The House voted Friday to give shareholders at public corporations a voice in executive pay packages that typically equal 500 times the salaries of workers at those companies.
The shareholder vote under the bill (H.R. 1257) would be advisory only. But Democratic backers of this provision said that investors need a say when companies losing money or laying off workers are paying executives eight- and nine-figure salaries and retirement packages.
"This is not an aberration, and there is a hue and a cry from the American people across the American landscape that is saying something must be done," said Rep. David Scott, D-Ga.
The bill, which passed 269-134 and now goes to the Senate, was opposed by the White House and most Republicans. They argued that the Securities and Exchange Commission has recently taken steps to make corporate pay packages more transparent and that Congress should stay out of corporate affairs.
President Bush earlier this year questioned the extravagant pay of some company managers and directors, but said it was not a matter for government involvement.
"There is no justification for many of these pay packages," said Rep. Spencer Bachus, R-Ala., top Republican on the House Financial Services Committee. But "this is Congress beginning to intrude on corporations."
The bill, sponsored by committee chairman Barney Frank, D-Mass., establishes an annual nonbinding vote on executive pay packages and calls for an advisory vote if a company awards a new golden parachute package while simultaneously negotiating the purchase or sale of the company.
Frank noted that the SEC had recently required corporations to include a chart of compensation for top officials but had said it did not have the power to compel a vote on executive pay. He said the bill requires corporations "simply to add to that a box that says 'I approve/I disapprove.'"
Investor advocates, union pension funds and shareholder groups have supported the legislation, but GOP opponents expressed concerns it would give such groups an inroad to change a company's policies.
"It greatly worries me that this bill could set a precedent of giving activist institutional investors, who may have their own political and social agendas unrelated to the financial wealth of the companies, more influence," said Rep. Mike Castle, R-Del.
Republicans unsuccessfully offered amendments requiring pension funds and other shareholder groups to reveal their spending or their votes on compensation issues. Also defeated was a proposal by Rep. Scott Garrett, R-N.J., that would have eliminated the shareholder vote when compensation packages do not exceed averages at comparable companies by more than 10 percent.
Democrats, while stressing that the bill makes no judgment on what is excessive pay, cited studies that the average CEO of a Standard and Poor's 500 company receives $14.78 million in compensation.
Rep. Brad Miller, D-N.C., said that 15 years ago the average CEO made 140 times what a worker at his company earned but that now the difference is 500 times. He said the aggregate compensation of the top five executives is now 10.3 percent of the corporate profits of public corporations.
Shareholder votes on pay have been adopted in Britain, Australia and Sweden, and advocates say that, while pay packages are rarely rejected, the votes help to keep executive compensation in check.
Sen Barack Obama, D-Ill., introduced a similar bill in the Senate Friday.