WASHINGTON (Reuters) - Legislation that would slap new limits on U.S. executive pay won approval on Tuesday by a congressional committee, advancing a component of the Obama administration’s broad plan to tighten financial regulation.
The bill was expected to go to the floor of the House of Representatives for a vote on Friday, aides said.
Drafted by House Democrats, the bill would give shareholders the right to cast non-binding, annual votes on executive pay and on special pay packages, such as “golden parachutes, in instances of changes in corporate control.
It would also empower regulators to ban pay structures that encourage “inappropriate risks by financial institutions ... that could threaten the safety and soundness of covered financial institutions, or could have serious adverse effects on economic conditions or financial stability.”
Financial firms would also be required to disclose any compensation structures that include incentive-based elements.
“This bill is the first step toward comprehensive financial regulatory reform,” said House Financial Services Committee Chairman Barney Frank. The committee approved the measure in a 40-28 party-line vote with some amendments.
“I look forward to having this bill on the House floor soon, and I also look forward to changing the status quo,” said Frank, a Massachusetts Democrat who is working closely with the administration on plans to tighten oversight of banks and capital markets after the worst financial crisis in decades.
Republicans on the committee argued against the bill, saying it would give regulators too much power in setting private-sector compensation decisions.
“We are basically in this legislation overreacting to problems that have occurred,” said Republican Representative Michael Castle.
The bill was modified in committee with an amendment from Rep. Jeb Hensarling, Texas Republican, to exempt small financial institutions — with assets of less than $1 billion — from the rule requiring disclosure of incentive-based compensation and related compensation structure oversight.
Democrats said the bill was needed to restrain soaring executive pay that encourages excessive risk-taking of the sort that helped cause the deepest financial crisis in generations.
“The bill that passed out of committee today reins in excessive compensation and ends the perverse incentives that caused too many executives to engage in overly risky behavior,” Rep. Joe Baca, Democrat of California, said in a statement.
Reporting by Kevin Drawbaugh; Editing by David Gregorio