THE PROTECTION AGAINST EXECUTIVE COMPENSATION ABUSE ACT

SUMMARY

The Protection Against Executive Compensation Abuse Act would address the problem of runaway executive compensation by requiring greater disclosure of executive compensation to shareholders.  The bill would not set any artificial limits on executive compensation itself.  Instead, it would give shareholders more information about management pay packages and empower shareholders to take action against management abuse and self-dealing.  The Securities and Exchange Commission would execute the bill's provisions in an open rulemaking process (with opportunity for notice and comment).   

Require Executive Compensation Plan

The bill would require that public companies include in their annual report and accompanying proxy solicitations a comprehensive "Executive Compensation Plan."  This Executive Compensation Plan must be approved by shareholders and include:

• Full Disclosure of Top Executive's Compensation including any and all types of compensation paid (or to be paid) to top executives (such as pensions, golden parachute agreements, personal use of private jets/company apartments and other currently hidden compensation);

• Full Disclosure of Compensation Policies for Top Executives including the short and long-term performance measures or targets that will be used to determine the top executive's compensation (and whether such measures were met in the preceding year); and

• A Company Policy for Recapturing Any Form of Incentive Compensation That Subsequent Financial Results Show Are Unjustified such as when the company pays bonuses/grants stock options to executives for meeting performance targets only to later learn that these numbers were inaccurate and must be restated.

To limit burden on smaller companies, "top executives" means only the CEO for companies with less than $250 million in total assets; the CEO and the next two highest paid executives for companies with more than $250 million but less than $500 million in assets; and the CEO and next four highest paid executives for companies with more than $500 million in total assets.

Require Separate Shareholder Approval of Golden Parachute Packages

The bill would also require that shareholders separately approve any additional compensation for top executives that coincides with the sale or purchase of substantial company assets.  This provision is designed to empower shareholders to protect themselves from senior management's natural conflict of interest when negotiating an agreement to buy or sell a company while simultaneously negotiating a personal compensation package. 

 

Require Clear and Simple Disclosures of Compensation Statements on the Company's Website

Finally, the bill would require that companies include on their websites clear and simple disclosures on the company's compensation filings made to the SEC.  Rather than forcing shareholders to regularly monitor and decipher the SEC's arcane "EDGAR" database, shareholders could get this information right on the company's website.