WASHINGTON (Reuters) - Shareholders could get more influence over executive pay and the composition of boards of directors under U.S. legislation unveiled on Tuesday.
Sen. Charles Schumer, a prominent Democrat on the Senate Banking Committee, said he will introduce on Tuesday a “Shareholder Bill of Rights” that would give shareholders a “say on pay” and would require that the chief executive job be separate from the chairman position at U.S. publicly traded companies.
He said the bill will likely be part of a larger legislative package of financial regulatory reforms, which he hopes can be passed by the end of the year.
Schumer’s measure would also give shareholders “proxy access,” meaning they would have an advisory vote on executive compensation packages, and would require that corporate boards establish risk committees.
“During this recession, the leadership at some of the nation’s most renowned companies took too many risks and too much in salary, while their shareholders had too little say,” Schumer said during a news conference.
“This legislation will give stockholders the ability to apply the emergency brakes the next time the company management appears to be heading off a cliff.”
Shareholders are demanding corporate governance changes in the wake of a financial crisis that has flooded billions of dollars of taxpayer money into corporations such as insurer American International Group Inc and investment bank Bear Stearns.
Lawmakers and some executives have said greed drove companies to take excessive risk with an eye toward short-term profits.
Schumer’s bill would ban so-called “staggered” boards that prevent all corporate board seats from being voted on at the same time. It also requires that board directors receive at least 50 percent of the vote in uncontested elections to remain on the board.
The bill instructs the U.S. Securities and Exchange Commission to issue rules that would grant shareholders access to the corporate proxy for nominations to the board of directors. To make a nomination, shareholders would have to have owned at least 1 percent of a public company’s shares for at least two years.
The SEC will consider proposals on Wednesday to make it easier and cheaper for shareholders to influence the composition of a corporate board.
Regarding pay, the bill would require companies to obtain shareholder approval for executives’ so-called golden parachutes, or the hefty pay packages given to executives when they leave the company.
Executive pay has also received intense scrutiny lately, with Treasury Secretary Timothy Geithner pledging to reform pay practices across the financial industry. Executive compensation reform is also expected to be part of a broad reform package the Obama administration will propose to Congress in the coming weeks.
Reporting by Karey Wutkowski; Editing by Andre Grenon