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 win over the business community and defying the Bush administration.
By a 269-134 vote, the House passed the “say on pay” bill drafted by Massachusetts Democrat Barney Frank, chairman of the Financial Services Committee, amid soaring pay for chief executives and rising worries about U.S. income inequality.
The measure would require corporations to hold the symbolic shareholder votes on pay each year, but they could ignore the outcomes. The measure is meant to make boards of directors think twice before giving massive pay packages to managers.
Leading business organizations opposed the “say on pay” bill as a government intrusion and a potential source of lawsuits. The White House opposes the bill.
Illinois Democratic Sen. Barack Obama, a 2008 presidential candidate, said following the House 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.”
Right now, executive pay 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.
In 2003, the average U.S. CEO got about 500 times as much pay as the average worker, up from a multiple of 140 as recently as 1991, one academic study has shown.
“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 ex-Home Depot Inc. (HD.N) CEO Robert Nardelli as he left the company, has drawn renewed attention to the perennial U.S. 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 corporate annual meetings, although they gained 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.