Law aims to rein in executive pay

WASHINGTON – The Obama administration proposed legislation Wednesday to empower shareholders and the Securities and Exchange Commission to exercise more oversight over executive compensation at all publicly traded firms.

Under a so-called “say-on-pay” proposal, shareholders would be given the right to vote each year on whether an executive compensation package should be approved. While the results would be non-binding, administration officials say they hope the effort would pressure firms to rein in lavish pay. Companies would also be required to submit vote tallies in a filing with the SEC.

A second proposal would authorize the SEC to ensure that compensation committees at companies act independently in setting executive pay. Members of these committees would not be able to take any fees from their respective firms other than what they make for serving on the panels. Attorneys or consultants that help members in their work must be hired by and report to the committee rather than the chief executive of a firm.

Draft legislation on the proposals is expected to be sent to Capitol Hill soon, officials said. While in the Senate, Obama co-sponsored similar say-on-pay legislation, which was stiffly opposed by big corporations.

Treasury Secretary Timothy Geithner said the government does not have interest in “capping pay” or “setting forth precise prescriptions for how companies should set compensation.” Instead, the administration is taking aim at pay practices that motivated executives to take excessive risks in the pursuit of profits.

As early as today, the administration may separately unveil its long-awaited ruling on how much executives can be paid by firms that have taken federal bailout funds.

A new member of the administration, Washington attorney Kenneth Feinberg, will have broad authority to set the salary and other compensation for top earners at some of the nation’s most troubled companies that have taken large amounts of federal aid. At least seven firms fall under this category, including Citigroup, Bank of America, Fannie Mae, Freddie Mac, American International Group, General Motors and GMAC, which provides loans to the automaker’s customers.

Feinberg will have the authority to set overall compensation, but not precise salary levels, for scores of other firms that have received smaller amounts of bailout money. The goal, officials said, is to curb the practice of tying pay to performance in a way that induces traders and executives to take big risks. Feinberg can also decide whether executives who have received excessive compensation should return some of that money.