The House of Representatives in a
237-185 vote approved a bill that would give shareholders of public companies annual advisory votes on executive compensation and requires regulators to set disclosure requirements and incentive-based compensation standards for financial institutions with more than $1B in assets
The bill,
H.R. 3269, the Corporate and Financial Institution Compensation Fairness Act of 2009, passed the House a day after a
report by the New York Attorney General's office detailing the 2008 bonuses paid to executives at nine of the financial institutions that took billions in government money under the Troubled Asset Relief Program.
The bill would also require public companies' compensation committees be made up of independent directors, would require compensation consultants to satisfy independence criteria established by the Securities and Exchange Commission, and would require all "financial institutions" with more than $1B in assets to disclose any incentive-based payment arrangements. The bill also calls for a GAO study of the correlation between compensation structure and excessive risk-taking.
The bill must still pass the Senate.
Meanwhile, a forthcoming survey shows that many companies aren't doing anything to prepare for so-called say-on-pay votes.
Preliminary results of a SOP survey due out shortly by compensation consultancy Pearl Meyer & Partners, shows that nearly 70 percent of 127 respondents haven't taken any steps to prepare for a "Say-on-Pay," and only a quarter say their companies are either "prepared" or "very prepared" for such votes.
Just 7 percent of respondents say they're "very concerned" about a SOP vote, while more than half are either "somewhat concerned" or "not at all concerned." Meanwhile, 44 percent say they expect an SOP requirement in the 2010 proxy season.
"At this point it doesn't appear that there's a tremendous amount of concern around SOP," says Michael Enos, a managing director in PMP's Boston office. That's somewhat surprising, says Enos, since the pay decisions being made about 2009 pay could potentially be subject to a shareholder vote as early as next year.
"Given that the TARP companies that had to implement say-on-pay votes this year were caught by surprise and had to scramble to put it in the proposals, you'd expect people to learn from that," says Enos.
Since it appears to be "a matter of when, not if" the votes become mandatory, Enos says companies should at least take some steps to prepare. "They seem to be moving fast on this legislation, so I wouldn't be surprised if this affects at least some companies in 2010."
For instance, he suggests companies look at their current comp programs to see if there's anything that would be perceived as poor pay practices. He says one such issue is gross-ups related to change-of-control arrangements and gross ups on perks. Other hot-button issuse include the overall amount of compensation provided to executives and the difference between the amount paid to the CEO versus the amount paid to other executives. Enos says RiskMetrics Group's list of poor pay practices is something all companies "should look at, given their pull with institutional investors."
Additionally, he suggest companies talk now with their institutional investors about their views on SOP and how they'd vote, and review their Compensation Discussion & Analysis to make sure it's clear and that investors understand the key aspects of the company's compensation program. Enos also suggests companies keep abreast of SOP votes at TARP. So far, he says he hasn't seen any against votes.