Bill Targets Executive Compensation
Investor groups rallied around legislation introduced Thursday that would require companies to reveal more details about executive salaries and perks and would give shareholders the power to block pay plans, bonuses and "golden parachutes."
The Protection Against Executive Compensation Abuse Act, sponsored by Rep. Barney Frank (D-Mass.), takes aim at what shareholder activists say is their next big target -- pay for chief executives.
Since the Enron Corp. scandal broke four years ago, the government has tightened rules related to corporate accounting, conflicts of interest and executive oversight. But compensation issues have been left to corporate boards.
In introducing the legislation, Frank said that executive pay took an increasing bite out of shareholder returns but often bore little relation to a company's financial performance.
He cited a study showing that in 2003 the top five executives at each U.S. public company received compensation that on average amounted to 10.3% of their employer's profit, up from 4.8% in 1993.
"This is not an assault on corporate America," Frank said, acknowledging that his measure would face strong opposition from business. "It empowers stockholders to get a handle on pay. This is all about enlightened self-interest. We're telling companies you have to do a better job. But we are not prescribing a particular solution."
The Business Roundtable, a lobbying group for large companies, said it would oppose the measure -- although spokeswoman Tita Freeman said it hadn't reviewed the proposal carefully enough to articulate why.
Frank's bill drew immediate support from leaders of groups representing mutual funds and other large investors, including the Council of Institutional Investors and Institutional Shareholder Services, as well as the AFL-CIO.
The bill would require publicly traded companies to:
* Provide all details about how much executives earn in cash, incentives and perks each year, and submit the packages for shareholder approval. The measure effectively gives shareholders veto power over excessive pay packages, said Nell Minow, an editor at Corporate Library, a pro-investor research firm.
* Disclose the full market value of company-paid perks, such as an executive's personal use of a company jet.
Under current rules, companies need to report only "the incremental cost" of perks that are valued at more than $50,000 in their annual proxy statements. Any benefit that is worth less than $50,000 can be ignored, even when there are dozens of them.
