By Sue Asci
March 18, 2009, 3:23 PM EST

Under the requirements of the Troubled Asset Relief Program, recipient banks and other financial institutions are required to adopt an advisory vote on executive compensation, or a so-called “say on pay” vote.

Investor advocates and governance watchdogs have been pushing for such a measure since 2006 at many public companies where executive pay is seemingly unaligned with corporate performance. Such votes allow shareholders to voice their approval or disapproval of pay practices but do not allow them to set pay limits.

“I think the people who are forced into it are going to be extremely unhappy about it,” said Paul Hodgson, senior research associate at The Corporate Library, a research firm in Portland, Me., that rates corporate-governance and compensation practices. “Some of the largest financial services companies have been fighting against this. To have the Treasury come in and force them means now they are not in a position to argue about this. I think there are going to be some lively annual meetings this year.”

Certainly, the public is focusing a lot of attention on executive compensation.

“The issue has gone from red-hot to white-hot,” Mr. Hodgson said. “Shareholders are going to take every opportunity to register their dissatisfaction.”

Some of the firms which should expect shareholder outrage are Bank of America Corp. and American International Group Inc., he said.

“Bank of America unfortunately got caught up in the Merrill Lynch bonuses, and there is a lot of dissatisfaction there,” Mr. Hodgson said. “AIG has not done themselves any favors.” AIG and Merrill Lynch & Co. Inc. are based in New York.

For most of the TARP recipients, the voting may not be an issue.

“But with all the public outrage about compensation right now, all things are up in the air,” said Timothy Smith, senior vice president at Walden Asset Management, a division of Boston Trust and Investment Management Co. “I think most of the TARP recipients will have reasonable pay packages and a philosophy to present and will see it as a reasonable vote. But there will be some where it will become a lightening rod for protest, such as AIG.”

Of the 14 banks where shareholder resolutions have been filed so far this year, 13 were withdrawn as the firms became TARP recipients and are now required to offer their own proposal.

And while the votes will be advisory, companies will feel pressure to respond, Mr. Smith said.

“The pressure on a company is intense,” he said. “Even if it gets a 25% to 30% ‘no’ vote, it sends a very strong message.”

In the say-on-pay movement among non-TARP recipients, shareholder resolutions were voted on at two firms just last week. Shareholders voted 62% in favor of allowing say on pay at the annual meeting of Hain Celestial Group Inc. of Melville, N.Y., and a similar resolution received a 43% favorable vote among shareholders of The Walt Disney Co. of Burbank, Calif.

“I think this is a movement that is unstoppable now,” Mr. Hodgson said.