House approves 'say on pay' for shareholders
WASHINGTON (Reuters) - The U.S. House of Representatives approved a bill on Friday to give shareholders the right to cast nonbinding votes on the pay of top company executives, handing investor advocates a victory and defying the Bush administration.
By a 269 to 134 vote, the House passed the "say on pay" bill drafted by Massachusetts Democrat Barney Frank, chairman of the Financial Services Committee, at a time of soaring pay for chief executives and rising worries about U.S. income inequality.
The measure would require corporations to hold symbolic shareholder votes on pay each year, although they could ignore the outcome. The measure is meant to make boards of directors think twice before giving massive pay packages to managers.
Illinois Democratic Sen. Barack Obama, a 2008 presidential hopeful, said after the vote that he would offer a companion bill in the Senate to give "shareholders the power to debate and fight back against exorbitant executive compensation."
Leading business groups and most Republicans on Capitol Hill have opposed the concept of "say on pay" as a government intrusion on business and a potential source of lawsuits.
The White House has said it opposes the Frank bill, although President George W. Bush has criticized excessive CEO pay and urged that pay be tied more closely to performance.
Frank said, "The president himself has acknowledged that compensation has gotten out of hand."
But he said that Bush and some of his supporters seem to view excessive CEO pay, like global warming and rising income inequality, "as facts of nature that were neither caused by, nor can be corrected by human action. We disagree with that."
In 2003, the average U.S. CEO got about 500 times the pay of the average worker, up from a multiple of 140 as recently as 1991, one academic study has shown.
Executive pay now is set by directors who are nominated by managers and approved by shareholders. Critics contend this gives CEOs too much say on their own pay.
CEOs respond that giving shareholders a vote on pay -- even just a symbolic one -- would be costly and distracting and would inject outside politics into business decisions.
"Say on pay" votes are common in Britain and Australia, but are controversial in America, where corporate CEOs typically wield more power and enjoy higher compensation.
This year another wave of huge CEO pay packages, such as the $210 million given to former Home Depot Inc. (HD.N) CEO Robert Nardelli as he left the company, has drawn renewed attention to the perennial issue of how much money the boss makes.
Insurer AFLAC Inc. (AFL.N) in February voluntarily became the first major U.S. company to adopt "say on pay."
Shareholder resolutions calling for advisory votes on pay have failed at four recent annual shareholder meetings, although gaining substantial support.
On Tuesday one failed at Citigroup (C.N), with 43 percent of the vote. Coca-Cola Co. (KO.N) investors defeated on Wednesday a "say on pay" measure that won 30 percent of voting shares. Morgan Stanley (MS.N) and Bank of New York Co. Inc. (BK.N) investors recently rejected "say on pay" proposals.
Union pension funds have targeted dozens of U.S. companies this year with "say on pay" shareholder resolutions.