WASHINGTON, March 26, 2014 - For nearly four years, the Farm Credit Administration (FCA) board has faced a gauntlet of opposition from Farm Credit System (FCS) cooperative lenders over its demand that directors of the four banks and 78 local and regional lending associations hold advisory votes of their member-borrowers on significant increases in pay and benefits for their most senior executives.
Earlier this month, after direct instructions from Congress in the fiscal 2014 appropriations bill, the board rescinded the section of a regulation that directed that FCS lenders ask their shareholders – who also are borrowers – to cast a non-binding, advisory vote if the compensation of a CEO or all other senior officers together increased or decreased by 15 percent or more.
The FCA Board proposed what came to be called the “say on pay” requirement beginning in late 2010 and formalized it in a proposed rule in January 2012. Despite vigorous opposition from FCS lenders – 458 comments, mostly opposing the requirement – the board made its proposal final in a regulation in October 2012.
Led by their trade association, the Farm Credit Council (FCC), the banks and associations urged key members of Congress to overturn the requirement. Sen. John Boozman, R-Ark., inserted an amendment in the Senate’s version of the farm bill reversing the FCA Board action and the House added a provision to the appropriation bill that told FCA that it could not use funds “to implement or enforce those portions of the final regulation” requiring an advisory vote.
FCA Board Chair Jill Long Thompson, in a statement of support for the original rule, acknowledged the intent of Congress. “And they have spoken,” she said. Board Member Lee Strom, who was the board chair when the rule was proposed, said that the experience should lead boards of FCS lending institutions to “understand both the near-term and long-term expenses and financial consequences associated with the executive compensation programs they approve.” He added that, because they are government-sponsored enterprises, they “should also pay particular attention to any potential reputation risks their compensation programs might create.”
Strom’s prepared statement noted that the rule was adopted “after some unusual compensation payments were made in the Farm Credit System” – an apparent reference to publicity generated by a large advance granted to an association executive’s retirement compensation.
“The FCA Board action represents a significant victory for Farm Credit and demonstrates that a persistent, focused effort by the system can be successful,” said the FCC member newsletter. “The system first expressed its strong opposition to ‘say on pay’ votes back in 2010 when FCA first surfaced the idea,” arguing that it was inconsistent with the Farm Credit Act and cooperative principles. The newsletter added that the decision and “the legislative action that forced the agency to change course were the result of substantial efforts by many throughout the system.”
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