”

To find out how, see:

Professor Hanke is also Special Counselor at the Center for Financial Stability.

Professor Hanke’s Atelier: Reflections on the “Bullpen” and Raphael’s Workshop

Author Alexis Dawson Gaillard examines the teaching methods of Professor Steve H. Hanke, CFS Special Counselor and Co-Director of the Institute for Applied Economics, Global Heath and the Study of Business Enterprise at The Johns Hopkins University. Professor Hanke’s teaching methods are then compared to  Raphael Sanzio da Urbino’s instruction of his famous atelier.

In Professor Hanke’s experience, he has found that the one thing a professor can do is to introduce a student to the skills required to learn. This is the teaching methodology he implements in training his Bullpen students. Hanke begins a student’s training by stressing the most valuable and basic skills: writing and research methods.

After thorough research, Galliard discovers that Professor Hanke’s method of training clearly does mimic that of Raphael’s. Raphael not only created excellent art, but also prepared his assistants to become individual artists by cultivating their skills and stressing the importance of individuality. In this way, the ‘Bullpen’ is the modern equivalent of Raphael’s workshop. Professor Hanke instills a level of quality and commitment in each of his students that serves them forever. Both Raphael’s workshop and Hanke’s Bullpen result in an interdependent relationship between teacher and student.

The full paper can be found at: