Say on pay at the SEC?

Larry Ribstein —  4 May 2011

Reuters reports on Henry Hu’s somewhat controversial tenure heading the SEC’s new Division of Risk, Strategy and Financial Innovation.

The SEC brought in Hu, a widely recognized expert on financial regulation, in response to its embarrassing Madoff failure.  The Reuters article discusses some reservations about how much Hu accomplished, but I want to focus on another issue it covers:  the price of Hu’s services.

The SEC let Hu call Austin home, then paid him to travel between DC and Austin and to stay in temporary housing in Chevy Chase.  According to Reuters, here’s what all this amounted to:

Travel vouchers obtained by Reuters through a Freedom of Information Act request show that Hu sought reimbursement from the SEC ranging from about $4,000 a month to as high as $8,000 per month.

From December 2009 through December 2010, the vouchers, stamped as “processed,” added up to roughly $80,000, according to the records. The division’s total travel budget was about $345,000 in fiscal 2010 that ended Sept. 30.

Meanwhile, the SEC still paid a portion of his salary and benefits while the University of Texas paid the rest.

In the 2nd-year renewal of his agreement with the SEC, which was never fully exercised, the agency agreed to pay $198,333 of Hu’s $307,611 university salary plus $47,800 toward his insurance and retirement benefits, according to reviewed documents.

The maximum annual salary for SEC division heads who are full-fledged federal employees was capped at $230,700 in 2010.

Hu says he accepted “what top SEC staff informed me as to the chief approach and its terms.” The SEC’s inspector general is investigating the propriety of the arrangements.  Larry Harris, a former SEC economist, is quoted as saying: “The allocation of so much travel expense to a single person, where the travel did not directly promote the mission of the agency is extremely troubling.”

This is interesting in light of the SEC’s obsession with executive pay, and its responsibility for administering new say on pay rules.  Of course the SEC can argue that it was surely important to get the right person.  But companies always make similar noises about the complex demands of executive recruitment. 

I suppose it’s too much to expect a national referendum on SEC pay.  But shouldn’t we at least give Congress a say on SEC pay?  If anything it’s more justified here, since investors can simply sell or decide not to invest in companies that pay too much, but what’s the taxpayers’ remedy for excesses by the SEC?

Larry Ribstein

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Professor of Law, University of Illinois College of Law

3 responses to Say on pay at the SEC?

  1. 
    Walter Sobchak 4 May 2011 at 11:50 am

    “what’s the taxpayers’ remedy for excesses by the SEC?”

    What is the taxpayer’s remedy for the excesses by Congress, all of which have six to nine more zeros that some dude’s t&e.

  2. 
    north fork investor 4 May 2011 at 10:48 am

    These amounts are trivial compared to executive compensation numbers we typically see. Not saying there is no issue here but speaking of making a mountain out of a molehill. . .

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  1. Say on Pay irony » Hodak Value - May 10, 2011

    […] Larry Ribstein notes a questionable allocation of scarce SEC resources: The SEC brought in Hu, a widely recognized expert on financial regulation, in response to its embarrassing Madoff failure.  The Reuters article discusses some reservations about how much Hu accomplished, but I want to focus on another issue it covers:  the price of Hu’s services. […]