Amid concerns about skyrocketing salaries for top corporate executives, House Financial Services Chairman Barney Frank (D-Mass.) is pushing legislation to allow a company’s stockholders to vote on how much their executives are paid.
Frank introduced similar legislation in the 109th Congress, but Republican leaders opposed the bill in the Financial Services Committee and it was never marked up. Frank plans to hold a hearing on the legislation, known as the Shareholder Vote on Executive Compensation Act (H.R. 1257), on March 8.
The bill would require companies to include in their annual proxies an advisory on their executive pay plans. The vote, dubbed “say-on-pay,” would be nonbinding, but would allow shareholders to state their disapproval of the company’s executive pay practices if they so wished.
The bill has been offered in the heart of the corporate proxy season, when shareholders elect their directors.
“I do not understand those who argue that the people who make up our stock markets are collectively very wise, but at the same time are somehow incapable of rendering a coherent opinion of what they should pay those they employ to run the corporations that they own,” Frank said in a statement.
To limit the burden on smaller companies, Frank’s bill would only require disclosure for the CEO in companies that have less than $250 million in total assets.
The measure also would require disclosure and a shareholder vote on “golden parachutes” — the large severance packages paid to top executives who are terminated, typically due to a merger or buyout.
Frank has a key ally in Federal Reserve Board Chairman Ben Bernanke, who testified that he strongly supports disclosure efforts before the House Financial Services Committee on Feb. 15.
Last July, the Securities and Exchange Commission changed its rules to provide investors access to clearer and more detailed information about top executives’ pay packages and perks for public companies. Those rules represent the first major revision in 14 years.
Opponents argue that shareholders should wait to see how well the SEC rules work before advocating for a vote on the packages.
“I don’t think we need to legislate,” Ron Bottano, an adviser for Korn Ferry’s executive compensation practice. “I’d like to see the free market answer it first.”
Bottano added that it’s hard to see what type of guidance a no-vote on compensation packages would give companies.
Aflac, a supplemental health insurance provider, announced in February that beginning in 2009, its shareholders would have a non-biding vote on its executive compensation packages.
President Bush has not endorsed any government role in reducing those packages, but has said that corporate board members need to pay more attention to executive salaries.
Rep. Spencer Bachus (R-Ala.), who is the committee’s ranking member, did not immediately return a phone call.