Shareholders can register views on executive pay

By Marcy Gordon

AP Business Writer

WASHINGTON (AP) -- Federal regulators are giving shareholders at large public companies the right to register their opinions on executive pay at least once every three years.

The Securities and Exchange Commission adopted the rule Tuesday by a 3-2 vote. It also lets shareholders decide if they want to vote every year, every other year or once every three years. Voting would begin this year.

The votes on pay packages will occur as part of the proxy process, the annual ballot that shareholders use to elect boards of directors. The financial overhaul law enacted last summer gave shareholders a non-binding vote on executive compensation. But lawmakers left it to regulators to determine how often they should vote.

Shareholders at smaller public companies, with market value of $75 million or less, will begin voting in 2013.

The new rule also requires a separate non-binding vote on "golden parachute" severance packages for executives if there is a merger or acquisition of the company and the severance packages have been changed since shareholders' previous vote on pay. The amounts of money the executives receive will have to be clearly disclosed to shareholders.

Investor advocates, shareholder groups and union pension funds have pushed for the vote for years. Business interests and corporate executives have opposed it.

Lawmakers and government officials have blamed outsize pay packages for encouraging disastrous risk-talking and short-term gain at companies at the expense of long-term performance. They say that by rewarding executives' risky decisions with lavish pay packages, the compensation system helped fuel the financial crisis. But they also have insisted that the government doesn't want to dictate how companies reward their executives.

Proponents of shareholder input on pay say that even though they aren't enforceable, the votes send a message to company boards, encouraging corporate directors to approve pay packages that reward long-term performance rather than short-term gain.

Executive compensation has been a hot-button issue with the public and in Congress. It took on greater intensity with revelations during the financial crisis (in early 2009) that insurance conglomerate American International Group Inc. had paid bonuses of $165 million to employees even as it accepted billions in federal bailout aid.

Also at Tuesday's meeting, the SEC voted 5-0 to propose a rule requiring managers of hedge funds and private equity funds to report information for use by a new council of regulators to monitor potential risk to the financial system

Published: Thu, Jan 27, 2011

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