A major area of concern that the financial crisis highlighted for SEC Chairman Mary L. Schapiro was, in her words, “the proliferation of perverse incentives and asymmetric compensation arrangements—arrangements that encouraged significant risk-taking, unwittingly rewarded failure and obscured this reality to investors.”
Schapiro, in a speech titled “Embracing The Change,” was the keynote speaker yesterday at the 37th Annual Securities Regulation Institute in Coronado, Calif. She told the gathering that the SEC oversight of executive compensation “had to change” to protect investors; hence the new rules adopted by the commission in December around risk, compensation, corporate governance, and director qualifications.
They require companies to disclose their compensation policies and practices if they create risks that are reasonably likely to have a material adverse effect on the company.
“In considering whether a company’s compensation programs create these risks, we expect that companies will carefully examine their own practices. This in turn should enable companies and their boards to more appropriately calibrate risks and rewards,” Shapiro said.
Click here for the transcript of the speech.