House Votes to Give Shareholders
Nonbinding Vote on Executive Pay

But Sen. Barack Obama (D., Ill.), like Mr. Dodd a presidential candidate, plans to introduce a similar bill later Friday, his spokesman said, and Sen. Frank Lautenberg (D., N.J.), also plans to do so, according to Mr. Frank.

Businesses and investors such as union-sponsored pension funds are sharply divided over the measure. While investors say that the goal is to prod board directors to engage in dialogues with investors, U.S. companies are worried about the repercussions. Earlier this week, the U.S. Chamber of Commerce, the biggest trade group for businesses, warned Congress that it was concerned that "this would result in yet another forum for "special interest politics.'"

Investors question whether that actually would happen. "If such an effort were made by a special interest group or a labor union, I don't think that the other shareholders would support it," John Wilcox, senior vice president at TIAA-CREF, a big institutional investor with a history of focusing on corporate governance issues, said in an interview. "This advisory vote is really about the merits of a company's compensation plan. It's not about a power struggle."

Under the legislation, the Securities and Exchange Commission would be required to write rules under which investors could use company-issued proxy forms to vote on executive pay on an advisory basis, starting in 2009. The SEC last year rolled out new rules requiring greater disclosure of executive compensation. The SEC chairman implied that a goal was to force directors to think more carefully about pay, saying that "when people are forced to undress in public, they will pay more attention to their figures."

The White House and many House Republicans say the SEC's new rules should be given a chance to take hold. In a statement of its position issued Wednesday, the Bush administration said that "recent enhancements should be given time to take effect."

U.S. investors point to the U.K., where shareholder advisory votes already exist, as evidence that the process is reasonable and not abused.

Some U.S. investors also say the process is less intrusive than resorting to other means to express frustration, such as by voting against the board directors who have arranged a CEO's pay package. With a non-binding vote, shareholders would have a "more specific and accurate place on the proxy to communicate concerns over pay," according to Elizabeth McGeveran, a vice president at investment firm F&C Asset Management.

In the background is concern among Democrats about what some government surveys show is rising income inequality in the U.S. Those concerns, which for years have cropped up during routine hearings in the House Financial Services Committee, broke out in earnest during debate over the advisory-vote bill. Democrats said that money going to CEOs could instead be used to expand a company's business, and that when companies improve profitability and productivity, CEOs rather than rank-and-file workers are unfairly given the lion's share of the credit.

"Class warfare is alive and well," complained Rep. Tom Price (R., Ga.) on the House floor. He suggested in a later statement that chief executives would be discouraged from running public companies and be more likely to join private companies if the bill became law.

Write to Siobhan Hughes at siobhan.hughes@dowjones.com³