Shareholder Vote on Executive Compensation Act

Floor Speech

SHAREHOLDER VOTE ON EXECUTIVE COMPENSATION ACT

BREAK IN TRANSCRIPT

Mr. MARKEY. Mr. Chairman, the ``Shareholder Vote on Executive Compensation Act'' is a bill whose time has come, and I am pleased to rise in strong support of this important legislation.

According to the Congressional Research Service (CRS), in the past ten years, CEO pay has more than doubled, and the ratio of median CEO pay to worker pay has risen to 179 to 1. The escalation in executive pay raises significant issues, including the equity of widening income disparities and the potential that such extraordinary CEO salaries may be a result of inefficient labor markets. The bill before the House today provides a balanced, pro-market approach to this addressing issue. Specifically, the nonbinding advisory vote mandated in this bill will give shareholders a mechanism for supporting or opposing their company's executive compensation practices without diminishing the board's legal authority. Such a vote will signal to the board, without tying its hands, that the individuals who actually own the firm will hold the board accountable for CEO pay packages, which should give board members some pause before approving excessive compensation plans.

H.R. 1257 does not cap, limit or change any CEO's pay. Rather, it simply requires that shareholders have a ``nonbinding'' say on their company's salary decisions. Moreover, the SEC already requires companies to disclose compensation. The SEC's recent executive compensation disclosure rules already require that companies disclose their compensation packages in their annual proxy. The annual vote requirement simply requires that companies add a line to that disclosure permitting shareholders to approve or disapprove the compensation packages and also tally the votes. Shareholders are the owners of our Nation's public companies. They should have the right to vote on the compensation packages for companies' senior officers.

The cost to businesses complying with the bill's provisions would be minimal. In fact, CBO estimated that costs from the annual vote would fall well below the annual threshold for private sector mandates--that is, below $131 million in 2007 for the entire country. This is a tiny, and worthwhile, cost that is more than offset by the significant benefit it provides shareholders by enabling them to have their voices heard in the board room. Additionally, businesses are provided more than enough time to make the logistical arrangements necessary for the nonbinding advisory vote, as it would not be required until the 2009 proxy season.

The nonbinding vote has been used successfully in other countries. For example, the nonbinding advisory vote approach has been used in the United Kingdom since 2003 and is now used in Australia, without impeding economic activity in any way. To the contrary, the policy change is credited with improving management-shareholder dialogue on executive compensation matters and increasing the use of long-term performance targets in incentive compensation. In the United States, the nonbinding advisory vote on CEO pay recently was adopted voluntarily by Aflac, and is currently pending before numerous U.S. public companies.

I commend my colleague from Massachusetts, Barney Frank, the Chairman of the House Financial Services Committee for bringing this important bill to the Floor today and urge an ``aye'' vote.

BREAK IN TRANSCRIPT

Source