WASHINGTON The Obama administration on Thursday sent Congress a legislative proposal that would give corporate shareholders an annual non-binding vote on executive pay and require more independence for boardroom compensation committees.
The so-called "say-on-pay" bill is similar to rules adopted in Britain in 2002 and would require a separate shareholder vote for golden parachutes or other payments provided to executives in the event of a merger or acquisition, the U.S. Treasury said.
The bill is among several proposals that the Obama administration has sent Congress in recent days as part of a sweeping plan to revamp financial regulation in response to the worst financial crisis since the Great Depression of the 1930s. The administration has vowed to revamp executive compensation across the board to discourage excessive risk taking and better align pay with shareholder interests.
Even though the shareholder votes on compensation would be non-binding, Treasury officials said the prospect of a public vote on such matters would influence companies and persuade them to link pay more directly with performance.
"We are determined not to return to an era in which short-term gains took precedence over building long-term value for shareholders," said Gene Sperling, special counselor to U.S. Treasury Secretary Timothy Geithner.
He said say-on-pay rules prompted positive compensation changes at companies in Britain after they were adopted, and U.S. shareholders have demanded similar non-binding votes.
The provisions on compensation committees would require new, stronger standards for independence, including conflict of interest rules that would prohibit directors from sitting on a compensation panel if they have a financial relationship with the company or its executives.
They would require that compensation committees be given authority and funding to hire outside consultants and legal counsel, and mandate that these be independent of company management.
U.S. Rep. Barney Frank, the Massachusetts Democrat who chairs the House of Representatives Financial Services Committee , said in a statement the panel will vote on "say on pay" legislation next week and also will consider legislation to empower federal regulators to declare some compensation practices as inappropriate or imprudent as part of financial firm solvency regulation.
For the full bill language, please click on, here .
(Reporting by David Lawder, Editing by Dan Grebler)