On Feb. 16, the U.S. House Financial Services Committee voted overwhelmingly to approve a bill that would exempt newly public companies from holding say-on-pay votes for five years. A similar bill has been introduced in the Senate and has attracted bipartisan support.

The House bill, the "Reopening American Capital Markets to Emerging Growth Companies Act," H.R. 3606, would create a new class of issuers, "emerging growth companies," that would be exempt from the Dodd-Frank Act-mandated advisory votes for five years, or until they reach $1 billion in annual revenue or $700 million in public float. These companies also would be exempt from holding separate shareholder votes on "golden parachute" severance arrangements.

The bill would also excuse these emerging companies from Section 953(b) of the Dodd-Frank Act, which would require disclosure of the ratio between a CEO's total compensation and that of the firm's median employee. These companies also would be spared from the Sarbanes-Oxley Act's requirement to hire an outside auditor to attest to the sufficiency of their internal financial controls.

Proponents of the legislation argue that it would reduce the compliance costs for new companies without sacrificing investor protections. "With passage of this bill, small companies considering going public will get the extra break they need to go forward. Small businesses are the real job creators and this bill will help them move forward with their goals so they can expand, hire employees, and put Americans back to work," Rep. Stephen Fincher, a Republican from Tennessee, said in a press release.

Rep. Keith Ellison, a Democrat from Minnesota, offered an amendment to remove the exemption for say-on-pay votes, but that measure was defeated, according to Jim Hamilton's "World of Securities Regulation" blog. The committee did accept another Ellison amendment to make clear that companies have to hold a pay vote within a year after they no longer qualify as an emerging growth company, according to Hamilton's blog.

Under current SEC rules, smaller reporting companies (those with less than $75 million in public float) are exempt from say-on-pay votes until January 2013.

In response to the House bill, say-on-pay proponents point out that the benefits of advisory votes outweigh the costs. "Say-on-pay has already proved itself to be an important and helpful tool for investors seeking a formal means to register support or concern about executive compensation," said Tim Smith of Walden Asset Management.

"In addition, it is a reasonable vehicle for sending feedback on pay, much better than the blunt instrument of a vote against the compensation committee of the board. It has not proved to be an onerous exercise since the [SEC's proxy rules] already require significant reporting on pay, which is where the hard work begins. The advisory vote simply allows investors to register if they believe the compensation committee got it right," Smith said.

Americans for Financial Reform (AFR), a coalition of consumer and investor groups that includes the AFL-CIO, has urged the Senate Banking Committee to reject the emerging company legislation. The coalition criticized the auditor attestation exemption and noted that say-on-pay votes have nothing to do with eliminating barriers to new IPOs.

"We strongly oppose this bill, which legitimizes the idea that companies should be allowed to go public and raise money from average, retail investors without being able to meet basic standards designed to ensure that they provide those investors with accurate and reliable information on which to base their investment decisions," AFR argued in a Feb. 15 letter.