CEO pay regulation
The House of Representatives on Friday voted to hand federal regulatory agencies strong new powers to control executive compensation, just a day after it emerged that the largest Wall Street recipients of public bail-out funds had paid thousands of employees bonuses of $1m or more last year.
The legislation, which was passed by a margin of 237 to 185, which was broadly along party lines, bans directors on compensation committees from having financial ties to their companies and gives shareholders a non-binding vote on executive pay. It would also allow regulators to restrict incentive-based compensation practices that jeopardise the health of larger financial institutions.
The bill went beyond what the White House had requested. Barney Frank, chairman of the House financial services committee, said: “We are not taking orders from the Obama administration.”
Tim Geithner, the US Treasury secretary, nevertheless praised the vote, which marks the first significant passage of the Obama administration’s broader package of financial regulatory reform.
The measures will be taken up as part of an omnibus bill in the Senate in September, in contrast to the House’s piecemeal approach to regulatory overhaul. “Improving executive compensation practices is an essential part of our broader efforts towards comprehensive regulatory reform,” said Mr Geithner.
“[It] will encourage companies to set pay in ways that are aligned with sound risk management and long-term value, moving away from the practices of the past that helped contribute to the financial crisis.”
Business groups reacted negatively. “This takes the government right into the public boardroom,” said John Castellani, chairman of the Business Roundtable, an association of chief executives. “To impose a one-size-fits-all response on 12,000 companies because of controversy at a few banks is the wrong approach.”
The Republicans tried to replace the bill with a softer version, which would have given shareholders a “say-on-pay” once every three years and to strike out the amendment to give regulators power over bonuses. They were defeated, in spite of the support of the US Chamber of Commerce, the country’s biggest lobbying organisation. The Chamber said the bill represented “a tremendous intrusion into affairs of business that have always been left to private actors”.
The bill may struggle to pass the Senate which has been less willing than the House to expand government powers over executive compensation. “This bill continues the Democrats’ tendency to . . . create a government bureaucracy to make decisions better left to private citizens and private corporations,” said Spencer Bachus, the ranking Republican on the financial services committee.