Congressman Barney Frank
Representing Massachusetts' 4th District

House Votes to Pass Frank’s Bill on Executive Compensation Reform
July 31, 2009

WASHINGTON, DC -- The House of Representatives voted today to pass a bill, introduced by Congressman Barney Frank, to restrain executive compensation practices which encourage excessive risk-taking at the expense of companies, shareholders and employees.

The bill would increase transparency by giving shareholders a “say on pay” -- an annual, non-binding vote on top executive compensation packages and "golden parachutes."  In Britain, where a similar law is already in place, corporate boards have responded to public scrutiny by offering somewhat less extreme compensation schemes.

The major intent of the legislation is to better align the interests of corporate executives with those of the corporations they serve.  At the height of the mortgage bubble, financial company executives had enormous incentives to make highly risky investments.  Many were rewarded lavishly, even after their companies faced catastrophic losses and were loaned billions by American taxpayers in an effort to prevent an economic meltdown.

“We have a system that says to people, take a risk because it’s is risk-free for you,” said Congressman Frank during a heated floor debate.”  That's the problem, it's risk-free for the individual but it's risky for the company.  And when you accumulate risks for companies, it's risky for the economy.  We say that if it's risky for the company and for the economy, it ought to be risky for the individual. We want an alignment of risk.

The “say on pay” provision in the bill applies only to public companies.  The Securities and Exchange Commission would be allowed discretion to exempt some categories of public companies, and take special consideration of the impact on smaller companies.  The bill also requires all financial institutions with assets over $1 billion to disclose incentive-based compensation structures.  A summary of the bill can be found here.

The Corporate and Financial Institution Compensation Act of 2009 (H.R. 3269) was passed mostly along party lines by a vote of 237-185.

For video of a portion of Mr. Frank’s remarks on the floor, click here.