On Monday, Senate Banking Committee Chairman Chris Dodd (D-CT) introduced comprehensive financial reform legislation that includes provisions providing public corporate shareholders with an advisory vote on executive pay, and allowing them to nominate members of the board of directors through proxy ballots. Such “say on pay” provisions have been included in bills introduced in both the House and Senate in recent months (H.R. 3269, S. 3049).  The 1,336-page Restoring American Financial Stability Act of 2010 (pdf) would also ensure the independence of corporate compensation committees, and require public companies to set policies to take back executive compensation based on inaccurate financial statements.

According to a summary, (pdf) this legislation would:

• Give shareholders a say on pay with the right to a non-binding vote on executive pay.
• Give the Securities and Exchange Commission (SEC) authority to grant shareholders proxy access to nominate directors. It would also require directors to win by a majority vote in uncontested elections.
• Require that compensation committees include only independent directors and have the authority to hire compensation consultants in order to be listed on an exchange.
• Require that public companies set policies to take back executive compensation if it was based on inaccurate financial statements that do not comply with accounting standards.
• Direct the SEC to clarify disclosures relating to compensation, including requiring companies to provide charts that compare their executive compensation with stock performance over a five-year period.

The bill would also give the Federal Reserve the power to regulate the largest financial institutions including insurance companies and investment and commercial banks. The bill also includes amendments to the Sarbanes-Oxley Act whistleblower-protection provision. Any movement on financial overhaul, however, will likely come after this week’s push for health care reform.
 

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