The House of Representatives has approved executive compensation legislation that would give shareholders a nonbinding vote on the pay packages of senior executives.
H.R. 3269, the Corporate and Financial Institution Compensation Fairness Act, passed by a vote of 237-185 on Friday. It would require federal regulators to proscribe any inappropriate or imprudently risky compensation practices and require financial firms to disclose any compensation structures that include incentive-based elements. Compensation committees would become more independent of management, and they would be able to hire outside advisers such as accountants to help them set compensation packages for senior execs.
The provisions make sense and are part of a larger set of reforms to the financial system that the Obama administration has been proposing. However, they probably do not go far enough in setting the rules of the road for compensation. For one thing, shareholder votes on pay would be merely advisory and nonbinding. Management could still be awarded lavish levels of compensation. Only the design of the pay packages would actually be subject to scrutiny. The law also would exempt financial institutions with less than $1 billion in assets from many requirements.
Still, its a start, especially as Wall Street continues to award outsized pay packages to senior executives of companies that needed a bailout from taxpayers only a few months ago. Running a company into the ground is not the kind of performance that most shareholders, and taxpayers, would care to reward.