Discuss the three key provisions of the Dodd-Frank Act that apply to setting executive compensation

What will be an ideal response?

Answer: President Barack Obama signed the Wall Street Reform and Consumer Protection Act of 2010 to further enhance the transparency of executive compensation practices. Also commonly referred to as the Dodd-Frank Act, the act requires the companies that trade stock on public exchanges to comply with three major provisions. The first provision requires say on pay. Say on pay gives company shareholders the right to vote yes or no on executive compensation proposals that are contained in proxy statements, including current and deferred components, golden parachute agreements. The frequency is determined by shareholder vote.

The second provision details independence requirements for compensation committee members and their advisors such as compensation consultants and legal counsel. Members of compensation committees typically receive compensation for their services, and this practice is considered to be acceptable. However, possible violations of the Dodd-Frank independence requirement may arise when at least one committee member also receives compensation as a company employee. For example, a compensation committee member who also serves as the company's executive vice president may be considered violating the independence requirement. On the other hand, a compensation committee member who does not receive compensation from the company as an employee or external consultant would not violate the independence requirement.

The third provision requires that companies disclose the circumstances under which an executive would benefit from a golden parachute arrangement. Specifically, disclosure is required of all agreements and understandings that the acquiring and target companies have with the executive officers of both companies.