WASHINGTON – The House of Representatives sent a message to corporate America’s plushest executive suites Friday: It’s time to put your pay packages to a vote.
Lawmakers voted 269 to 134 to require public companies to put executive pay packages before shareholders for an advisory vote.
Business groups lobbied against the measure, saying it would allow special interests – such as labor unions – to meddle in management decisions. The bill also faces opposition from the White House.
Shortly after the House vote, Democratic presidential hopeful Sen. Barack Obama, D-Ill., introduced a Senate counterpart to the House bill – suggesting that the issue could gain added prominence in the presidential race.
Supporters say the House vote succeeded in elevating popular displeasure with lavishly paid executives to a national issue of economic justice, alongside taxes, wages and trade.
“It’s a wake-up call for corporate America,” said Amy Borrus, deputy director of the Council of Institutional Investors. “Companies should take this matter seriously. It has a head of steam.”
The House vote is the latest in a series of developments that underscore growing concern over multimillion-dollar pay plans that sometimes bear little relation to performance.
The Securities and Exchange Commission approved stricter disclosure requirements that take effect this year in an effort to make executive compensation more transparent. Shareholder resolutions demanding advisory votes on compensation increasingly are common at corporate annual meetings.
Close observers maintain that the issue’s potency derives from a sense that average American workers are struggling to pay their bills and seeing their retirement and health benefits diminish.
“By every measure, there is increasing discontent in our country about income inequality generally – and CEO pay specifically,” said Damon Silvers, associate general counsel of the AFL-CIO. “I think passage of this bill is very significant.”
Under the House plan, which would take effect in 2009, the compensation of a company’s five top executives would be placed before shareholders each year for a nonbinding vote. Such a vote would force corporate boards to consider the repercussions of outsized pay packages before they approved them, advocates said.
Republican opponents argued that government should stay out of corporate affairs and that the bill could encourage companies to abandon public markets and become privately held.
Others argued that although the bill was narrowly centered on giving shareholders a say on pay, the real issue debated Friday was the widening pay gap between the worker cubicle and the executive suite.
Since the 1990s, executive pay has soared as rank-and-file workers have seen little growth in their wages.
In 1990, average pay for chief executives averaged 107 times the earnings of the average worker, according to United for a Fair Economy, a nonprofit advocacy group.
As of 2005, the average CEO was earning 411 times as much as the average worker, the group said.