Pub. 7 2012-2013 Issue 6

March | April 2013 21 Extraordinary Service for Extraordinary Members. Bert Ely’s FARM CREDIT WATCH ® Shedding Light on the Farm Credit System, America’s Least Known GSE © 2013 Bert Ely FCS in Revolt Against FCA I NTREPID READERS MAY REMEMBER my report in the October 2012 FarmCredit Watch about opposi- tion within the Farm Credit Sys- tem (FCS) to a proposed Farm Credit Administration (FCA) rule directing FCS institutions to hold advisory “say on pay” votes for their borrower/stock- holders on senior officer compensa- tion. In effect, borrower/stockholders would be asked their opinion about officer compensation “when 5 percent of the voting stockholders petition for the vote.” This rule also would require FCS institutions to “hold a vote on chief executive officer (CEO) compen- sation, senior officer compensation, or both if compensation increases by 15 percent or more from the previous reporting period.” To say that the man- agement of FCS institutions (officers and directors) opposed this rule is an understatement—there was universal opposition to it. To its credit the FCA adopted the rule. One reason for that opposition: the readily observable fact that compensation packages for FCS CEOs often take a sizeable jump (in effect, severance pay) in the year they retire or if their institution is acquired by another FCS institution. FCS insiders have not accepted this defeat quietly. Using a rarely utilized provision in federal law (“Interested parties have the right to petition a federal agency to is- sue, amend, or repeal regulations.”), the FCS trade association, the Farm Credit Council (Council), petitioned the FCA to repeal its advisory “say on pay” rule earlier this month. The FCA, as required by law, has pub- lished this petition and has requested public comment. FCS comments on it undoubtedly will be entertaining. The Council’s rationale for a repeal of “say on pay” is most inter- esting: “This requirement directly undermines the FCA-supported concept of incentive compensation programs tied to performance . . . Requiring ‘say on pay’ votes when incentive compensation plans operate as intended—by reducing pay when performance does not meet standard and then rewarding recovery—is in- consistent with creating the optimum incentives for performance that ex- cels. The rule is a precedent-setting change that involves shareholders directly in the management of their institution.” What the Council and FCS insiders seem not to understand is that shareholders (the owners of FCS institutions) may not like the results incentive compensation plans produce, such as when a retiring ex- ecutive gets a huge payout. Since FCS borrowers usually are FCS sharehold- ers, they should at least have the op- portunity to opine on FCS executive compensation through “say on pay.” Perhaps unintentionally, the Council made a plea for its members (FCS institutions) to become more transparent to their borrower/stock- holders with this statement in its petition: “Shareholders simply do not have access to the wealth of informa- tion provided directors in general, and the compensation committee in particular, to make informed deci- sions on the subject, and they do not expect to be asked to make those decisions.” Well, as member-owned cooperatives, and given the ease with which information can be posted on websites, perhaps FCS institutions should become much more trans- parent, enabling their borrower/ shareholders to make more informed votes on “say on pay.” Such increased transparency also would conform with FCA Chairman Jill Long Thomp- son’s long-standing promotion of greater transparency in government, which encompasses the FCS since it is a government-sponsored enterprise (GSE). Of course, the FCA could help promote greater FCS transparency by publishing FCA enforcement orders against FCS institutions and mak- ing them post those orders on their websites. The public, which includes bank- ers and other taxpayers, have until April 22 to comment on the Council’s petition, in particular by responding to this question posed by the FCA: “What reasonable alternative(s) to the non-binding, advisory vote provi- sions on senior officer compensation would comparably engage share- holders and provide them greater transparency in and disclosure of their institution’s senior officer com- pensation practices?” It will be most interesting to read the comments. CoBank to Fund $5 Million of Ag Research & Education Ever wonder why academics, and especially ag economists, are Q Revolt Against FCA — continued on page 22

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