Frank Introduces Executive Pay Bill

March 2, 2007 ( - "Non-binding" appears to be the direction of the day on Capitol Hill.

On Thursday Democrats in the US House of Representatives introduced legislation that would give shareholders a vote – albeit a non-binding one – on how much top corporate executives should be paid.   According to a  press release , the bill 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.  

The ” Shareholder Vote on Executive Compensation Act ,” was co-sponsored by 21 other legislators, and would expand U.S. Securities and Exchange Commission disclosure rules to require public companies to include a shareholder vote in their annual proxy statements.

House Financial Services Committee Chairman Barney Frank (D-Massachusetts) said the bill would not set executive pay, but would let shareholders express their approval or disapproval of the company’s pay practices.

“I do not understand those who argue that the people who make up our stock markets are collectively very wise, but at the same time are somehow incapable of rendering a coherent opinion of what they should pay those they employ to run the corporations that they own,” Congressman Frank said in a  statement .

Building Blocks

The legislation was described as building 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 (see  New Executive Compensation Disclosure Rules Take Effect ).  Advisory votes on compensation have been used in the United Kingdom and was recently adopted by AFLAC (see  Aflac Shareholders to Get Voice on Executive Pay ).  Sun Microsystems voted on a similar measure to keep a check on executive pay in November 2006 (See Sun Microsytems Shareholders Want Vote on Executive Pay ).  

The House Financial Services Committee will hear from experts, academics and advocates on both sides of this issue at the hearing on the legislation this week.