REP. PETERS ON ADMINISTRATION'S EXECUTIVE COMPENSATION ANNOUNCEMENTS TODAY
Press Release
Rep. Peters On Administration's Executive Compensation Announcements Today
Congressman Gary Peters, Member of the House Financial Services Committee and author of the Shareholder Empowerment Act of 2009, issued the following statement today following announcements by the Obama Administration on measures to reign in executive pay at U.S. banks and major TARP recipients and eliminate compensation packages that encourage reckless risk taking in the U.S. banking industry (A summary of the Shareholder Empowerment Act follows Mr. Peters' statement. Similar legislation, the Shareholder Bill of Rights, has been introduced in the Senate by Senator Charles Schumer. A MarketWatch article on Congressman Peters' and Sen. Schumer's bills follows the bill summary)
"It has become quite clear that reckless investments on Wall Street pushed the entire global economy to the brink of financial nuclear winter last year. And there is no doubt that executives at some institutions saved by taxpayers are still being compensated as if nothing has changed.
"While the type of stopgap provisions the Administration announced today are helpful, we also need to enact comprehensive corporate governance reform that provides shareholders, a company's true owners, more tools to ensure that corporation's actions are aligned with investor interests. We need measures to ensure that shareholders have a real say in board elections, corporate boards and compensation advisory committees are truly independent and mechanisms exist that allow shareholders to stop undeserved bonuses. Empowering shareholders is the democratic, market-based approach to solving this problem."
Summary
Shareholder Empowerment Act of 2009
Introduced in the U.S. House of Representatives June 12, 2009
MAJORITY VOTING FOR DIRECTORS
Under the plurality voting standard that is the default in most state corporate statutes, the candidate receiving the most votes is elected. In uncontested elections, shareholders can protest the candidate by withholding their vote, but there is no mechanism for opposing a candidate because even one vote would be sufficient for election. This provision would require a candidate running in an uncontested election to receive votes from a majority of shareholders, and would require a candidate running unopposed for reelection to resign if he or she failed to obtain majority shareholder approval.
Included in the Schumer bill, which also requires that each member of the board of directors be subject to an annual election.
PROXY ACCESS.
Currently, companies have the ability to keep director nominations by shareholders off of proxy ballots. This means that shareholders who want to nominate a candidate must incur the cost of mailing election materials to all shareholders. This provision would give shareholders that have held at least 1% of a company's shares for at least one year access to proxy forms to nominate directors.
Included in the Schumer bill, but requires that the shares be held for two years rather than one. In May 2009 the SEC proposed a new rule that would grant shareholders proxy access.
UNINSTRUCTED BROKER VOTES IN UNCONTESTED DIRECTOR ELECTIONS.
This provision would end the practice of allowing brokers to vote the shares they hold under management in uncontested elections if the owner of that share does not provide voting instructions within ten days of a company meeting. It is estimated that around three quarters of corporate shares are managed by brokers, and most of these votes are cast for management candidates. This provision, in conjunction with the majority voting requirement for uncontested elections, will give shareholders a tool to contest management candidates.
Not included in Schumer bill. The SEC voted on July 1, 2009 to approve a change to New York Stock Exchange rules that would eliminate broker discretionary voting for all elections of directors, whether contested or not.
INDEPENDENT CHAIRMAN OF THE BOARD OF DIRECTORS
This provision would require companies to split the Chairman and CEO roles. According to a recent policy paper published by the California Public Employees' Retirement System (CalPERS) endorsing independent chairmanships, independent chairmen more closely align corporate boards with shareowners, curb conflicts of interest, better manage the relationship between the board and CEO, and lead to the development of an independent board.
Included in the Schumer bill. Not included in the Administration's proposal on executive compensation, however the draft bill does include a provision requiring each board member serving on the compensation committee to independent.
Speech Text:
SHAREHOLDER APPROVAL OF EXECUTIVE COMPENSATION.
This provision would give shareholders an annual vote on the compensation packages of senior executives. During the 110th Congress, the House voted in favor of "say on pay" legislation sponsored by Chairman Frank by a vote of 269-134. The Obama Administration has endorsed the concept, and the Treasury Department is expected to issue rules requiring financial firms that have received federal assistance to give shareholders a vote on executive compensation plans.
Since introduction, this provision was enacted by the House of Representatives as part of H.R. 3269, Corporate and Financial Institution Compensation Fairness Act of 2009.
INDEPENDENT COMPENSATION ADVISERS.
This provision requires corporate boards that retain independent compensation advisers that report solely to the board of directors or the compensation committee. Firms that provide compensation advice in addition to other types of consulting services may have a financial incentive to approve compensation packages that make management happy, but that do not represent the best value for shareholders.
Since introduction, this provision was enacted by the House of Representatives as part of H.R. 3269, Corporate and Financial Institution Compensation Fairness Act of 2009.
CLAWBACKS OF UNEARNED PAY.
This provision requires that companies recover or cancel payments that were awarded to executives on the basis of fraud or faulty earnings statements. This is a common sense reform that ensures poor management is not rewarded.
