The Obama administration offered legislation Thursday that would require publicly traded companies to give shareholders a non-binding vote on the compensation of CEOs and other highly paid executives and to vote on exit packages, known as golden parachutes, at the time of a merger or acquisition.
Gene Sperling, a senior adviser to Treasury Secretary Timothy Geithner, predicted the say-on-pay legislation will pass easily and in time for shareholder votes on CEO pay during the 2010 spring proxy season. It would be required of any company holding an annual meeting after Dec. 15, 2009. Shareholders would vote on CEO pay every year.
Pro-business groups, including the U.S. Chamber of Commerce and the Business Roundtable, are against the legislation. More liberal groups, such as the Institute for Policy Studies, say the legislation doesn't go far enough, because the shareholder vote would be non-binding.
The final decision regarding executive pay will remain with the board of directors. Sperling says that the law strikes the right balance and that the United Kingdom passed a similar law in 2002 that subsequent studies have shown is effective in aligning executive pay with companies' long-term prospects.
A USA TODAY survey of 31 CEOs in June found 77% oppose say-on-pay legislation. Most said it leads to micromanagement by shareholders when a board of directors should make such decisions. They say shareholders now can request a say-on-pay vote through the resolution process, but shareholders at only 24 companies have passed such resolutions.
"I wonder if the congressmen backing this legislation would propose similar laws governing their own compensation," Steve Hafner, CEO of travel search engine Kayak told USA TODAY. "I'd love to vote on congressional pay and perks."
Asked Thursday if the administration would support a public vote on the pay of elected officials, Sperling said: "In a democracy, we can remove people if we think their votes are incorrect."
Insurance company Aflac adopted say on pay two years ago. Shareholders approved the pay of CEO Dan Amos by 93% in 2008 and by 97% this year when Amos declined a $2.8 million bonus.
Sperling detailed separate legislation intended to make the compensation committees that determine executive pay more independent and to let them hire pay consultants who have no relationship to corporate management.