On Thursday, the U.S. Treasury Department delivered draft legislation to Congress that would require all public companies to hold an annual advisory vote on compensation. The bill also calls for separate votes on "golden parachute" payments when shareholders vote on mergers or other transactions.

The annual vote would include pay packages for a company's senior executive officers, including the tables summarizing their salaries, bonuses, stock and option awards and total compensation, as well as summaries of golden parachute and pension compensation and the narrative explanation of the board's compensation decisions.

The press release announcing the legislation cited the perceived success of advisory votes in the United Kingdom in increasing dialogue and engagement that have led to pay modifications, as well as the "restraint" shown by investors in that market and the London Stock Exchange's touting of these votes as a competitive edge in attracting capital. While some U.S. companies have agreed to conduct annual pay votes, most have not, the Treasury noted, despite increasing support for the idea from investors.

In related draft legislation, the Treasury called for Congress to take steps to ensure that compensation committees are "independent in fact, not just in name." If enacted, this bill would implement three requirements to that end. First, it requires that members of the compensation committee meet new standards for independence, just as Sarbanes-Oxley did for audit committee members. Second, to ensure that committees are receiving objective advice, any compensation consultants and legal counsel the committee hires would have to be independent from company management. Finally, the legislation requires that compensation committees be given the authority and funding to hire such independent compensation consultants, outside counsel, and other advisers who can help ensure that the committee bargains for pay packages in the best interests of shareholders. At the same time, if the committee decides not to use its own compensation consultant, it would have to explain that decision to shareholders.

Citing academic studies, as well as recommendations from the National Association of Corporate Directors and the Business Roundtable, the Treasury said, "Providing compensation committees with access to independent consultants can level the playing field in a way that protects shareholder interests."

The House of Representatives, which passed advisory vote legislation in 2007, likely will act on the Treasury's legislative proposals soon. Rep. Barney Frank, chair of the House Financial Services Committee, told reporters on Thursday that his panel plans to consider advisory vote legislation in late July, according to the Reuters news service.

While it's unclear when the Senate will address the issue, Senator Christopher Dodd, who chairs the Senate Banking Committee, was the main proponent of requiring federally supported financial firms to hold advisory votes this year.