Not included in the Schumer bill.
NO SEVERANCE AGREEMENTS FOR POOR PERFORMANCE.
This provision eliminates golden parachutes or other generous severance packages for executives that are terminated for poor performance. These agreements can otherwise provide executives at poorly performing companies with immediate access to stock options, continued health care coverage, and other perks that are not in shareholders' interests.
Not included in the Schumer bill. The Administration's principles on executive compensation state that golden parachutes should be examined to ensure they align with shareholder interests.
IMPROVED DISCLOSURE OF PERFORMANCE TARGETS.
During the current financial crisis, we have seen numerous examples of executives compensation packages that seem to be designed around the "heads I win, tails I still win" model, where executives have been awarded lavish bonuses despite poor corporate performance. This provision would improve shareholder access to the specific performance targets that are used to determine eligibility for bonuses and other incentive compensation.
Not included in the Schumer bill, but part of the Administration's principles on executive compensation. The SEC has approved a set of rule revisions requiring improved disclosure regarding compensation and corporate governance matters.
http://www.marketwatch.com/story/story/print?guid=404BF3D3-C2DF-46CF-9F71-747F9E26A0DB
Oct. 7, 2009, 6:00 a.m. EDT
Bills splitting role of chairman and CEO shifting in Capitol
Legislation would limit efforts to throw out rules empowering shareholders
By Ronald D. Orol, MarketWatch
WASHINGTON (MarketWatch) -- As Congress takes post-crisis steps to expand the power of shareholders, legislators are beginning to consider controversial bills that would separate the position of corporate chairmen and CEOs while ensuring that investors have a greater say in how directors are elected to company boards.
Backed by institutional investors and labor-backed public pension funds, Rep. Gary Peters, D-Mich., and Sen. Chuck Schumer, D-N.Y., have introduced similar bills that go beyond corporate governance provisions included in legislation approved by the House Financial Services Committee in July.
Rep. Barney Frank, D-Mass., and chairman of the Financial Services panel, is interested in the Peters bill, according to Frank's spokesman Steven Adamske. Congressional staffers familiar with the legislation went further and said the chairman has committed to vote on aspects of the bill, but that it is unlikely to be considered as part of the bank regulatory reform legislation already under consideration in the committee. They say it is more likely the bill would be considered next year.
The Peters and Schumer bills, which are widely opposed by the business community, would represent a major shift in power away from companies and toward shareholders.
One measure would prohibit a company's CEO from serving in the position of board chairman, a measure advocated by governance experts for years because of the influence executives wield over directors.
In addition, both Schumer and Peters also would allow shareholders to nominate a minority slate of director candidates to be put up for election on corporate boards using company proxy documents.
Backing up the SEC
The Securities and Exchange Commission in May proposed rules that would expand the power of shareholders employing an approach, known as "shareholder access," that is similar to the congressional measures.
However, congressional staffers argue that the SEC is unlikely to approve the legislation until next year, in part, because of concerns that the rule would be overturned by litigation launched by the U.S. Chamber of Commerce.
SEC Chairman Mary Schapiro told Peters at a congressional hearing that his legislation would make it less likely an agency shareholder access rule, which she backs, would be overturned.
Richard Ferlauto, director of pension policy for the American Federation of State, County and Municipal Employees, said statute would be "prophylactic" against litigation. "We think it is pretty clear that the current rule fits within the current powers of the securities act," Ferlauto said. "But to clarify the authority that the SEC has it would be helpful to see additional explicit language through legislation."
Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, agreed that statute would make it less likely for a lawsuit to succeed in overturning the rule.
However, he argued that a flexible company-specific access approach set up in Delaware as of Aug. 1, makes more sense. "Federal rules will work against investors," Elson said.
Majority vote
Both Peters and Schumer would also require corporations to have directors elected by a majority of shareholders in uncontested elections, a measure that would empower investors who employ so-called "just vote no" campaigns to oust executives from corporate boards.
The provision would require directors to receive more than 50% of the vote of participating investors to be re-elected. Existing regulations allow directors to be re-elected in uncontested elections with just one share voting for them. So, presumably, a director can own one share, vote for themselves and they are re-elected using the existing rules.
With majority vote, an approach already applied voluntarily by roughly two-thirds of S&P 500 corporations, a losing director would need to submit their resignation to the board, which could accept or reject it.
However, based on the Peters legislation, shareholders would be eligible to nominate their own director candidates for corporate boards, using company documents, in situations where boards keep directors that were opposed by the majority of investors.
Peters' and Schumer's legislation would build upon a bill empowering shareholders approved by the House Financial Services Committee in July. That measure, which among other provisions would give investors a controversial public say on executive compensation, will be included in broader bank regulatory reform legislation.
In addition to governance measure, the Peters bill requires companies to recover payments made to executives based on fraud or faulty earning statements, and sets up a procedure for companies to hire independent compensation committees. Schumer doesn't have these pay provisions in his bill.
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