House Passes Executive Compensation Bill

The House of Representatives has voted 237 to 185 to approve the Corporate and Financial Institution Compensation Fairness Act of 2009 (H.R. 3269), a measure that would give shareholders of public companies an advisory vote on executive compensation. Earlier this week, the House Committee on Financial Services voted 40-28 to advance this “Say-on-Pay” legislation.

In addition to providing shareholders with a nonbinding approval vote over executive compensation and golden parachutes, this bill would direct federal agencies to establish regulations requiring certain financial institutions to disclose the structure of their incentive-based compensation arrangements to determine whether such arrangements encourage inappropriate risk. This bill would also prohibit covered financial institutions from rewarding their executives and corporate officers with compensation structures that encourage risky behavior. Moreover, if enacted into law, this legislation would require the members of public company compensation committees to be independent, and would establish authority for such committees to use independent consultants and counsel. While it took only ten days from the date of introduction for this bill to clear the House, it will face a more difficult path in the Senate, where many have voiced concern that the measure would allow the government to unnecessarily intrude on private business operations.