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Public Statements

Shareholder Vote on Executive Compensation Act

Floor Speech

Location: Washington, DC



Mr. ROSKAM. Mr. Chairman, I yield myself such time as I may consume.

I rise, Mr. Chairman, in opposition to H.R. 1257. But first of all, I want to compliment the chairman and the ranking member who ran a very good process, had fruitful hearings, but nevertheless I think came up with a faulty product.

We all tend to sometimes argue in the alternative, picking and choosing those things that we want to focus on, and I find it ironic that the chairman has, in one way, this very, very high view of the marketplace and, in another way, demonstrates a fairly low view of the marketplace.

This is all about the level, Mr. Chairman, at which we choose to intervene. We saw the marketplace respond positively just a couple of weeks ago. Morgan Stanley, at their annual meeting, those shareholders decided not to take up this question of executive compensation. The same thing happened, Mr. Chairman, at the Bank of New York recently.

So what is the question before the House today? The question before the House is, when there is a difficult situation that comes forward, admittedly a difficult situation that the chairman recently called a fact of nature, and that is overly compensated executive employees, what does the House do? Does the House rush in?

I would suggest that the bill as presented currently is an overreaction. It is reaching in, and if we are going to be dabbling in this notion of executive compensation, Mr. Chairman, then I would suggest that we need to go all the way and try and take on other highly compensated employees.

What we will hear, I think, from the various speakers on our side of the aisle is trying to lay out a rationale, trying to lay out how we ought best to do this because I will tell you this. I think the great challenge before us as Members of the House is, how do we create the environment where people want to invest in our country, how do we create the environment where the best and the brightest among us want to go into public companies because I will suggest, Mr. Chairman, that the reaction of the past Congress or two on some of these things has unfortunately created an environment that is regulatorily very, very difficult, and it now creates among us the problem of people who say, look, it is simply not worth my time to go into a public company. I am one of the sharp ones; I am going to go into the private equities and so forth.

Mr. Chairman, I reserve the balance of my time.


Mr. ROSKAM. Mr. Chairman, just a couple of observations before I yield to my distinguished colleague.

You know, the gentleman from Georgia said that one of the goals of this legislation is that there be transparency and accountability. I would submit, I think there is a transparency and accountability in the current state of the law. The transparency comes in the disclosure of executive compensation, and the accountability comes in the ability to sell shares if you don't like it. That is a very, very, very powerful tool.

My friend from Missouri, the distinguished gentleman who spoke recently kind of criticized a number of individual CEOs. I'm not going to rise to their defense, and I don't think they really deserve defense. But it is an old adage of the law that if what we are doing is creating a statute toward an exception, we tend to make bad statutes.

What I would say is, look at the totality of what executive leadership has brought us. From 2002 to 2006, the market capitalization of American companies has risen to $8 trillion. That is something to celebrate and not something to criticize.

I yield 5 minutes to the gentleman from Texas (Mr. Paul).


Mr. ROSKAM. Mr. Chairman, I yield myself 1 minute.

Just kind of a point of interest, and that is, in response to Chairman Frank calling, observing Mr. Castle's quotation. And I would just point out that the distinguished gentleman from New Jersey has been sort of selective, I think, in the attributes of England that he finds attractive. One of those that he didn't find attractive apparently is a loser-pay litigation system which would also maybe drive part of that debate.

Mr. Chairman, I yield 2 1/2 minutes to the distinguished gentleman from North Carolina (Mr. Jones).


Mr. ROSKAM. Mr. Chairman, I yield myself the balance of my time.

I will insert into the Record three letters opposing this legislation by the U.S. Chamber of Commerce, HR Policy Association and American Bankers Association.



Washington, DC, April 18, 2007.
RE HR Policy Opposes H.R. 1257, Shareholder Vote on Executive Compensation Act.

House of Representatives, Rayburn House Office Building, Washington, DC.

DEAR REPRESENTATIVE BACHUS: On behalf of the HR Policy Association, I am writing to urge you to vote no on H.R. 1257, the Shareholder Vote on Executive Compensation Act, when the House considers it this week. We believe that the bill will have significant negative effects on corporate governance and will not appreciably increase shareholder input into the executive compensation process.

HR Policy Association is a public policy advocacy organization representing the chief human resource officers of over 250 leading employers doing business in the United States. Representing nearly every major industry sector, HR Policy members have a combined U.S. market capitalization of more than $7.5 trillion and employ more than 18 million employees world wide. Our members are especially concerned that a shareholder vote would undermine the authority of the Board of Directors with respect to compensation and is unnecessary as a tool to increase communications with shareholders.

At the outset, it is important to note that last year, the U.S. Securities and Exchange Commission completed an overhaul of its executive compensation disclosure regulations. The full effect of these changes on executive compensation practices will not be known until after the 2009 proxy season, the first year in which companies will have to present three years of data. At a minimum, the House should defer any action on the legislation until after the effect of the new rules can be fully evaluated.

