With Goldman Sachs bonuses, new push for 'say on pay' bill

Congress takes up legislation next week to give shareholders of public companies more say on executive compensation.

Brendan McDermid/Reuters
Financial professionals working in the Goldman Sachs booth on the floor of the New York Stock Exchange on July 16. The company reported second-quarter profits and substantial executive compensation.

Congress begins a push next week for “say on pay” legislation that would require publicly traded companies to give shareholders an annual nonbinding vote on executive compensation.

The move comes just in time to dampen public ire over this week’s announcement that Goldman Sachs earmarked $6.65 billion for executive compensation, including bonuses, this quarter.

The investment giant paid back $10 billion in funds from the Troubled Asset Relief Program (TARP) just last month, lifting the restrictions that TARP imposed on salaries, bonuses, and severance packages.

Lawmakers, public interest and shareholder groups, and Jon Stewart’s "Daily Show" went on the attack.

“The recent news of compensation on Wall Street shows that some financial leaders yearn for the stirring return of yesteryear and demonstrates the need to adopt legislation on executive pay,” said Rep. Barney Frank (D) of Massachusetts, who chairs the House Financial Services Committee, in a statement.

“We do not know the specifics, but recently reported bonus pools do suggest that there may be a return to the old ways which caused such damage to our economy,” he added.

The proposed bill builds on legislation that passed the House in 2007 by a 2-to-1 margin, but was opposed by the Bush White House and derailed in the Senate. President Obama backs the legislation.

Rekindled concerns about Wall Street

The 2009 version of the bill includes new restrictions on “inappropriate or imprudent” compensation practices for all financial firms, including disclosure of all incentive-based compensation. The discussion draft also requires independent compensation committees for public companies.

“The crisis has a lot of people going back to compensation as part of the problem,” says Jeff Mahoney, general counsel for the Council for Institutional Investors.

“Not surprisingly, Congress is much more active on the issue because members are sensing their constituents’ concerns – and a lot of those concerns are around compensation,” he adds.

The billions set aside for Goldman Sachs compensation just adds fuel to the fire, activists say.

“That bonus pool was supported and made possible by taxpayer support,” says Rich Ferlauto, director of Corporate Governance and Pension Investment for the American Federation of State, County and Municipal Employees.

“There is an ethical obligation that Goldman has to the US taxpayer still suffering the consequences of the stock-market collapse caused by Wall Street abuses,” he adds.

Business groups oppose legislation

But critics, including business groups, caution that the legislation could hurt companies that had nothing to do with the financial crisis.

“[W]hat we’re seeing is a response that’s going to create a one-size-fits-all approach,” says Tom Quaadman, who directs the US Chamber of Commerce’s capital markets center.

“We have 15,000 public companies – 96 percent or more have had nothing to do with the financial crisis, yet we’re seeing a standardization across the board.”

In London, financial groups are chafing against even stronger regulations. A new UK government report says banks should disclose top executive compensation and defer at least half of all bonuses for three to five years.

Chairman Frank says his committee is acting “because of a broad consensus of leading national and international finance experts, including Paul Volcker and the Group of 30 and Lord Turner of the United Kingdom who believe that compensation structures were a factor in the financial crisis.”

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