WASHINGTON — A House committee hearing on executive pay Thursday spotlighted the sharp partisan divide on the issue, with Democrats demanding reforms and Republicans warning against any meddling with the free-market system.
The House Financial Services Committee hearing was sought by Democrats, who are backing legislation that would allow shareholders of public companies to veto executive pay packages.
But Rep. Richard H. Baker (R-La.), who ran the hearing, used his opening remarks to focus on another issue -- shareholder lawsuits claiming corporate malfeasance.
Baker announced plans for legislation that would make it more likely for lawyers who file and lose shareholder suits to get stuck with the legal bills incurred by defendants. Such lawsuits, he said, undermine the global competitiveness of American corporations.
Baker cited recent allegations of corruption at an influential securities law firm, Milberg Weiss Bershad & Schulman, as a sign of deeper problems.
"The indictment is troubling, but it [shows] our system is in need of reform," Baker said, alluding to last week's 20-count indictment against Milberg Weiss on bribery, fraud and other charges.
Democrats, however, were hoping to use the hearing to call public attention to a bill by Rep. Barney Frank (D-Mass.) that would empower shareholders to vote on executive pay packages.
"We have a situation where pensions are underfunded, where healthcare is being cut back, where wages for working people are getting frozen -- and yet we have some CEOs getting an enormous amount of money," Frank said.
He contended that shareholders would only rarely vote to reject pay plans.
"For the great bulk of corporations where everything is fine, this won't be a factor," he said.
Frank said he had invited prominent, well-paid executives to testify, including former Exxon Mobil Corp. Chairman Lee Raymond, who received a $400 million retirement package. None of those invited responded, he said.
Under Frank's bill, public companies would be required to submit detailed plans for executive compensation -- including cash, stock options, special benefits and incentives -- to their shareholders for approval.
The measure goes further than an initiative from the Securities and Exchange Commission that would toughen disclosure rules for executive pay.
Thomas J. Lehner, director of public policy at the Business Roundtable, a lobbying group, said the bill would set a dangerous precedent. "If we adopted a system where small groups of activist shareholders used the process to politicize corporate decision making, the consequences could very well be destabilizing," he said.
Nell Minow, editor in chief at Corporate Library, a research firm that promotes shareholder rights, contended that legislation is needed because top executives are able to stack their corporate boards with friendly directors who won't question outsized salaries.
With the GOP controlling Congress, Democrats are hoping that public outrage over rich executive pay packages will persuade some Republicans facing uphill reelection bouts to back the Frank bill.
But so far, they are still waiting for converts.
Thursday's hearing was "a wonderful display of socialism versus capitalism," said Rep. Patrick McHenry (R-N.C.). "And I'm proud to say I embrace capitalism."