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Washington, DC - The U.S House of Representatives today passed H.R. 1257, the "Shareholder Vote on Executive Compensation Act" by a vote of 269 to134, to allow shareholders of public companies to approve or disapprove of a company's executive compensation plans. H.R. 1257 will not set any limits on pay, but will ensure that shareholders have a nonbinding and advisory vote on their company's executive pay practices without micromanaging the company. The legislation passed by the House today 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. Advisory votes on compensation have been successfully used in the United Kingdom and Australia and voluntarily by companies including Aflac.
"This is a bill to further the workings of the capitalist system of the United States. It has one very specific provision, it says that the shareholders, the owners of public corporations, will be allowed to vote every year in an advisory capacity on the compensation paid to their employees who run the companies," said Rep. Frank.
Specifically, the legislation builds 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. Last year, the SEC took a major step forward on compensation by requiring that public companies significantly improve their executive compensation disclosures to shareholders. Frank believes that disclosure is important, but incomplete.
"The President himself has acknowledged that compensation has gotten out of hand. But from the standpoint of the President, excessive CEO compensation, increased inequality in our economy, which is a part of this, global warming, they all have certain common elements; the President and some of his supporters have reluctantly acknowledged the reality of those things, having denied them for some time, but they appear to regard them as facts of nature that were neither caused by nor can be corrected by human action. We disagree with that," continued Rep. Frank. "Now, people have suggested that Congress is legislating salaries. We reject that. The bill we have passed today does not intrude on the process of setting compensation."
For more information on H.R. 1257, the "Shareholder Vote on Executive Compensation Act," please visit: http://financialservices.house.gov/ExecutiveCompensation.html .
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