M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Friday, July 31, 2009

Say-on-Pay Starting to Move

Rep. Barney Frank’s “say-on-pay” bill, also known as the Investor Protection Act of 2009 (Title IX, Subtitle D of the Financial Regulatory Reform package), is making some headway.  It’s expected to get a vote on the floor of the House this morning.  The bill will amend Section 14 of the 34 Act.  The bill requires that all members of the comp committee will be independent and strengthens compensation committee powers.  

In addition, it requires a separate, annual non-binding vote to approve the compensation of executives.   In connection with a merger or acquisition, boards will be required to seek a separate, non-binding vote to approve golden-parachutes or other change of control payments.

 On the other hand, Prof. Charles Elson argues that shareholders should be careful what they wish for.  Say on pay may not be a panacea.  Evidence from the UK experience where say-on-pay has been in place since 2002 suggests that say-on-pay doesn't stop the increase in size of pay packages.  They have continued to increase there in spite of say-on-pay.

In any event, one should expect NY Attorney General Andrew Cuomo's new report on executive compensation to add more fuel to the fire.  The report, No Rhyme or Reason: The "Heads I Win Tails You Lose"  Bank Bonus Culture, is all fire and brimstone.  From the executive summary: 

"When the banks did well, their employees were paid well. When the banks did poorly, their employees were paid well. And when the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well."




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