Treasury Delivers Say-on-Pay Legislation to Congress

July 16, 2009 ( - The U.S. Treasury has delivered draft "say-on-pay" legislation to Congress that would require all publicly traded companies to give shareholders a non-binding vote on executive compensation packages.

According to a fact sheet, the disclosures that would be subject to the say-on-pay vote include tables summarizing salary, bonuses, stock and option awards and total compensation for senior executive officers, as well as summaries of golden parachute and pension compensation and a narrative explanation of the board’s compensation decisions. By providing for a separate vote on golden parachutes, this legislation would allow shareholders to vote on any payments to executives, while requiring companies to disclose, in a clear and simple format, the exact amounts senior executive officers will receive if the merger occurs, the fact sheet said.

The proposal is similar to say-on-pay rules that have found success in Britain, which the document said have led to substantially increased dialogue between firms and shareholders on compensation, and a modification of compensation practices. In addition, the awareness of a potential “no” vote and the subsequent change in practices has led to an empirically-verified tightening of the link between pay and performance. 

According to the document, while reports of exact numbers vary, shareholder proposals requesting that their companies adopt the practice of holding say-on-pay votes have increased from over 50 in 2007, to over 80 in 2008, to over 100 in 2009.  These proposals, which are usually non-binding requests to institute say-on-pay votes in the future, are increasingly gaining support from shareholders – with average vote totals increasing from 42.5% in 2007 to 46.7% so far this year.

The fact sheet is here .