WASHINGTON (CN) – The Treasury Department delivered draft legislation to Congress Thursday that it says would require public companies to give shareholders a non-binding vote on executive compensation and would enhance the independence of compensation committees, legislation dubbed “say-on-pay.”
The proposed legislation would take effect after December 15 and would put total executive compensation to a vote, including golden parachutes, stock options, bonuses, and of course, base pay.
Even though the vote is non-binding, the Barack Obama administration claims a similar program has had success since its 2002 establishment in Great Britain. The administration said in a written statement that say-on-pay has made public corporations more competitive and has lowered the risk for investors.
A substantial 46.7 percent of shareholders favor a say-on-pay system, the statement says.
Other language in the bill would secure the independence of executive compensation committees, which are sometimes susceptible to conflict of interest. Members on the committee can benefit sometimes from the decisions of executives.
In an effort to remedy those problems, the legislation would apply stricter standards for independence, requiring that outside compensation counsel be independent from the executives, and giving compensation committees the right to hire independent consultants.