The House Financial Services Committee passed Chairman Barney Frank’s “say on pay” bill Wednesday. The measure would give shareholders a nonbinding advisory vote on a company’s executive compensation plan.
Frank, a Massachusetts Democrat, considers his bill one of his top priorities, pushed it through the committee after less than a month despite a heated hearing about the bill’s merits. In his first year as chairman, Frank has had more success with this bill than he did in 2006, when a similar bill didn’t make it past the committee stage.
The future of the bill, however, may be dimmer than its 37-29 approval by the committee suggests. The measure now needs the approval of the full House. Frank’s counterpart in the Senate, Connecticut Democrat Christopher Dodd, hasn’t indicated whether he will introduce a similar bill, according to press reports. Dodd’s press office did not immediately return CFO.com’s phone call requesting for comment.
Frank has sided with shareholders who claim they’ve been wronged by the hefty pay packages given to outgoing executives of poorly performing companies. “Excessive executive pay has been proven to have a significant impact on company’s profits and shareholder returns,” Frank said in a statement.
But critics of Frank’s bill — many of them Republicans — say Congress shouldn’t get involved in this issue now because the Securities and Exchange Commission’s rules on executive-compensation disclosure are still relatively new.
Put into effect at the end of last year, the SEC’s rules require companies to provide more information about their top executives’ pay packages in their proxy statements. Not all companies have had to comply yet.
Opponents of Frank’s bill also say it would spur public-company CFOs and their bosses to take jobs at private equity firms, away from the scrutiny of investors. On the other hand, advocates of the measure argue that shareholders could vote that underpaid executives should be given better—and more appropriate—compensation.
For his part, Frank says his three-page bill is meant solely to give shareholders a voice on a company’s executive-pay plan. The company wouldn’t have to abide by the vote, although an overwhelming “no” vote from shareholders would be hard to ignore. In a move that has garnered glowing reviews from institutional investors, Aflac recently announced that it would approve a say-on pay-proposal. Observers have wondered whether other companies will follow the insurer’s lead.
The legislation also gives shareholders an advisory vote if a company gives a new but undisclosed “golden parachute” while negotiating to buy or sell a company. Such payouts are doled out to executives if they’re terminated following a merger or acquisition.