House Financial Services Committee Passes Bill to Give Shareholders a Vote on Executive Pay

March 29, 2007

Washington, DC - The House Financial Services Committee has passed legislation to allow shareholders of public companies to vote on a company’s executive compensation plans. The bill, H.R. 1257, the “Shareholder Vote on Executive Compensation Act” will not set any limits on pay, but will ensure that shareholders have an opportunity to give a non-binding up or down vote on the company’s executive pay practices beginning in 2009.

The vote is advisory in nature, meaning, the board and the CEO of a company can ignore the will of the shareholders if they so choose. The legislation passed by the committee also contains a separate advisory vote if a company gives a new, not yet disclosed, “golden parachute” while simultaneously negotiating to buy or sell a company. Advisory votes on compensation have been successfully used in the United Kingdom and Australia. The bill will now be reported to the full House of Representatives for consideration.

“We have taken an important step in giving shareholders the ability to express their approval or disapproval of pay packages for executives to run the corporations that they own,” said Chairman Frank. “Excessive executive pay has been proven to have a significant impact on company’s profits and shareholder returns, and now the owners of the company will be given a voice on executive compensation plans.”

Specifically, the legislation builds on the Securities and Exchange Commission’s (SEC) executive pay disclosure rules to require that public companies include in their annual proxy to investors the opportunity to vote on the company’s executive pay plans. Last year, the SEC took a good step forward on compensation by requiring that public companies significantly improve their executive compensation disclosures to shareholders. Frank believes that disclosure is important, but incomplete. The act would ensure that shareholders have a say on their company’s executive compensation disclosures without micromanaging the business.

Source: House Financial Services Committee

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