The head of the House Financial Services Committee and 21 other Democrats on Thursday proposed legislation to give shareholders at public companies a formal say in executives' compensation packages.
The proposal by Rep. Barney Frank, a Massachusetts Democrat, gives political shape to an issue that has galvanized anger among investors and the general public: lavish compensation for executives, unrelated to their performance, even as companies stumble, lay off employees or renegotiate on billions of dollars in pension obligations for workers' retirement.
The chasm between executives' salaries and the pay of rank-and-file employees continues to widen, and the issue promises to be a top priority at this spring's annual meetings of public companies.
"I do not understand those who argue that the people who make up our stock markets are collectively very wise, but at the same time are somehow incapable of rendering a coherent opinion of what they should pay those they employ to run the corporations that they own," Frank said in a statement.
No Republicans have endorsed Frank's bill. But with the Democrats now the controlling majority in the House after the November elections, he says he expects House passage as soon as April.
A month ago, President George W. Bush challenged corporate America on extravagant pay, saying that company managers and directors "must step up to their responsibilities." He said the government shouldn't get involved in the matter, however.
Frank's bill would give shareholders a chance to cast a nonbinding confidence or no-confidence vote on executive pay plans, allowing them either to ratify or disapprove of them.
Such shareholder votes are the practice in Britain, Australia and Sweden. Advocates say pay packages are rarely voted down, but the knowledge that they must be voted on has helped keep executive compensation in check overseas.
Investor advocates, union pension funds and shareholder groups have been pushing for such "say on pay" votes. "At a time when executive compensation knows no bounds, it's not surprising that this idea has a head of steam behind it," Amy Borrus, deputy director of the Council of Institutional Investors, said Thursday. "Shareholders are fed up with over-the-top pay packages at underperforming companies."