Hunton Employment & Labor Law Perspectives : Employment Lawyers & Attorneys : Hunton & Williams Law Firm : Labor Law Legislative Updates

• Non-Binding “Say-on-Pay” Shareholder Vote on Executive Compensation - Section 951 of Dodd-Frank mandates “say-on-pay” by adding a requirement to the Exchange Act that shareholders receive the opportunity to vote on a non-binding resolution on the compensation of named executive officers at least once every three years, to be included in a proxy statement for an annual or other meeting of shareholders for which the SEC’s proxy solicitation rules require compensation disclosure. 
• Non-Binding “Say-on-Pay” Shareholder Vote on Executive Compensation Relating to Business Combinations (“Golden Parachutes”) - Section 951 of Dodd-Frank requires that any proxy solicitation materials for a meeting at which shareholders are asked to approve a business combination or disposition of substantially all of a company’s assets must meet certain criteria. 
• Independent Compensation Committee Requirement - Section 952 of Dodd-Frank requires the SEC to issue rules requiring national securities exchanges to prohibit the listing of any equity security of a company if its board of directors does not have an “independent” compensation committee.  Section 952 also requires the SEC to issue rules directing national securities exchanges to adopt listing standards containing explicit authority for compensation committees to engage their own independent advisors. 
• Pay for Performance Disclosure - Section 953 of Dodd-Frank directs the SEC to adopt rules that require companies to provide in any proxy statement for an annual meeting disclosure that shows the relationship between executive compensation actually paid by the company and the company’s financial performance, which disclosure may be included in a graphic representation.
• Internal Pay Ratio Disclosure - Section 953 also directs the SEC to adopt rules that require disclosure of (i) the median total annual compensation of all employees of the company other than the CEO; (ii) the total annual compensation of the company’s CEO; and (iii) the ratio of the two amounts.
• Incentive Compensation Clawbacks - Section 954 of Dodd-Frank directs the SEC to require national securities exchanges to adopt listing standards so that listed companies must develop and implement policies to “claw back” executive compensation in the event of a financial restatement. 

Here are the highlights:

• Dodd-Frank incentivizes individuals to aggregate and then report information that leads to a successful enforcement action of the Securities Exchange Commission (“SEC”), the Department of Justice (“DOJ”) or other arms of government, by entitling an individual to between 10% and 30% of monetary sanctions exceeding $1 million as a result of “original information” provided by the individual;
• Dodd-Frank creates new whistleblower protections by prohibiting retaliation against an individual who provides information related to violations of securities laws to the SEC, who participates in any related SEC action, or who makes required disclosures under the Securities Exchange Act, SOX, or any law or regulation within the SEC’s jurisdiction;
• Dodd-Frank entitles an individual to bring a private whistleblower action directly in federal court where he or she may be entitled to reinstatement and two times back pay;
• Dodd-Frank incentivizes plaintiffs’ counsel to pursue whistleblower actions through lengthy limitations periods and allows for reimbursement of costs and attorneys’ fees to a prevailing plaintiff; 
• Dodd-Frank gives the SEC the authority to restrict pre-dispute arbitration agreements between customers or clients of brokers, dealers, or municipal securities dealers, so long as the SEC views the limitations as being in the public interest or to protect investors;
• Dodd-Frank creates a new private whistleblower action for alleged retaliation for any individual who provides information to the SEC; initiates or participates in any investigation or judicial or administrative action of the SEC; or makes disclosures as otherwise required under a variety of Federal laws including SOX and believes they were retaliated against as a result;
• Dodd-Frank amends SOX to expand coverage of the SOX whistleblower provisions to now include both publicly-traded companies and “any subsidiary or affiliate whose financial information is included in the consolidated financial statements of such” publicly-traded company;
• Dodd-Frank amends SOX to expand the time an individual has to bring a SOX whistleblower claim from 90 days after a violation occurs, to within 180 days of the aggrieved individual learning of the violation;
• Dodd-Frank amends SOX to allow a jury trial of whistleblower claims; and
• Dodd-Frank declares void any pre-dispute arbitration agreements waiving rights and remedies provided by SOX.

Although the regulations implementing and related to this legislation have not yet been written, an individual who submits information will still be entitled to the statutory protections the legislation affords.  Just as individual whistleblowers and their lawyers will not wait around for this legislation to ripen, companies subject to securities laws need to address the Dodd-Frank Act immediately and thoughtfully in a coordinated and deliberate fashion.  As the regulations are drafted and this enormous piece of legislation gains traction in the coming days, weeks and months, please consult the Hunton Employment & Labor Perspectives Blog for related in-depth analyses and updates.

Henry’s pledge to heal internal union rifts and to settle disputes with other labor unions, such as UNITE HERE, caused in part by Stern’s penchant for organizing workers in industries traditionally organized by other labor unions, suggests that she may indeed want to change the dynamics at SEIU.  However, Henry simultaneously has announced that she intends to redouble SEIU’s organizing efforts and unveiled a new multi-million dollar “innovation fund” to facilitate private-sector organizing.  According to Henry, this new fund, which will supplement the hundreds of millions of dollars SEIU already spends annually on organizing campaigns, will be used to organize industries that have not traditionally had employee representation, such as banks and biotechnology companies.  We have opined several times in this space that the financial services industry is particularly vulnerable to union organizing and noted that Stern’s SEIU was spearheading the effort to make inroads with the rank-and-file banking employees.  Henry’s new “innovation fund” suggests that she has no intention of altering Stern’s vision of an organized financial services sector. 