The Association believes that H.R. 1257 would seriously erode the authority of the Board of Directors to determine appropriate executive compensation levels. Under our system of corporate governance, the Board manages the company on behalf of the shareholders. In turn, the shareholders have the right to vote on strategic matters, such as mergers, and remove directors if they believe the corporation is not being managed in the shareholders' best interests. This delegation of authority is necessary because of the considerable amount of detailed and confidential information that Board members must consider when making decisions regarding corporate strategy and executive compensation. Providing a shareholder vote on compensation would be unprecedented because it would provide a referendum on the results of the Board's decision, rather than on a framework for making decisions, as occurs in the case of shareholder authorization for equity compensation or mergers.

More importantly, a shareholder vote would potentially open up other Board decisions to a shareholder vote, such as the decision to pursue merger talks or settle certain lawsuits, thus substantially slowing the ability of the Board to make quick decisions and undermining competitiveness.

Fundamentally, an advisory shareholder vote would not provide meaningful information to companies about the practices shareholders find objectionable. It is simply an up or down vote, with no explanation attached, leaving substantial questions about its meaning. Under current law, shareholders already may file advisory resolutions with any publicly held company seeking changes in specific executive compensation practices. There is no need for legislation adopting a mandatory framework that will have a negligible impact on most of the 15,000-plus publicly held companies.

Counter to arguments made in support of the bill, new mechanisms of communications between companies and shareholders are not necessary. Most large companies already hold periodic meetings throughout the year with their largest shareholders on a variety of subjects, including compensation.

In addition, the shareholder vote concept has been imported from the United Kingdom, but the U.K. regulatory and legal systems are substantially different from those in the U.S., and the results of a shareholder vote are likely to be fundamentally different. In the U.K. the two largest investors control roughly 30 percent of the market while in the U.S. ownership is more diffuse, making shareholder consensus much more difficult. The U.K. has voluntary corporate governance standards with less rigid standards for Board member independence, and Board members may avoid all liability with an advisory shareholder vote. In the U.S., Board members have fiduciary liability, and are subject to shareholder derivative actions, regardless of a shareholder advisory vote. The threat of litigation acts as a check on Board actions.

The U.K. shareholder vote requirement also has had significant negative effects that would negatively impact the management of U.S. companies. These effects include encouraging executives to seek positions with private equity firms; making pay arrangements more standardized, rather than customized to the company; increasing diligence among compensation committees similar to that already occurring in the U.S.; and, increasing the power of the proxy advisory services and hedge funds as institutional investors outsource their compensation research, engagement with boards and vote administration duties. These negative effects outweigh the benefits of a shareholder vote.

For all of these reasons, we oppose H.R. 1257 and encourage the House to reject it. If you have any questions, please do not hesitate to contact Tim Bartl of our staff at 202-789-8670. Thank you for your consideration.


Jeffrey C. McGuiness,



Washington, DC, March 27, 2007.
Chairman, Committee on Financial Services, House of Representatives, Washington, DC.
Ranking Member, Committee on Financial Services, House of Representatives, Washington, DC.

DEAR CHAIRMAN FRANK AND RANKING MEMBER BACHUS: The U.S. Chamber of Commerce, the world's largest business federation representing more than three million businesses and organizations of every size, sector, and region, is committed to supporting good and responsible capital market regulation, including efforts to strengthen board compensation committees and to provide disclosure of clearer information about executive compensation.

Fundamentally, the Chamber believes that well-functioning independent compensation committees, along with clear and fair disclosure, represent the best means to determine executive compensation. The amount and terms of employment and executive compensation agreements result from a complex interaction of interests. The negotiations of these interests can produce highly complex arrangements that reflect varying interests of the parties. Ultimately, corporate boards want to retain executives who will perform at a high level and produce value for shareholders and jobs for workers.

The Chamber respectfully submits that allowing shareholders--rather than the board--an advisory ``say on pay'' will not produce the intended result. Shareholder votes are more likely to reflect their views on past stock or management performance rather than real insight into how to structure future compensation to ensure it drives future results. Further, the Chamber is concerned that this would result in yet another forum for ``special interest politics.'' For these reasons, the Chamber opposes H.R. 1257, the ``Shareholder Vote on Executive Compensation Act.''

Sarbanes-Oxley has yielded significantly stronger and more independent boards and compensations committees. The Securities Exchange Commission has taken important steps recently to expand transparency and disclosure of executive compensation, and we believe that these steps need to be given adequate time to have an impact. The Chamber looks forward to working with Congress and the SEC to ensure that the combination of these steps is producing effective governance for shareholders and workers.




Washington, DC, April 18, 2007.
Re H.R. 1257, shareholder vote on Executive Compensation Act.

House of Representatives,
Washington, DC.

DEAR REPRESENTATIVE FRANK: On behalf of the American Bankers Association (ABA), I am writing to express our opposition to H.R. 1257, the Shareholder Vote on Executive Compensation Act, which is scheduled for consideration on the House floor beginning today, with a final vote on Friday morning.

