Financial Reform Watch

The Treasury Department today released draft legislative language that would require all public companies to hold annual, non-binding shareholder votes on executive compensation packages as well as impose stricter standards to ensure the independence of corporate compensation committees. The "Say on Pay" proposal is modeled after a rule the United Kingdom adopted in 2002. Starting December 15, 2009, proxy materials will have to include tables summarizing the salary, bonus, stock option awards, and total compensation package for senior executives and also narrative explanations of any golden parachute and pension compensation packages. In the event of a merger or acquisition, companies will need to hold separate votes on golden parachutes and must lay out simply and clearly what the departing executives will receive.

To ensure the independence of corporate compensation committee members, the legislation calls for "exacting new standards" modeled on how Sarbanes Oxley established the independence of audit committees. The provisions would require compensation committees to be granted the funding and authority necessary to hire compensation consultants, legal counsel, and other advisers—all of whom should be independent of the company's management—to help the committee negotiate pay packages that are "in the best interests of shareholders."

Financial Reform Watch will be tracking this legislation as it moves through Congress.

Treasury: Proposed Legislation re Executive Compensation or "Say on Pay" (PDF)