Spicing Up the 10-K

On August 5th, SEC will vote on a rule that would publish the ratio of CEO compensation to the typical worker of their own firm. This disclosure is required by Dodd-Frank, but, as with many laws, the details and implementation makes all of the difference in the world. SEC has delayed the implementation of this requirement, but I don’t really know why, other than CEO’s don’t like the idea.

I don’t like the idea because it unnecessarily target the CEO over other top executives. The likely comparison will be made between the CEO and an average of some pool of individuals, which is unfair. The better comparisons are with individuals against individuals or pools against pools.

full-trailer-for-50-shades-of-grI’m in favor of pools. The pools should be large and the distinction should be simple and indicative of something important. If the pay disparity is what the SEC wants to highlight because it feels that bigger disparities lead to more compliance issues, then they need to identify what is driving the disparities within the organization. Across the board, the biggest portion of disparity is equity compensation. The two pools should something quite simple. My suggestions: compare average total compensations where more than 50% of the total compensation is equity versus less.

Here’s the other problem with this disclosure: what is defined as the organization. I’m assuming Goldman Sachs does not hire any janitors. Janitors are employees of an outside firm. But Goldman Sachs wouldn’t exist without working in buildings of some sort. So, in terms of running the company called Goldman Sachs, some manager has to decide what janitorial company will be responsible cleaning their offices. As long as having offices is part of Goldman Sach business model, office cleaning services are part of its business. But legally, those janitors don’t work for Goldman Sachs. These types of outsourcing is usually on the low end of the payscale, unnaturally raising the average of the lower pool.

Similar pool problem are labor market disparities. A company whose employees are primarily in Bangladesh will be paying their lower pool significantly less than the upper pool. At the same time, the disclosure is actually made worse but hiding the disparity it is actually trying to reveal: American disparity. So, does one exclude foreign employees?

Still, the greatest benefit to my proposal is getting an understanding about how what the pay disparity is between those who are working to pump up the value of their stock and those who are trying to increase their cash compensation. This will also require the firm to put everyone in two buckets, forcing them to make a decision about what roles should be trying to pump up the stock and what roles are to be productive.

But these are implementation problems. Politicians and interested parties are still arguing over whether such information in important to shareholders. Republicans are saying that the purpose of the rule is to produce societal pressures on corporations, not actually add informational value to shareholders. I don’t have a problem with putting societal pressures on corporations, but I do wonder if this really should be the role of the SEC or if it should be the role of the DOL. Democrats and Labor are saying that  the information is going to be important for shareholders because they will be given another key piece of information about how to pay their executives, which shareholders do in a vote each year.


Should corporations be required to disclose the pay ratio between its top executive and the average worker in the firm?


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


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Alibaba is being kicked out of Taiwan

http://www.arageek.com/2015/02/18/jack-ma-the-richest-chinees-person.html
Jack Ma, Founder & CEO, Alibaba Group

Alibaba, the Chinese AmazoneBayPaypalDHL all-in-one, has been ordered to leave the Taiwanese market by Taiwanese regulators. It ran afoul of a law that required all mainland Chinese companies to go through a special registration in Taiwan to do business there. The Taiwanese subsidiary was registered as a fully controlled entity of Alibaba’s Singaporean subsidiary. The Singaporean subsidiary is a wholly controlled by the Mainland company, making the Taiwanese subsidiary a Singaporean company in name only.

Regulators discovered that Alibaba had not passed the registration process required of Mainland companies when reviewing Alibaba’s filings with the SEC in the United States. Alibaba filed papers with the SEC to publicly trade its equity shares in the US markets.

The purpose of the law is to prevent the Communist Party from taking a hold on the island.

Founder and CEO of Alibaba is the every so charismatic Jack Ma.

Taiwan’s official name is Republic of China, not to be confused with Mainland’s official name, People’s Republic of China. The Taiwanese government was formed when the Communist Party kicked out the party from the Mainland. In the early days after the communist revolution, most western powers recognized the Taiwanese government to be the legitimate government of China. Unofficially, US President Richard Nixon recognized the Communist Party as the ruling party. And officially, US President Jimmy Carter recognized the Communist Party as the ruling party. Since the turn of the century, Republic of China has been on a campaign to consider itself an independent nation, seeking a seat of its own in the United Nations and developing diplomatic relationships across the globe. Also, it has supported a grassroots campaign in the United States to have US citizens and permanent residents of Taiwanese decent to identify themselves as “Taiwanese,” rather than Chinese, in public and on the census.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


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GRC Means Governance, Risk & Compliance

GRC is an abbreviation for Governance, Risk and Compliance. These three functions are put together to increase efficiency and efficacy. Governance is responsible for overseeing the implementation of decisions made by the board of directors. Risk is responsible for analyzing all risks that impact revenue and operations. Compliance is responsible for meeting regulatory requirements to reduce, primarily, legal exposure. So, protect the integrity of management decisions, protect the business that makes the organization successful, and protect the organization from unnecessarily dealings with governments.

Going Through TSA
Going Through TSA

Depending on the industry, an organization maybe have licensed attorneys as heads of each of these areas. Other times, a separate legal department is created not just to deal with litigation issues but advising the organization on any combination of these three issues, there by allowing the organization to have functional and industry experts lead these areas. Governance can be lead by MIS or Audit professional – MIS means Management Information Systems. Risk can be lead by IT or operations professional – IT means Information Technology. Compliance can be led by Audit or front-office professional.

Front-office is a term used for the area of an organization that focuses on revenue and sales. Bankers in a bank are front-office professionals.

All three areas require a combinations of special knowledge.
Governance covers management issues, an understanding of operations, concerns of investors and shareholders and information being shared within the organization, both how and what. This person must have a strong understanding of the organization’s structure.

Risk covers capital requirements (if a bank), supply chain, losses from inefficiencies in the operations and the like. This person must have a strong understanding of how the business operates.

Compliance covers regulatory exams and responses, investigation, surveillance, monitoring, controls and policies and procedures, and sanctions (if a bank). This person must have a strong understanding of expectations by regulators as well as be a person who can persuade line-of-business professionals to buy-in to a set of rules for the whole organization to play by.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.