Congress is considering a bill to allow shareholders of U.S. companies to cast non-binding votes on executive pay, CNBC’s Mary Thompson reported on “Morning Call.”
The proposal, introduced by Rep. Barney Frank, D-Mass., would require the Securities and Exchange Commission to develop rules allowing investors to vote on a company’s executive pay package and “golden parachutes” if the business is sold.
However, a company would not have to act on the votes.
Similar “say on pay” measures exist in the United Kingdom, Australia and Sweden.
U.S. businesses fear the measure would usurp the role of boards of directors. Opponents say the measure would force CEOs to devote less time to planning and product development, and more time meeting with lobbyists and advocacy groups.
“Businesses were never designed to be democracies, and their decision-making process was not established to be run like a New England town hall meeting,” John Castellani, president of The Business Roundtable, told the committee Thursday.
But Richard Ferlauto, a representative of the American Federation of State, County and Municipal Employees, said the measure is needed to clean up American corporations.
“Spiraling pay, not based on performance, tends to provide an incentive to manipulate earnings, obfuscate financials and, unfortunately in many cases, to cook the books,” he said.
Rep. Scott Garrett, R-N.J., said he believed Congress has the authority consider the issue, but said new SEC rules requiring greater disclosure of executive pay should be given a chance to work.
Citing figures compiled by The Corporate Library, Thompson said the average annual pay of CEOs at S&P 500 companies increased to $13.5 million in 2005 from $8.1 million in 2003.
Frank serves as chairman of the House Financial Services Committee. The bill is HR 1257.