Non-binding say-on-pay votes part of reform proposal

Non-binding say-on-pay shareholder votes would be required of all public companies under legislation proposed by the Obama administration today. Also, the SEC would oversee corporate compensation committees to ensure their independence, according to a statement today by Treasury Secretary Timothy F. Geithner. The legislation is part of broader executive compensation reform that would develop a standard to “reward innovation and prudent risk taking, without creating misaligned incentives,” the statement said. “I want to be clear on what we are not doing. We are not capping pay. We are not setting forth precise prescriptions for how companies should set compensation, which can often be counterproductive,” Mr. Geithner said in the statement. Principles of the reform outlined by Mr. Geithner are: • compensation plans should properly measure and reward performance; • compensation should be structured to account for the time horizon of risks;. • compensation practices should be aligned with sound risk management; • golden parachutes and supplemental retirement packages should be re-examined to ensure they align the interests of executives and shareholders; and • the process of establishing compensation should promote transparency and accountability in the process of setting compensation. “This financial crisis had many significant causes, but executive compensation practices were a contributing factor. Incentives for short-term gains overwhelmed the checks and balances meant to mitigate against the risk of excess leverage,” Mr. Geithner said in the statement.