A major reason for our opposition is the fact that a majority of the corporations that would be impacted by H.R. 1257 will distribute their 2007 proxy statements to shareholders over the next three months. Rules recently adopted by the Securities and Exchange Commission (SEC) will now require these proxy statements to provide extensive narrative and tabular disclosures regarding CEO and other covered executives' salaries, stock awards, deferred benefits, retirement and severance packages, and perquisites. The ABA strongly believes that Congress should give the SEC's rules time to take effect and have an impact on boards and shareholders. After assessing the effect these disclosures have had on the marketplace, Congress can determine whether legislation is warranted.

Further, shareholder advisory votes may be appropriate where there are few mechanisms in place to protect the company. That is not the case in the United States. Boards and their compensation committees have legally enforceable fiduciary responsibilities to the company and its shareholders to ensure that company assets are not wasted. To properly carry out those responsibilities, a majority of board members must be independent and the compensation committees must consist solely of independent directors. Company boards and committees meet, without company management present, in executive session. Committee directors approve the CEO compensation that is to be recommended to the full Board based on the specific company's goals, various performance metrics and the terms of the CEO's employment contract. In this country, a combination of state corporate laws, exchange listing standards, and best practices tie board accountability to shareholders on executive compensation and other issues that boards face.

Also, the bill has several unintended consequences that we wish to bring to Members' attention. First, the bill presumes that shareholders hold unanimous views on any given corporate issue, but this is frequently not the case. In fact, if this bill were to become law, a CEO of a publicly traded bank could find him or herself at the mercy of a *.*.*

Mr. Chairman, I sense that really our country is at a tipping point on a lot of questions, and you really sense this, those of us who were at home in our districts over the past couple of weeks. There are a lot of issues, and I know this is sort of an understatement, that are before this body that are issues where we are either going to make a good decision that will make us fruitful and prosperous and robust as a country or we have got the possibility to make a bad decision that puts us in the trajectory on a different direction. And I would suggest that this is one of those sort of tipping point questions.

Now, is the sun not going to rise tomorrow if this bill becomes law? No. The sun will rise tomorrow and we will be still a prosperous country. But it is one of those things that will have a ripple effect because, in the subtext of this bill, remember the chairman talked about facts of nature, the fact of nature is that, when there is an action, there is a reaction. And I would submit that one of the reactions of this bill, Mr. Chairman, is that there are going to be companies, there are going to be bright people that say, I am not going to take this company public. I am going to remain private.

Now, who loses with that? You know who loses? The individual shareholder. It is the mom and pop. It is the person that is struggling, that really wants to have access, but because it is a private company, they don't have access because it is not traded publicly.

What is the other effect? The other effect is that this basically tells many companies, why don't you figure out ways to go do business elsewhere? Why don't you go somewhere else? Because we are the Congress, and we are going to reach in and we are going to manage you. I just think we can do better.

Look, there is nobody here that is defending overly compensated CEOs, and I think the majority's proposal here is ironically very silent as to certain settlement agreements. It is inherent in the process that you settle cases to make them go away.

In closing, Mr. Chairman, I rise in opposition to this bill, and ask my colleagues to do the same.


Mr. ROSKAM. Mr. Chairman, I have offered this amendment to clarify some possibly misleading language in H.R. 1257, and it simply strikes ``or other meeting of the shareholders'' and inserts ``meeting of the shareholders or a special meeting in lieu of the annual meeting,'' at page 4, line 14 and page 5, line 7. The bill would allow, as we have discussed, a separate, nonbinding shareholder vote to approve the compensation of executives for any proxy, consent or authorization for an annual meeting. As currently drafted, the language in the bill asserts that this would be an annual meeting or other meeting of the shareholders. This language could potentially lead to allowing multiple nonbinding shareholder votes throughout the year instead of just at the annual or special meeting in lieu of the annual meeting, and, therefore, clarification of this language is needed. Hence, the reason for the amendment.

My concern is that if the current language were to be placed into law, that multiple votes would be forced to be taken throughout the year which would distract the board and the executives from their primary responsibility, that is, ensuring that they put in place good business practices that benefit the shareholders' investment instead of being distracted multiple times by a whole host of votes.

The greater concern would be that these potential multiple votes would ensure fiscal and business priorities are not in the forefront of the board members' minds, ultimately having the ill effect on global competitiveness of American business. I spoke to the chairman earlier, and I believe that it's a noncontroversial request to clarify language.

I urge all of my colleagues to support the amendment.


Mr. ROSKAM. Mr. Chairman, I move to strike the last word.

I rise to point out that there is some dizzying logic going on. Basically, we are being told, here is a piece of legislation, and if you are clever enough to come up with a germane amendment, we will sort of humor you and listen to you. But if there is a larger suggestion, then it is very difficult to move forward.

I would just suggest to the chairman of the committee that the perfect is the enemy of the good. It strikes me that the gentleman from Massachusetts is an incrementalist. Those who survive most in this arena are incrementalists, and he has survived for a long, long time, Mr. Chairman, and flourished and been very successful as a legislator.

But it just seems that this is a good faith effort on the part of the gentleman from North Carolina to put forward something substantively. Is it the totality of making every problem go away? No. There is no way to do that.

And it is a little bit of a procedural Catch-22 that he is in.


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