The Shareholder ForumTM


"Say on Pay" Proposals

Forum Home Page

"Say on Pay" Home Page

Program Reference


Note: It was reported by Congressional Quarterly that an amendment providing for votes every three years instead of annually, as proposed by Ed Durkin of the United Brotherhood of Carpenters and supported by some corporate executive advocacy groups, was introduced by Representative Scott Garrett (R-NJ) and defeated by a vote of 26-41.

For the subsequently released announcement of the House Committee, see


MarketWatch, July 28, 2009 article


Jul 28, 2009, 4:25 p.m. EST

Key House panel approves say-on-pay bill
Democrats also seek greater pay disclosure for employees, executives


By Ronald D. Orol, MarketWatch

WASHINGTON (MarketWatch) - Democratic lawmakers on a key committee on Tuesday approved a package of legislation opposed by most Republicans that would impose restrictions on the pay of top executives and give shareholders a vote on executive compensation.

The House Financial Services Committee approved a bundle of pay provisions by 40-28, including a measure that requires corporate compensation committees to be made up of independent directors.

The bill, most of which goes along with an Obama administration proposal released earlier this month, requires the Securities and Exchange Commission to set up new governance consulting rules, such as a measure to safeguard the independence of compensation consultants hired by corporate pay committees.

The package also has a controversial provision -- not part of the White House proposal - that would require federal regulators to prohibit "certain compensation" structures at large financial institutions if they could have a "serious adverse effect on financial stability."

It would also require federal regulators to write rules requiring financial institutions to disclose their incentive-based pay plans for executives and employees. The federal regulators would then determine if the pay packages are "aligned with sound risk management."

The provision, opposed by GOP lawmakers on the committee, comes partly in response to concerns earlier this year about certain American International Group Inc. employees who received large bonuses despite the troubled insurer's $190 billion government bailout.

Lawmakers expect to vote on the legislation, H.R. 3269, later Tuesday afternoon.

The executive-pay effort is part of a larger multi-part endeavor on Capitol Hill to reform bank and securities regulation in response to the financial crisis. Frank expects the full House to vote on the measure later this week.

He expects it to be packaged together with other regulatory reform initiatives considered in both the House and Senate in the fall.

'Unprecedented provisions'

Rep. Spencer Bachus, R-Ala, the committee's ranking member, took issue with the fact that Frank called for a vote on the legislation without having a hearing on the specific details of the bill. He took issue with the provision that would require federal regulators to prohibit pay packages at large financial institutions if they could have an adverse impact on the corporation or the markets, calling the measure "unprecedented."

"We've not heard from regulators on how they would enforce this, how they would set up a regulatory scheme for this, we haven't heard from compensation experts about it," Bachus said.

Steve Balsam, a professor at Temple University in Philadelphia, said he worried that any rules written by a bank regulator to limit incentive-based pay packages of financial institutions could have the unintended consequence of limiting important investments that could be considered risky, but are necessary to drive creative innovation in operating businesses.

"Treasury bills aren't risky, but what if all financial institutions invested in T-bills to meet risk rules," Balsam said. "There would be no money to go into businesses."

Balsam also responded to concerns about how portfolio managers at AIG received bonuses to create complex insurance derivatives instruments many considered a key contributor to the financial crisis. He said the kind of managers that created these instruments would find another kind of derivatives that may be more risky with an alternative incentive package.

Say-on-pay and small public companies

The package also included a provision that would give the SEC the authority to exempt smaller public institutions from the package of measures, including the proposal, known as "say on pay," where shareholders would have the authority to a non-binding vote on corporate executive compensation.

The measure would also exempt private companies that have publicly issued debt from the say-on-pay provision.

Vote disclosures for hedge funds, labor-backed pension funds

A provision introduced by Rep. Mary Jo Kilroy, D-Ohio, was approved that would require hedge funds and other institutional investors with more than $100 million in assets to disclose how they vote on executive compensation.

Mutual funds are required by the SEC to disclose how they vote on pay and other provisions, but hedge funds and public pension funds are not required to disclose their votes.

Rep. Patrick McHenry, R-N.C., backed the amendment, saying he supported it because he would like greater disclosure about how labor-backed public pension funds vote on pay provisions.

"Hold pension funds accountable for how they are voting," McHenry said. End of Story

Ronald D. Orol is a MarketWatch reporter, based in Washington.

View Comments on this story




This Forum program is open, free of charge, to anyone concerned with investor interests relating to shareholder advisory voting on executive compensation, referred to by activists as "Say on Pay." As stated in the posted Conditions of Participation, the Forum's purpose is to provide decision-makers with access to information and a free exchange of views on the issues presented in the program's Forum Summary. Each participant is expected to make independent use of information obtained through the Forum, subject to the privacy rights of other participants.  It is a Forum rule that participants will not be identified or quoted without their explicit permission.

The organization of this Forum program was supported by Sibson Consulting to address issues relevant to broad public interests in marketplace practices, rather than investor decisions relating to only a single company. The Forum may therefore invite program support of several companies that can provide both expertise and examples of performance leadership relating to the issues being addressed.

Inquiries about this Forum program and requests to be included in its distribution list may be addressed to

The information provided to Forum participants is intended for their private reference, and permission has not been granted for the republishing of any copyrighted material. The material presented on this web site is the responsibility of Gary Lutin, as chairman of the Shareholder Forum.