House Democrats want to ensure that financial executives are held personally liable for corporate wrongdoing by prohibiting insurance policies that protect their paychecks.
The Dodd-Frank financial reform law and the Sarbanes-Oxley corporate accounting law both include measures that require executive compensation to be “clawed back” when a firm is found to have broken federal rules.
The provisions are aimed at making sure executives cannot keep income that was made, in part, by flouting federal regulations. Proponents argue the measures help protect the financial system from irresponsible, short-sighted moves that enrich executives, but hurt firms in the long run.
Now, Rep. Barney Frank (D-Mass.), the ranking member of the House Financial Services Committee, wants to make sure that executives cannot shield their personal assets from the "claw back" rules through insurance policies or other "forms of hedging."
"The creation of insurance policies to insulate financial executives from claw-backs is one more effort by some in the industry to perpetuate a lack of accountability," Frank said.
Frank is joined on the bill by co-sponsors Reps. Henry Waxman (D-Calif.), ranking member of the House Energy and Commerce Committee, and Collin Peterson (D-Minn.), ranking member of the House Agriculture Committee.
"Executives who preside over billions of dollars in losses should not be protected from the results of their decisions, especially if those decisions run afoul of our securities laws or involve inappropriate risk-taking," Waxman said. "The 2008 financial crisis taught us that when executives have incentives to maximize their earnings, they will do so, often with little regard for long-term consequences."