Financial Services Committee Passes Exec Comp Measure

July 29, 2009 ( - The U.S. House's Financial Services Committee on Tuesday approved legislation to put an end to "compensation practices that encourage executives to take excessive risk at the expense of their companies, shareholders, employees, and ultimately the American taxpayer."

Specifically, according to a Committee statement, H.R. 3269 would give shareholders a “say on pay” for top executives and ensure that they have a nonbinding, advisory vote on their company’s pay practices. In addition, the bill would require federal regulators to proscribe inappropriate or imprudently risky compensation practices as part of solvency regulation of all financial institutions.

Financial firms would also be required to disclose any compensation structures that include incentive-based elements, but financial institutions with less than $1 billion in assets would be exempt from the incentive-based pay provisions.

Other provisions of the measure, according to the statement, include:

  • a provision that would allow the SEC to exempt certain categories of issuers from the say-on-pay requirements where appropriate, taking into account, among other considerations, the potential impact on smaller reporting issuers;
  • a requirement of at least annual reporting of annual say-on-pay and golden parachutes votes by all institutional investors, unless such votes are otherwise required to be reported publicly by SEC rule;
  • a provision that compensation approved by a majority say-on-pay vote is not subject to clawback, except as provided by contract or due to fraud to the extent provided by federal law; and
  • the addition of Fannie and Freddie to the list of financial institutions subject to the incentive-based pay provisions and the addition of the FHFA as a financial regulator with rulemaking authority for such provisions.

The measure requires the Government Accountability Office (GAO) to study the correlation between compensation structure and excessive risk-taking and report to Congress within one year of enactment.