Pub. 2 2013 Issue 6

l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s 18 FCS Goes All-Out to Kill Say-on-Pay In the February FCW I reported that the Farm Credit Council (Coun- cil), the trade association for FCS institutions, was going all-out to kill the advisory say-on-pay rule the Farm Credit Administration (FCA) adopted last September. This rule gives an FCS institution’s “share- holders [i.e., its borrowers] the opportunity to cast a non-binding, advisory vote on senior officer compensation. The vote would be re - quired if either the CEO’s or the aggregate of all other senior officers’ compensation . . . increased or decreased by 15 percent or more from the previous reporting period.” As a practical matter, say-on-pay advisory votes most often would oc- cur when a retiring FCS CEO gets a large retirement bonus in his final year’s compensation or when the CEO of an FCS association merging into another association gets a bonus for agreeing to the deal. As a long-time observer of FCS pay practices, I have noticed that these two events tend to trigger big paydays for FCS executives. The Council has now mounted a two-prong attack on say-on-pay, starting in the Senate. The Senate version of the Farm Bill now states that the FCA should consider “the unique cooperative structure of the [FCS]” when issuing regulations. Due to that uniqueness, electing FCS boards of directors “provides stockholders the opportunity to participate in the management of their institutions.” Therefore, FCS directors, not stockholders, should determine executive compensation “to ensure the safe and sound operation of those institutions.” The Farm Bill then states that “any [FCA] regulation should strength- en and not hinder the ability of [FCS] boards to oversee compensation practices.” Now the kicker in the bill: “not later than 60 days after enactment of [the Farm Bill] the [FCA] shall review its rules to reflect Congressional intent that a primary responsibility of the boards of directors of [FCS] institutions, as elected representatives of their stockholders, is to oversee compensation practices.” Translation: FCA, repeal your advisory say-on-pay rule, and do it pronto! Although a seemingly minor provision in the Farm Bill, this legislative maneuver by the Council is sufficiently outrageous that it drew the attention of Politico, which provides authoritative reporting on congressional actions. The Council has taken a different approach in the House, asserting that the FCA’s say-on-pay rule represents an attempt to extend the Dodd- Frank Act to the FCS, at least with regard to executive compensation. Rather than trying to amend the Farm Bill, as was done in the Senate, the Council succeeded getting the appropriations bill for USDA and related farm agencies, including the FCA, amended to bar the FCA from spending any funds to implement its say-on-pay rule. Such a ban would make the rule a dead-letter since the FCA could not then enforce the rule. The provision provides that “no funds available to the [FCA] shall be used to implement or enforce those portions of the final regulation . . . establishing a requirement that [FCS] institu - tions hold an advisory vote on officer compensation.” Having gotten this far, and on a track independent of the Farm Bill, there is a good chance this spending prohibition will be enacted, un- less the FCA can convince congressional appropriators that FCS bor- rowers, as stockholders, should have a say on the pay of FCS insiders. Bert Ely’s farm credit watch ® Shedding Light on the Farm Credit System, America’s Least Known GSE ©2013 Bert Ely