The U.S. House of Representatives voted today to require public companies to hold annual "say on pay" advisory votes on executive compensation.
The bill, the "Corporate and Financial Institution Compensation Fairness Act of 2009," passed by a 237-to-185 vote, with most Democrats supporting the legislation. Just two Republicans voted for H.R. 3269, while 16 Democrats opposed the measure. The overall margin of support was less than in 2007, when 269 House members supported similar advisory vote legislation.
This year's bill also calls for financial firms with more than $1 billion in assets to provide more disclosure on incentive pay, and directs regulators to prepare rules to deter "inappropriate or imprudently risky compensation practices." In addition, the bill would impose stricter independence standards on compensation committees and authorize pay panels to retain their own independent consultants.
Lawmakers voted along party lines to reject an amendment from Republican Rep. Scott Garrett of New Jersey that would only require an advisory vote once every three years and would allow companies to opt out of advisory votes for five years if they obtained a two-thirds investor vote.
"We have found out what happens when there are no rules, when there is no oversight, when there is no watchdog," Rep. Brad Miller, a Democrat from North Carolina, said during floor debate on the bill, according to the Dow Jones news service.
Republicans criticized the legislation as another example of government intervention into private business. The bill would "take away the rights of individual companies to conduct business as they see fit," said Rep. Michael Castle, a Delaware Republican, according to The New York Times.
The bill's prospects for becoming law appear to be good. The Obama administration supports annual advisory votes, while Senator Christopher Dodd, who chairs the Banking Committee, pushed for requiring pay votes at federally supported financial firms earlier this year. The Senate will likely consider advisory vote legislation after it returns from its August recess in September.
The House bill no longer has a Dec. 15, 2009, deadline for companies to start holding advisory votes. The legislation now directs the Securities and Exchange Commission to issue final rules within six months of the date of enactment; the pay vote requirement would apply to all shareholder meetings held more than six months after final rules are released. Assuming the bill is not enacted until mid-September, and the SEC permits a 60-day comment period before finalizing rules, it appears that most companies with spring 2010 meetings will not be required to conduct advisory votes.