Henry also claims that SEIU will continue to be politically active and will seek to hold “bad actors” in government accountable in the upcoming November elections.  Henry singled out Arizona Governor Jan Brewer for her part in that state’s recent passage of immigration legislation that was bitterly opposed by big labor, including SEIU.  Henry also plans to support Arkansas’ Lieutenant Governor, Bill Halter, in a primary challenge to Senator Blanche Lincoln, who opposed certain aspects of the President’s health care reform package that were favored by unions.  Henry also said that SEIU will focus on governors’ races in Connecticut, Florida and Ohio.  Henry’s political agenda does not sound all that different from what Stern’s agenda likely would have been had he continued at SEIU’s helm.
 
Speculation about Henry’s intentions is all the more fascinating in light of the intense debate about the legacy Andy Stern will leave behind: is he leaving the SEIU at a time when it needs him most, or is he actually leaving just in time?  To many, Stern has been at the peak of his game, as evidenced by SEIU’s recent $1.5 million jury verdict against California breakaway union − and bitter rival − National Union of Healthcare Workers, President Obama’s recess appointment to the National Labor Relations Board of SEIU-attorney Craig Becker, and Congress’ passage of landmark healthcare reform using the strategy articulated by Stern himself after the special election of Massachusetts Senator Brown threatened the survival of President Obama’s highest legislative priority.  To others, Stern’s departure could not have come any sooner for SEIU.  His perceived over-emphasis on politics, apparent loss of interest in traditional union organizing, and attempts to raid the ranks of other major unions polarized his presidency and to some degree isolated SEIU from the rest of the labor world.  In addition, and despite emptying SEIU’s coffers to help elect President Obama, Stern failed to deliver on EFCA and could not get Becker through the Senate confirmation process.  Some have even speculated that Stern may be implicated in former Illinois Governor Rod Blagojevich’s criminal corruption trial, and that his departure was timed to avoid unnecessary collateral damage to SEIU.

Whatever Stern’s reasons for leaving, or whether his resignation is a positive or negative development for SEIU, employers and labor leaders alike will be keeping a keen eye on Henry and the path she chooses for her union.  If her first few days at the helm are any indication, employers should not expect to see wholesale changes from SEIU any time soon.  Practically speaking, this likely means that SEIU will continue to be politically active, backing candidates who support its legislative and social agenda, and will continue to aggressively organize new employees using both traditional means and pressure tactics such as corporate pressure campaigns.  The tale of Henry’s leadership will not be told in the coming weeks, but over the next several years.  Like most in the world of labor, we will be watching closely.

AFL-CIO boss Richard Trumka claims that the campaign will send a message to the banks:  “Stop refusing to pay your fair share to restore the jobs you destroyed, stop fighting financial reform and start lending to your communities, small businesses and others starved for credit.”   Demonstrations kicked off last week and may reach 200 locations.  Flyers will urge observers to "Tell the banks to PAY UP!"

The campaign is not limited to painting financial institutions in a negative light.  Through the participation of advocacy group Americans for Financial Reform (AFR), the campaign will push Congress to pass a set of "financial speculation taxes" which would place a tax on certain securities transactions.  The campaign speculates that this tax would raise over $100 billion per year.

The AFL-CIO claims that its partnership with AFR is not about labor organizing but instead is about “holding banks accountable” and pushing for financial reform.  However, a look below the surface reveals AFR’s extensive ties to organized labor and other anti-business groups.  Stephen Abrecht, the current director of the Service Employees International Union's (SEIU) pension funds, is a member of AFR's Executive Committee.  AFR's Steering Committee includes representatives from MoveOn, AFL-CIO, and USAction--a group that was instrumental in the formation of Health Care for America Now (HCAN).

HCAN was a central participant along with SEIU in a major demonstration recently against the insurance industry in Washington.  HCAN and SEIU also were heavily involved in the effort to disrupt citizen protests at Congressional town hall meetings last summer.  (HCAN circulated instructions on how to confront and disrupt those who tried to speak out at town hall meetings.  The group’s memo was circulated just two days before Missouri Democrat Russ Carnahan's town hall meeting, during which protestor Kenneth Gladney was assaulted by SEIU members.)  In addition, Khalid Pitts, one of USAction's board members, is SEIU's director for political accountability.  Tax records reveal that SEIU has contributed hundreds of thousands of dollars to USAction in recent years.

We observed in this space several months ago that the current economic climate provided organized labor with ideal cover to begin organizing America's largest banks, a view shared by others who are monitoring the unions' progress.  Whether the AFL-CIO's campaign is an indication that big labor is taking this effort to the next level, or simply trying to portray itself as a relevant player in the national debate around issues like “corporate accountability,” remains to be seen.  But the participation and assistance of grassroots NGO's and other anti-corporate organizations suggests that campaign events may become more aggressive in nature.  By escalating hostilities and more aggressively lobbying for financial reforms adverse to the business interests of private financial institutions, unions may be hoping to increase outside pressures on the banks and render them less resistant to  attempts to organize their employees. 

In this regard, SEIU announced plans to pressure the Maryland state legislature to move the state’s money out of “big Wall Street banks.”  The union has already had some success with this pressure strategy, as it claimed credit for convincing the Los Angeles City Council to adopt a similar resolution last month.  
 
Whether the AFL-CIO is acting in league with SEIU, or competing against it -- both for national attention and for new union members -- most financial services institutions should be aware by now that they are directly in the crosshairs of several major union corporate campaigns.  We recommended in December that the banking industry prepare for these attacks by addressing workplace concerns and potentially controversial business practices, and by preparing a strategic public relations response.  The AFL-CIO's new push suggests that time may be running out to take these steps effectively.

An employer that waits until a union organizing campaign has commenced to make major workplace changes risks violating federal labor laws.  Likewise, waiting until a corporate campaign has fully materialized before taking strategic action could place the employer in a disadvantageous, reactionary posture.  As union attacks on the financial services industry build toward a crescendo, banks that have not formed a comprehensive strategy for addressing these new challenges should wait no longer.