Legislation Introduced to Allow Shareholder Approval of Executive Compensation

Congressman Barney Frank (D-Mass.), Chairman of the House Financial Services Committee, has introduced legislation that would allow shareholders to give approval on their company’s executive pay package. The vote would be non-binding and would not set limits on pay, but it would allow the shareholders the opportunity to let company’s know how they feel about the company’s executive compensation structure. In the United Kingdom, where a similar law passed in 2002, the process has helped control the growth of executive compensation.
Chairman Frank believes that the disclosure mandated by the SEC does not go far enough. The new Shareholder Vote on Executive Compensation Act provides the shareholders an opportunity to comment on executive pay but will not impede the company’s ability to do business by requiring all executive pay be ratified by shareholders. Instead it gives the shareholder the opportunity to let the Board know when a pay package has exceeded what is considered a reasonable compensation.
A number of US companies are contemplating allowing advisory votes by their shareholders. This past January, the insurance company, AFLAC, adopted the practice. Trillium Asset Management Corporation filed two shareholder resolutions this season, at Citigroup and Pfizer, asking their boards to allow for shareholder oversight on executive pay packages by including advisory voting.
Hearings on the legislation begin on March 8, 2007.