The NASPP Blog

When I presented for the Western PA NASPP chapter last Wednesday, I told the group I expected the House to vote any day on the Financial CHOICE Act. And I was right—the House approved the Act the very next day. The CHOICE Act would repeal or weaken much of the Dodd-Frank Act, including repealing the CEO pay ratio disclosure.

Is It a Law Now?

No way; the Act still has miles to go before it becomes law.  It has to be introduced in the Senate, pass through committee in the Senate, be voted on (and passed) by the full Senate, and then be signed into law. And the Act is very controversial; it is much broader than just the compensation-related provisions of Dodd-Frank, making significant changes to banking and financial regulation. To give you an idea of how broad it is, the Morrison & Foerster memo summarizing the Act is four pages long and doesn’t even mention repeal of the CEO pay ratio.

According to Morrison & Foerster, passing the Act as it stands now is likely to be an uphill battle:

Senate passage would require a 60 vote majority and Republicans control only 52 seats. There is no indication that any of the 46 Democrats, or 2 independents that caucus with the Democrats, will support the measure as passed by the House. As a result, it is likely that fundamental changes to the CHOICE Act would be required in order for it, or portions of it, to pass the Senate, be reconciled with the House bill and become law.

As reported by govtrack.us, Skopos Labs (a provider of predictions about legislation) is currently giving the Act a 25% chance of passing (but hey, that’s up from 1% the first time I looked at the prediction).

What Does It Do?

A lot of what the Act does is well outside the sphere of equity compensation. Here is what it does in the areas of Dodd-Frank that I am most interested in:

• Repeals the CEO pay ratio disclosure
• Limits Say-on-Pay votes to years in which substantial changes are made to exec pay packages (eliminating the Say-on-Pay-Frequency vote).
• Repeals the hedging policy disclosure
• Limits Dodd-Frank clawbacks to situations where the officer has control or authority over the financial reporting that triggered restatement

This Cooley memo provides a thorough list of all of the provisions of the Act.

Why CHOICE?

CHOICE stands for “Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs.” In the words of Matt Levine, a blogger for Bloomberg View:

The sheer art of naming something “Choice,” but “Choice” is an acronym that resolves to include “Hope”! Imagine if you could create hope by adjusting bank capital requirements. It is daring, inventive, impressive stuff. It’s no USA Patriot Act—what is?—but it is an achievement in acronyming that would make the financial industry proud.

– Barbara