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April 23, 2007
House Gives Shareholders a Vote on Exec Pay

The U.S. House of Representatives has voted 269-134 in favor of giving shareholders a nonbinding vote on executive compensation at public companies.

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The legislation (H.R. 1257) would require that public companies include in their annual proxy to investors the opportunity to vote on the company's executive pay plans. The vote would be a nonbinding one.

"This is a bill to further the workings of the capitalist system of the United States," says U.S. Representative Barney Frank, who introduced the legislation. "It has one very specific provision. It says that the shareholders, the owners of public corporations, will be allowed to vote every year in an advisory capacity on the compensation paid to their employees who run the companies."

The legislation also contains a provision giving shareholders a nonbinding vote on "golden parachute" compensation agreements that are added while negotiating an acquisition, merger, or consolidation.

Frank says the second nonbinding vote would address a conflict of interest that a chief executive officer has when negotiating the selling price of a company while simultaneously negotiating an additional personal exit package.

WorldatWork, an association of human resource professionals, has come out against the legislation, saying there are more effective ways to influence executive pay.

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