Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Friday, July 17, 2009

Treasury Proposes Say on Pay Legislation

On July 16 Treasury announced that it delivered draft "say-on-pay" legislation to Congress that would require all publicly traded companies to give shareholders a non-binding vote on executive compensation packages. This legislation would require a non-binding annual shareholder vote on compensation for all public companies.  All public companies will be required to include a non-binding shareholder vote on executive compensation as disclosed in the proxy for any annual meeting held after December 15, 2009.
Compensation subject to the vote includes pay packages for senior executive officers. The disclosures that would be subject to the say-on-pay vote include tables summarizing salary, bonuses, stock and option awards and total compensation for senior executive officers, as well as summaries of golden parachute and pension compensation and a narrative explanation of the board's compensation decisions.  The Treasury proposal is heavily influenced by the U.K. experience.

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The remuneration rules for financial firms adopted by the FSA earlier this week present an interesting contrast in approach - and perhaps will act as the next influence on our direction. Rather than looking to shareholders and regulators, the rules rely on a system of policies and procedures, mandated oversight by compliance and risk groups, and a set of commonsense policies. The FSA framework in fact seems to reflect the influence of the largely successful institution-based regulatory framework (CCO, policies and procedures, and periodic reviews) typically applied by the SEC.

The FSA model provides for detailed reviews by informed risk and compliance professionals with full access to business information and the time to perform an analysis. It also sidesteps the short term biases and potential for inflated risk preferences of the shareholders in “guaranteed” financial firms cited by John Coates in his testimony last month before the Senate hearing on Improving Corporate Governance. The FSA rules include provisions to protect the independence of the reviewers, though this clearly will remain a challenge.

I’ve summarized the rules, analyzed the differences in comparison to US proposals, and included a clip of Professor Coates in a post at

Posted by: Ron Diel | Aug 14, 2009 7:45:32 PM

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