Washington Post Staff Writers


Saturday, August 1, 2009

 

The House approved legislation Friday that would give shareholders
greater say over executive pay and expand the powers of regulators to
limit compensation packages that they deem improper.

The measure, which passed 237 to 185, came in response to public
outrage over massive bonuses paid out at big financial firms that took
billions of dollars in emergency aid from the government.

"Under this bill, the question of compensation amounts will now be
in the hands of shareholders and the question of systemic risk will be
in the hands of the government," said Rep. Barney Frank (D-Mass.), who
leads the House Financial Services Committee and who authored the bill.

The vote comes a day after New York Attorney General Andrew M. Cuomo
reported that the nation's nine largest banks handed out $32.6 billion
in bonuses last year even as they ran up more than $81 billion in
losses and accepted tens of billions of dollars in emergency federal
aid. Cuomo found that nearly 4,800 executives and other employees at
these firms were each awarded at least $1 million.

But some compensation experts said they doubted the measure would
reform the culture of extravagant pay that pervades Wall Street.

Rather than setting precise limits on what such firms can pay
employees, the House bill adopts a more indirect approach, taking aim
at the pay practices that encourage traders and executives to take big
risks. Regulators could ban pay packages but would not be able to clamp
down on compensation simply because it is considered lavish.

Pino Audia, a professor of organizational behavior at the Tuck
School of Business, said the bill could have done more to limit
companies' ability to change performance measures in order to maintain
pay levels.

The bill also gives shareholders the right to reject a pay package, but their vote would be advisory.

Corporate compensation committees, meanwhile, would have to sever
ties with management. Aspects of this provision have already been
adopted by Wall Street firms. The independence of compensation
committee members, for instance, is a requirement for companies to list
their shares on the New York Stock Exchange.

The measure would not apply to financial institutions with assets of less than $1 billion.

"The bill does not look deliberately

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