US House Financial Services
Committee OKs 'Say On Pay' Bill
DOW JONES NEWSWIRES
March 29, 2007 7:34 a.m.
By Siobhan Hughes
Of DOW JONES NEWSWIRES
(This article was originally published Wednesday)
WASHINGTON (Dow Jones)--The U.S. House Financial
Services Committee, responding to complaints about what investors call
excessive executive pay, on Wednesday voted to give shareholders a
nonbinding vote on compensation to top public-company executives.
The "say on pay" measure was approved 37-29. Two
Republicans, Reps. Paul Gillmor, R-Ohio, and Walter Jones, R-N.C.,
joined Democrats to vote for the bill. Republicans complained that the
measure would distract boards and discourage executives from running
public companies. Democrats noted that the bill wouldn't set limits on
pay but rather would change the pay-setting process.
"My goal is to give shareholders the power to restrain
what I think has been a pattern in which there has been some abuses,"
House Financial Services Committee Chairman Barney Frank, D-Mass., said.
"We're not just talking about individuals. We're talking about I think
very responsible institutional shareholders - pension funds, and
others."
Under the bill, U.S. public companies would be required
to give shareholders a nonbinding, advisory vote on the pay granted to
top executives under rules to be developed by the Securities and
Exchange Commission. Companies in general have resisted putting such
proposals up for a vote through proxies, the company-issued forms that
function as ballots in corporate board elections.
The next step is a vote in the full House, which Frank
told reporters he expects to occur this spring. The prospects of the
advisory-vote bill are uncertain, especially since the Senate Banking
Committee's chairman, Christopher Dodd, D-Conn., hasn't indicated plans
to push a similar measure through his panel.
The vote comes amid outrage over some large paydays for
chief executives. Earlier this year, the outrage came into focus when
Home Depot Inc. (HD) disclosed that its chief executive, Robert Nardelli,
had agreed to part ways with the company and would receive a $210
million severance package. Shareholders had sought his ouster and
pressed for a restructuring of the board, which they blamed for
approving big pay for the CEO in spite of the company's flagging share
price.
Investors say that an advisory vote would pressure
corporate boards to take shareholder interests into account and
encourage more dialogue between boards and investors. Executives and
some sympathizers in Congress say that such a vote would take away time
that should be spent managing a company and discourage some of the best
executives from working at public companies.
"Qualified executives will leave public corporations
for hedge funds," Rep. Michael Castle, R-Del., said during deliberations
last week, "where the salaries are private and they are higher."
Frank and his fellow Democrats spent last week debating
Republicans, some of whom used the "say on pay" bill to question whether
investors should also have power to vote on pay to other highly paid
people, such as trial lawyers and celebrities.
Rep. Steven Pearce, R-N.M., had sought to require
companies to let shareholders vote on people who receive payments from
corporations greater than $1 million on an annualized basis - even if
they don't work directly for the company. Such people would include
television personalities like Katie Couric and people such as former
President Bill Clinton when they are paid to make corporate speeches,
Republicans noted.
"It just seems unfair and it seems like we're stacking
the deck against one group of people in favor of another group of
people," Pearce complained last week. Frank had said that if lawmakers
want companies to disclose more types of pay, they should complain to
the SEC, whose rules mandate only the disclosure of pay to the chief
executive, chief financial officer, and three other most highly
compensated employees.
Investors have been clamoring for an advisory vote in
the U.S., as currently exists in the U.K. They hope that even if the
House bill fails to become law, it will prompt companies to voluntarily
permit advisory votes, as Aflac Inc. (AFL) agreed to do earlier this
year.
Another question involves the details of an advisory
vote. Because the SEC would implement any rules, some people have
wondered how the vote would work. Would shareholders vote on the total
pay to top executives? Or, for example, would they simply vote on a
section called the compensation discussion and analysis that must be
included in company proxies?
Shareholders have made clear that a bigger goal is to
gain the right to use company proxy statements to nominate their own
board directors. The SEC is currently divided over the so-called
proxy-access issue, although SEC Chairman Christopher Cox has said that
the commission aims to have in place a rule in time for next year's
proxy season.
Frank last week told an investors conference, "I don't
think the Congress of the United States is ready to do anything as
controversial as board access at this point." He said an advisory vote
would be "a kind of a test for the boards of directors."
-By Siobhan Hughes, Dow Jones Newswires; 202-862-6654;
siobhan.hughes@dowjones.com
(Kaja Whitehouse and Damian Paletta of Dow Jones
Newswires contributed to this report.)
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