In its last vote before its August recess, the House Friday passed a
high-visibility bill to give shareholders and federal regulators a
stronger hand in curbing excessive or risky executive compensation.
The “say-on-pay” bill picks up a major theme of the Obama
administration. It’s the first step toward an overhaul of financial
services regulation, expected in the fall. It also responds to voter
anger over federal bailouts, launched in the last months of the Bush
administration, seen as asking too little of banks.
The bill, which passed on a largely party-line vote, gives
shareholders an annual, nonbinding vote on executive pay packages. It
also requires that compensation committees be independent of
management. In a more controversial move, the bill also expands federal
regulatory powers to curtail a pay package if it is deemed to threaten
the health of a company or have “serious adverse effects on economic
conditions or financial stability.”
“Had we had this bill in place three years ago, we might not have
had this financial crisis,” said Rep. David Scott (D) of Georgia. All
Democrats and two Republicans voted for the bill. But House
Republicans, who voted against the bill with only two exceptions, said
that the broad language in the bill would it gave “unelected
bureaucrats” broad scope to intervene in compensation decisions well
beyond Wall Street.
Needed regulation vs. attack on free enterprise
“It’s a sweeping power grab into the private sector under the guise
of the government riding to the rescue,” said Rep. Spencer Bachus of
Alabama, the top Republican on the House Financial Services Committee.
It would give government a “stranglehold” over the free enterprise
system, discourage private firms from going public, and “create a
bonanza for trial lawyers, added Rep. Pete Sessions (R) of Texas.
Industry groups such as the National Association of Manufacturers
opposed the bill as an overreach into private business decisions.
“Section 4 of the bill sets up a whole new regulatory regime and
also gives the government regulatory authority to reject compensation
packages not only for top employees but regular rank and file
employees, as well,” says Dena Battle, NAM’s director of tax policy.
“It sets the precedent of the government setting wages that really
should be left to companies.”
Momentum to move on the issue was spurred by reports of ongoing,
huge bonuses to executives in companies accepting government rescue
Bailed-out banks paid out nearly $33 billion in bonuses last year,
while also accepting $175 billion in taxpayer assistance through the
Troubled Asset Relief Program, according to a report, released
yesterday by New York Attorney General Andrew Cuomo.
“When the banks did well, their employees were paid well. When the
banks did poorly, their employees were paid well. And when the banks
did very poorly, they were bailed out by taxpayers and their employees
were still paid well,” said the report, titled “No Rhyme or Reason: The
‘Heads I Win, Tails You Lose’ Bank Bonus Culture.”
For pension and shareholder groups, today’s vote marked years of lobbying for a stronger voice on executive compensation.
Part of financial reform
“The perverse system of excessive pay, even for failure, created
incentives for foolish risk-taking by major financial institutions,”
said Gerald McEntee, president of the American Federation of State,
County and Municipal Employees in an op-ed today in The Hill, a
congressional newspaper. “This legislation is an important part of the
broad financial reform effort necessary to re-regulate the financial
industry and protect shareholders.”
While strongly supporting main elements of the bill, Obama
administration officials have expressed concerns about a broad
expansion of federal regulatory powers, as have some senators. The
issue is expected to come before the Senate in the fall.
“The American people don’t begrudge people making money for what
they do, as long as we’re not basically incentivizing wild risk-taking
that somebody else picks up the tab for,” said White House Press
spokesman Robert Gibbs on Thursday. “The president believes that we
should not return to what some in that industry might think were the
good old days.”
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