Human Capital & Careers

House Votes Yea to “Say on Pay”

Although Barney Frank's bill would give shareholders a nonbinding vote on executive compensation, opponents worry the votes could carry too much we...
Sarah JohnsonApril 20, 2007

In a 269-134 decision, the House of Representatives voted to give shareholders a nonbinding, advisory vote on senior executives’ pay packages. The bill was passed on Friday despite opposition from business advocates and lack of widespread support for similar shareholder proposals at companies this proxy season.

House Financial Services Committee chairman Barney Frank reintroduced his “say on pay” bill less than two months ago. Considered one of his top priorities, the Massachusetts Democrat quickly pushed the legislation through to the House floor after getting through heated discussions among both political sides of his committee, which passed it 37-29 in late March.

Proponents of Frank’s bill — which failed to get past the committee stage last year — say it simply gives shareholders a venue for voicing their opinion on executive-compensation plans. But opponents, including such business-friendly heavyweights as the Chamber of Commerce and the Business Roundtable, worry about how loud that voice would be. Companies that disagree with the investors’ decisions would be hard-pressed to ignore an official public “no” vote from shareholders. On the other hand, say supporters of the measure, shareholders could vote in favor of giving an undervalued executive a raise.

In the handful of say on pay shareholder proposals placed in front of big-name companies this year, all have failed to garner enough support for passage. Still, investor groups and union pension funds — such as the American Federation of State, County and Municipal Employees — have managed to make their proposals a hot-button issue. “We are pleased with the progress,” says Richard Ferlauto, director of pension and investment policy at AFSCME. “There’s growing momentum for the concept, shown by the bipartisan vote in the House today.” Of the 269 votes in favor of Frank’s bill, 55 were from Republicans.

More than 60 shareholder say on pay proposals are expected to reach a vote this year, largely outweighing last year’s tally of 7, according to Institutional Shareholder Services. Support for last year’s shareholder resolutions averaged 40 percent, an outcome that’s in line with recent votes at Bank of New York, Citigroup, Coca-Cola, Morgan Stanley, and Wachovia. Twelve more proposals are up for a vote this month at other companies, including Apple, Capital One, Merrill Lynch, and Wells Fargo.

Earlier this year, Aflac won high praise from institutional investors and positive publicity when it decided to give shareholders the right to an advisory “yes” or “no” vote on top executives’ pay packages starting in 2009. Other companies are taking a “wait and see” approach as the effects of the Securities and Exchange Commission’s new disclosure rules for executive compensation have yet to be realized, according to Manan Shah, an associate at law firm Jones Day. “We need to take a step back and wait to see how companies follow the new rules, which require extensive details,” he told

Only a few months old, the disclosure rules could appease the concerns of shareholders, who have accused some underperforming companies of granting undeserved, excessive pay packages to their CEOs and other top executives, according to business advocates. However, according to Ferlauto, the recent compensation discussion and analysis reports recently put out by companies are too lengthy and unclear for shareholders to truly grasp whether pay packages are justified.

Opponents of Frank’s bill have asked the congressman to hold off on the legislation to see if the SEC rules would make a difference. Frank has retorted several times that his bill — only a few pages long — is simple and focused. The sole purpose of the measure, he has said, is to give shareholders the right to voice their concerns about executive pay packages. Set to be put in effect for shareholder meetings after January 1, 2009, the bill says “the shareholder vote shall not be binding on the board of directors and shall not be construed as overruling a decision by the board.”

The bill could carry more weight than Frank lets on, according to Mary Ann Jorgenson, a partner at Squire, Sanders, & Dempsey LLP. The measure could lead to shareholders wanting more say in other areas where they lack expertise, such as where a company is headquartered. It also puts shareholders in the position of basing their opinion in an area where they may not have all the facts. “When you’re not in the room and you haven’t had the conversation with the compensation consultant and you haven’t talked to the head of human resources and aren’t privy to all the due diligence that the compensation committee goes through to make its recommendation to the board, that’s a very wrenching situation,” she told “The shareholders are simply not in sync with the process.”

The bill’s future is unclear, since the Senate has not yet introduced companion legislation. President Bush said earlier this week that he does not think Congress should be involved in how executive compensation is approved.