House Panel to Mark Up Legislation on Executive Compensation

By W. Bernard Mason

On July 17, 2009 House Financial Services Committee Chairman Barney Frank (D - RI) made public draft legislation that would require all U.S. banks, brokerages and other financial firms to disclose how they compensate top executive officers. It also would require nonbinding shareholder votes on compensation (say on pay) and require compensation committees to consist of independent directors.

More specifically, the legislation in its current form contains four components:

• Say on pay (similar to legislation passed by the House in 2007) that would apply to all public companies and would require annual nonbinding shareholder vote on compensation and golden parachutes.
• Independent compensation committee requirement that would apply to all public companies and a requirement that compensation consultants satisfy SEC-established criteria.
• Incentive-based compensation would require disclosure by all banks, bank holding companies, broker-dealers, credit unions, investment advisors and any others identified through joint rulemaking by federal financial regulators.
• Federal financial regulators would be required to establish compensation standards for financial institutions that would identify inappropriate or imprudently risky compensation practices as part of solvency regulation.
  

Rep. Frank released this draft bill on the heels of the Administration's submission of similar legislation to Congress the day before. Congressman Frank stated that he expects a mark-up of this bill to be completed by the end of this week.