At a time when extravagant executive compensation on Wall Street has attracted widespread criticism, the US lawmakers have passed a bill that will provide greater say for shareholders in pay packages for the top company officials.
The bill would be applicable to financial institutions having assets worth more than $ one billion and also require them to disclose compensation structures that include incentive-based elements.
The US House of Representatives passed the bill ‘Corporate and Financial Institution Compensation Fairness Act 2009’ on Friday.
It came a day after a detailed report from New York Attorney General Andrew M Cuomo showed that nine leading American banks doled out nearly $33 billion in bonuses last year even as they were staying afloat on Federal funds.
The Bill was passed by the House by a vote of 237 to 185, according to a statement posted on the website of the House of Representatives. “Providing shareholders with a say on executive pay will enhance accountability, responsibility and transparency in corporate America.” “It will help prevent the irresponsible excesses that fostered a Wall Street culture of greed and imprudent risk taking,” Speaker Nancy Pelosi said. Wall Street pay has come under fire in the wake of the worst financial turmoil in nearly 80 years. The Act would be in place for all public companies and requires annual shareholder advisory vote on compensation.
Moreover, the Bill would make it mandatory for all financial institutions with more than $ 1 billion in assets to reveal incentive-based compensation plans. The entities falling under that category include banks, bank holding companies, broker-dealers, credit unions, investment advisors, Fannie Mae & Freddie Mac (mortgage lenders).
According to the Attorney General’s report, nine banks which received Federal funds worth $ 175 billion, shelled out $32.6 billion as bonuses to their employees in 2008.
“There is no clear rhyme or reason to the way banks compensate and reward their employees...Even a cursory examination of the data suggests that in these challenging economic times, compensation for bank employees has become unmoored from the banks’ financial performance,” Cuomo said.
The big banks which shelled out billions of dollars as bonuses include Goldman Sachs, Citigroup, JPMorgan and Bank of America.
“Empowering financial regulators to prohibit risky bonus practices by financial firms is not only long overdue, but the responsible thing to do for the taxpayers, who have ended up footing the bill for too many corporate excess,” Pelosi said.
