Today, the House Financial Services Committee held a hearing on draft legislation that would essentially repeal and replace the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). Among other things, the bill, titled the Financial CHOICE Act, would eliminate or amend several provisions that have been harmful and costly to manufacturers.
Designed to be a Republican alternative to the 2010 Dodd-Frank Act, which committee Republicans see as a drag on economic growth and access to capital, the Financial CHOICE Act includes several provisions of importance to manufacturers, including repeal of the CEO pay-ratio and conflict minerals requirements and an amendment to the clawback requirement. Manufacturers have been struggling with how to comply with these costly and burdensome requirements since they were first put into the law nearly seven years ago.
The National Association of Manufacturers (NAM) has consistently pushed back on the unnecessary and unworkable executive compensation requirements included in Dodd-Frank that go way beyond the original intent of the law. Of particular concern to manufacturers is the CEO pay-ratio rule (Section 953(b) of the 2010 Act), which was finalized by the Securities and Exchange Commission (SEC) in August 2015 and requires public companies to regularly disclose the ratio of employees’ median pay to the compensation of a company’s chief executive. Complying with the rule will be costly and burdensome to manufacturers, without adding value for shareholders. Moreover, the pay-ratio statistic is of little value to shareholders since it oversimplifies the pay practices of manufacturing businesses without taking into consideration the complexities that may skew the number, such as a significant presence in countries with a lower cost of living. The Financial CHOICE Act would repeal the pay-ratio requirement and would also amend the clawback requirement of erroneously awarded compensation to make sure only those at fault for the error are impacted.
For years, we have also underscored that the conflict minerals disclosure requirements (Section 1502 of the 2010 Act) in Dodd-Frank pose highly costly, burdensome and impracticable financial and reporting burdens, and a potential, substantial auditing burden, on NAM members of all sizes and in all sectors of the manufacturing economy. These costs to manufacturers stem from the wide range of minerals covered by the rule (tungsten, tantalum, tin and gold) and the widespread use of these minerals in manufacturing, combined with the depth, complexity and constantly evolving nature of modern supply chains. For many companies, their supply chain includes thousands of multitier suppliers. The requirements also affect thousands of small and medium-sized companies not subject to SEC reporting because they supply large, publicly traded companies and are asked by their customers to conduct the due diligence required by the rule. The Financial CHOICE Act would repeal the Section 1502 requirement.
In recent months, Acting SEC Chairman Michael S. Piwowar asked for comments from the public on the conflict minerals and pay-ratio rules because of their highly costly and burdensome compliance requirements. The NAM reiterated our concerns with both rules in separate comment letters on the pay-ratio rule and the conflict minerals rule.
The Financial CHOICE Act would provide a necessary statutory change by eliminating the pay-ratio and conflict minerals requirements. The NAM supports the committee’s efforts to ease manufacturers’ cost and compliance burden stemming from the Dodd-Frank Act and calls on Congress to advance these important provisions.
Before joining the NAM, Crooks served as senior manager of government affairs for Financial Executives International, where she advocated on behalf of the association’s membership of senior-level business executives on tax, corporate treasury, pension and benefit issues. Previously, she worked as a legislative assistant to Rep. Michael Castle (R-DE), a senior member of the House Committee on Financial Services. Christina handled financial services issues for the Congressman during consideration of the Dodd-Frank Act, and also worked on small business and judiciary issues. Christina earned a B.A. in Political Science from the University of Delaware and a M.A. in Political Science from American University.
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