Compliance November 11, 2005

Frank Proposes Broad Exec Comp Disclosure Mandates

November 11, 2005 (PLANSPONSOR.com) - A prominent US House Democrat has waded into an always controversial topic in corporate governance circles with a new bill mandating additional executive compensation disclosure.
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Representative Barney Frank (D-Massachusetts), ranking Democrat on the Financial Services Committee, proposed The Protection Against Executive Compensation Abuse Act that would give shareholders more information about management pay packages and empower shareholders to take action against management abuse and self-dealing, according to  a statement on the committee’s Web site.  

“We have witnessed a number of high profile executive pay packages that are hidden to the owners of the company, the shareholders, and I want to make sure we have full disclosure,” said Frank, in the statement “We are not taking anybody’s pay or even setting any limits, we just believe these owners should know how their employees (management) are being paid and have some ability to do something about it if they so desire.”

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The bill would require that public companies include in their annual report and accompanying proxy solicitations a comprehensive Executive Compensation Plan to be approved by shareholders that would feature:

  • Full Disclosure of Top Executive’s Compensation including any and all types of compensation paid (or to be paid) to top executives (such as pensions, golden parachute agreements, personal use of private jets/company apartments and other currently hidden compensation),
  • Full Disclosure of Compensation Policies for Top Executives including the short and long-term performance measures or targets that will be used to determine the top executive’s compensation (and whether such measures were met in the preceding year),
  • Company Policy for Recapturing Any Form of Incentive Compensation That Subsequent Financial Results Show Are Unjustified such as when the company pays bonuses or grants stock options to executives for meeting performance targets only to later learn that these numbers were inaccurate and must be restated.

According to data in Frank’s statement, the average large-company CEO in 1991 received approximately 140 times the pay of an average worker.  In 2003 the ratio was about 500 to 1.

More information on the Frank proposal is here .

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