A key congressional committee took another step toward reforming the way Wall Street works yesterday. By a vote of 40-28, the House Financial Services Committee approved H.R. 3269, the Corporate and Financial Institution Compensation Fairness Act. The act would help end the excessive compensation practices that encourage executives to take excessive risks that ultimately hurt employees, shareholders and taxpayers.
The bill would give shareholders a “say on pay” and allow them a nonbinding vote on executive pay. It also would require that independent directors from outside of management serve on compensation committees.
Says committee Chairman Rep. Barney Frank (D-Mass.):
This bill is the first step toward comprehensive financial regulatory reform. I look forward to having this bill on the House floor soon, and I also look forward to changing the status quo.
The panel adopted an amendment proposed by Rep. Mary Jo Kilroy (D-Ohio) to require large institutional investors to reveal how they vote the shares they own on pay proposals affecting companies that issued those shares.
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The AFL-CIO Executive PayWatch points to the many potential conflicts of interest among compensation consultants who play a central role in recommending pay packages. Many of those consultants also provide other services to the companies, putting them in a conflicting role for issuing fairness opinions about pay.
The congressional action comes just three weeks after the U.S. Securities and Exchange Commission (SEC) proposed rules to give shareholders better information about the potential conflicts of interest of compensation consultants who help set pay for senior corporate executives.
A December 2007 congressional report found that CEOs of companies who use compensation consultants who have potential conflicts, such as providing management with other services, received considerably higher pay than CEOs of companies who used independent compensation consultants.
The proposed rules, developed under the leadership of SEC Chairwoman Mary Shapiro, will be open for comment for as long as 60 days.
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It’s clear that executive pay needs to be reigned in. Think Progress points to a Wall Street Journal analysis that shows more than one-third of all pay in the United States now goes to executives and other highly paid employees.
CEOs of Standard & Poor’s 500 companies were paid an average of $10.4 million in 2008. To learn more about excessive executive pay, visit our Executive PayWatch website.