In a Web statement, Chairman Barney Frank (D-Massachusetts) said the bill to be marked up in committee was similar to a measure passed by the House in 2007, as well as a recent Treasury Department proposal (see Treasury Delivers Say-on-Pay Legislation to Congress ).
In addition to giving shareholders a say on the compensation for the top five most highly paid executives, the measure would also empower federal regulators to proscribe inappropriate or imprudent compensation practices as part of solvency regulation of all financial firms.
“Return to the Old Ways?”
“It’s a question of empowering the shareholders to decide the appropriate level because it’s their money and giving regulators the ability to prevent compensation incentives that encourage taking inappropriate and excessive risk.” Frank asserted in the statement. “We do not know the specifics, but recently reported bonus pools do suggest that there may be a return to the old ways which caused such damage to our economy. It reinforces our determination to adopt a reasonable set of legislative goals.”
In a discussion draft released Friday, Frank said the “say on pay” provisions would applyto all public companies, requiring an annual shareholder advisory vote on compensation, as well as an advisory vote on golden parachutes.
The requirement for having independent directors applies to all public companies. It would also require compensation committees be made up of independent directors and require that compensation consultants satisfy independence criteria established by the Securities and Exchange Commission.
Meanwhile, according to the Frank draft, the incentive-ba sed compensation disclosure requirements apply to all “financial institutions,” a definition that specifically includes banks, bank holding companies, broker-dealers, credit unions, and investment advisers. The definition also includes any institution deemed “appropriate” during joint rulemaking by the relevant Federal financial regulators. The provisions require the disclosure of compensation structures that include any incentive-based elements.
Finally, according to the Frank document, the c ompensation standards for financial institutions apply to all financial institutions that requirements include a mandate for federal regulators to proscribe inappropriate or imprudently risky compensation practices as part of solvency regulation.
More information on the issue is available here .
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