Rep. Barney Frank, chairman of the House Financial Services Committee, today released a “discussion draft” of legislation that would require shareholder advisory votes and address other executive compensation concerns.

His bill would require annual “say on pay” votes at all U.S. companies after Dec. 15, 2009; mandate separate investor votes on “golden parachute” payments; impose stricter independence standards on compensation committees; and authorize pay panels to retain their own independent consultants. The bill also directs the Securities and Exchange Commission to prepare a study on pay consultant independence within two years.

In a press release, Frank, a Democrat from Massachusetts, said his committee would mark up the bill next week. The advisory vote provisions are similar to those in legislation that the House of Representatives approved in 2007. The Treasury Department released its own version of advisory vote legislation on Thursday. Currently, only companies that have received (and not paid back) federal assistance from the Troubled Asset Relief Program (TARP) are required to hold annual votes on pay.

“With the SEC’s unanimous support for ‘say on pay’ for TARP companies, the Treasury declaration for an advisory vote, and Congressman Frank’s indication that he will move forward on legislation this month, there is a virtually inevitable movement toward institutionalizing the advisory vote,” noted Tim Smith, senior vice president at Walden Asset Management, which is part of an investor coalition of pay vote proponents. “The next challenge is finding other new and creative ways to limit compensation spiraling out of control.”

Frank’s draft bill, the “Corporate and Financial Institution Compensation Fairness Act of 2009,” also directs the SEC, the Federal Reserve, and other financial regulators to jointly prepare regulations to “reduce perverse incentives.” Within 270 days of the enactment of the legislation, regulators would issue rules that direct firms to disclose information on their incentive-based pay arrangements so regulators can determine if their compensation structures “properly” measure and reward performance, are “structured to account for the time horizon of risks,” are “aligned with sound risk management,” and meet other criteria set by regulators. The bill also calls for rules within 270 days that prohibit compensation structures that financial regulators conclude would encourage “inappropriate risks by financial institutions or officers or employees [of those firms] that could have serious adverse effects on economic conditions or financial stability;” or “could threaten the safety and soundness” of the firm.

Under Frank’s bill, these regulations would not be limited to TARP firms and would apply to all banks, bank holding companies, broker-dealers, credit unions, investment advisers, and other financial institutions designated by regulators.