FINRA’s Executive Compensation Packages Raise Serious Questions

 

Jesse Westbrook’s Bloomberg.com article (“Finra Managers Got $11.6 Million in 2009 Amid Pay Criticism,” Oct. 1, 2010) provides an interesting glimpse inside the relationship between the Financial Industry Regulatory Authority and the 4,700 securities firms whose sales practices it is charged with regulating.

The focus of the article is on manager compensation and the tension between FINRA’s board of governors and the securities firms. As the article noted, FINRA paid its top-level executives $11.6 million for 2009, and $24 million in 2008. Much that was so-called “incentive pay” or discretionary bonus money. For example, the top three executives received approximately $1.9 million in salary and $2.56 million in incentive pay.

FINRA’s board of governors is comprised of securities industry executives and so-called “public” members, who are presumably not from the securities industry. The Management Compensation Committee is comprised of the public board members.
Some broker-dealers have criticized FINRA (and one firm sued FINRA) for paying their executives too much, especially after FINRA lost $568 million in its own risky investments in 2008. Member firms also approved a proposal allowing them to reject pay packages, but FINRA’s board refused to adopt it.

“The board believed that it raised serious problems for FINRA because of its potential to create the perception that regulated entities had the power to improperly intimidate regulatory staff,” CEO and board member Richard Ketchum wrote to brokerages on Sept. 28, according to the article.

But that perception already exists, and the facts support it. FINRA had total revenues of approximately $1.1 billion in 2009. Approximately 95% of that came from the securities industry. The organization that is supposed to regulate securities firms got paid $1 billion by those securities firms.

J. Boyd Page, senior partner of Page Perry in Atlanta, commented: “Since most of FINRA’s revenues come from securities firms, FINRA has lots of reasons to protect the industry. When you add in the huge compensation packages given to members of FINRA’s senior management, it doesn’t give investors a lot of confidence that FINRA is protecting investors’ interests.”

Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys have extensive experience in representing investors in securities matters. For further information, please contact us.