WASHINGTON — Lawmakers clashed Thursday over the idea of giving shareholders a voice in approving executive pay, while a top regulator scolded companies for failing to deliver the clear-cut pay disclosures now expected by the Securities and Exchange Commission.
After a House hearing, Rep. Barney Frank (D-Mass.), chairman of the Financial Services Committee, said his panel would vote this month on a bill that would require all companies to allow shareholders to vote annually on pay deals approved by directors, as well as on "golden parachutes" for departing executives when a company faces a possible takeover.
The shareholder votes, which would be non-binding, would be based on information that the SEC last year ordered companies to provide under a plan to give clarity to compensation packages that often are brimming with special retirement deals and other goodies -- many of which have been poorly disclosed to shareholders in the past.
The SEC action "makes it easier to go forward," said Frank, who has asserted that shareholders have the right, and the wisdom, to have a say in what is appropriate pay for executives.
Yet Christopher Cox, chairman of the SEC, told a separate audience Thursday that some companies weren't abiding by the spirit of the new pay-disclosure rule, which requires explanations of compensation packages in "plain English."
"While we're giving people some grace in getting used to the new rules, the 'plain English' part of our executive compensation will be increasingly strictly enforced in the years ahead," Cox told an audience at Georgetown University's Law Center.
He criticized companies for "slavish adherence to boilerplate disclosure." Cox did not identify any of the firms that had prompted his remarks.
Executive pay levels have become a hot topic in recent years as compensation and perks have soared. Critics contend that lavish pay deals can motivate managers to worry too much about enriching themselves rather than doing what is in shareholders' long-term interest.
Some experts testifying at the hearing applauded the advisory-vote approach and said shareholder oversight worked well to keep pay reasonable in Britain, where such votes are commonplace.
"This is a light-touch way in which we can really make capitalism work," said Stephen M. Davis, a fellow at the Yale School of Management.
But John J. Castellani, president of the Business Roundtable of major U.S. corporations, opposed the idea.
"Corporations were never designed to be democracies, and their decision-making process was not designed to be like a New England town hall meeting," Castellani said.
Critics also said the threat of shareholder rejection of pay deals, even if non-binding, could encourage talented executives of public companies to jump to jobs at private firms or take their companies private.
Although Frank's proposal stands a good chance in the Democrat-controlled committee, some members raised objections.
Rep. Scott Garrett (R-N.J.) worried the proposal could pave the way for more intrusive government involvement in corporate pay decisions.
He compared Frank's proposal to "the camel's nose under the tent -- and I just wonder where we might go next."
Rep. Spencer Bachus (R-Ala.), the panel's senior Republican, acknowledged that he frequently heard complaints about executive pay from constituents, and that he himself wondered if money spent on costly pay deals would be better directed into such areas as research and equipment that could boost U.S. competitiveness.
But he said he had "an abundance of caution" about Frank's plan. "I will listen [to witnesses], but I will listen knowing even if there is a problem, there may not be a government solution that makes it any better."
Activist shareholders are taking the advisory-vote proposal directly to a number of major companies this year.
Resolutions to give shareholders a say on pay levels have been filed with more than 60 companies for this spring's annual-meeting season, compared with seven last year, according to the American Federation of State, County and Municipal employees, which has been spearheading the effort.