The U.S. House of Representatives is considering legislation that would require shareholders to have a say in how company executives are compensated.
Rep. Barney Frank, D-Mass., introduced the “Shareholder Vote on Executive Compensation Act” (H.R. 1257) last Friday, which would mandate that public companies let shareholders cast a nonbinding vote on pay plans for their executives. The House Financial Services Committee will hold a hearing Thursday on the legislation, which is designed to improve disclosure and cut down on excessive pay packages.
“I think we’ve learned, to our distress, that trying to fix this problem through the tax code is not the way to go,” said Corporate Library Editor Nell Minow, who will testify Thursday. Minow would like to see the legislation include consequences for companies who proceed with unapproved pay plans.
But problems can arise from requiring a nodfrom investors, said Tom Lehner, director of public policy for the Business Roundtable, a D.C.-based association of CEOs, whose president will testify Thursday.
Lehner said that shareholders typically have differing agendas, which are represented more equitably by a company’s board of directors.
Companies also often take voluntary measures to ensure shareholders have a say in compensation, Lehner noted. He said firms like insurance provider Aflac Inc. have agreed to give their investors a vote on executive pay.
Some local companies recently have taken smaller measures to rein in executive compensation. In a March 5 filing with the U.S. Securities and Exchange Commission, Gannet Company Inc. of McLean disclosed that it will no longer pay for executives’ home security systems or club membership fees, beginning in 2008.
Lockheed Martin listens to input from its shareholders about executive compensation, but has no formal policy requiring their approval on salaries, Bethesda-based Lockheed Martin spokesman Jeff Adams said, adding the company will abide by the legislation if it passes. Many local companies, such as D.C.-based Pepco Holdings Inc. and Arlington’s Caci International, will wait to weigh in on the legislation until it progresses further, their spokespeople said.
