[Congressional Record Volume 153, Number 62 (Wednesday, April 18, 2007)]
[House]
[Pages H3530-H3550]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




             SHAREHOLDER VOTE ON EXECUTIVE COMPENSATION ACT

  The SPEAKER pro tempore. Pursuant to House Resolution 301 and rule 
XVIII, the Chair declares the House in the Committee of the Whole House 
on the state of the Union for the consideration of the bill, H.R. 1257.

                              {time}  1720


                     In the Committee of the Whole

  Accordingly, the House resolved itself into the Committee of the 
Whole House on the state of the Union for the consideration of the bill 
(H.R. 1257) to amend the Securities Exchange Act of 1934 to provide 
shareholders with an advisory vote on executive compensation, with Mr. 
Weiner in the chair.
  The Clerk read the title of the bill.
  The CHAIRMAN. Pursuant to the rule, the bill is considered read the 
first time.
  The gentleman from Massachusetts (Mr. Frank) and the gentleman from 
Illinois (Mr. Roskam) each will control 30 minutes.
  The Chair recognizes the gentleman from Massachusetts.

                              {time}  1720

  Mr. FRANK of Massachusetts. Mr. Chairman, I yield myself such time as 
I may consume.
  This is a bill to further the workings of the capitalist system of 
the United States. It has one very specific provision. It says that the 
shareholders, the owners of public corporations, will be allowed to 
vote every year in an advisory capacity on the compensation paid to 
their employees who run the companies.
  Now, Mr. Chairman, some might think this is unnecessary. In a better 
world, it would be. But there is not now any clear-cut, uniform, legal 
right for the shareholders to get such a vote. Some corporations allow 
it, some do not. Some boards of directors allow it, some do not. In a 
recent case, the SEC ordered AT&T to allow such a vote, but it was 
because of certain circumstances. There is no general principle that 
allows it.
  We do have, thanks to the Securities and Exchange Commission under 
our former colleague from California, Mr. Cox, a provision that I am 
sure many considered to be an intrusion into the private affairs of 
corporations, because without regard to the wishes of the corporations, 
the SEC under Chairman Cox has unanimously adopted rules that require 
corporations to put in the annual proxy form a chart of compensation 
for the top officials and an explanation of the theory of the 
compensation by which they are there.
  Understand that this is a decision by the SEC to require corporations 
to do what they would not otherwise have done, because it only applies 
to those who haven't done it.
  We add one simple fact here. The SEC has said that it does not have 
the power to go further and compel corporations to allow the owners to 
vote. Our bill simply does that. Our bill simply says, you will have on 
your proxy form, printed anyway, what the compensation figures are. 
There is no debate about how they will be presented. We require, if 
this bill passes, corporations simply to add to that a box that says 
``I approve/I disapprove,'' and you can check it as appropriate. And 
the sole expense to the corporation is the ink in printing ``approve'' 
or ``disapprove,'' and the tallying along with the other tallying. 
There is no additional paper, there is no additional anything else.
  We have had a situation in which people, including the President of 
the United States, have acknowledged that in some cases CEO 
compensation has become excessive. I believe that that is clearly the 
case. A study done by Professor Lucian Bebchuk at Harvard, unrefuted by 
the defenders of the current corporate compensation system, notes that 
the amount of corporate profits going to the salaries for the top three 
employees, the compensation to the top three employees has about 
doubled to the point where a year or so ago it was nearly 10 percent.
  We are talking about real money. We are talking about money that goes 
to these top executives that could be used for other purposes. For 
example, when Mr. Nardelli of Home Depot received a $210 million good-
bye kiss that had been written into his contract, when he was fired and 
given a $210 million consolation prize, Home Depot was at the same time 
announcing that they were putting $350 million into improving the 
stores. Well, suppose Mr. Nardelli had been sent out into the cold, 
hard world with only $50 million for the rest of his life. $160 million 
more would have been available to add to that $350 million for the 
stores, considerably more than a third. In other words, that was a real 
number. If $350 million can fix up the stores significantly, another 
$50 million or $75 million could have increased that by up to 50 
percent.
  The President himself has acknowledged that the compensation has 
gotten out of hand. But from the standpoint of the President, excessive 
CEO compensation, increased inequality in our economy, which is a part 
of this, global warming, they all have certain common elements; the 
President and some of his supporters have reluctantly acknowledged the 
reality of those things, having denied them for some time, but they 
appear to regard them as facts of nature that were neither caused by 
nor can be corrected by human action. We disagree with that.
  Now, people have suggested that the salaries are too high and 
Congress should limit them. We reject that. This bill as we have 
presented it does not intrude into the process of setting compensation.
  Mr. Chairman, some of the amendments offered would do that. There are 
amendments that would alter the effect of this, depending on the kind 
and amount of compensation. I think those are erroneous. I think some 
of my friends on the other side have become, in their zeal to defend 
corporate compensation levels, de facto, in a bad situation. They would 
be more intrusive.
  All we say is this: The shareholders own the companies, and we 
believe the shareholders should be allowed to vote.
  Now, some people have said that is up to the board of directors, why 
are you singling out compensation for the CEO? And there is a good 
reason. You can make arguments about corporate governance one way or 
the other. We are not going beyond one point here. The relationship 
between the CEOs and the boards of directors is very different than 
most of the relationships the boards of directors have. The CEOs and 
the boards of directors select each other. There is a lack of an arm's 
length situation there that we think makes it appropriate to single it 
out and let the shareholders vote.
  It is only an advisory vote, that is true, and you will hear the 
contradictory argument that we are both too intrusive and not 
sufficiently intrusive into the affairs of the corporations. But we 
have more confidence in the boards of directors than some of our 
colleagues. Not completely, or we wouldn't have this bill. But we do 
not think boards of directors will likely disregard an advisory opinion 
from the shareholders and, therefore, we think that is an important 
input that the board should have. They have their ultimate 
responsibility, and maybe they will find some special circumstance that 
says, we can't follow in this case. The shareholders own the company, 
and we are simply giving them this right.
  The last point is, and we have heard people say, well, you are 
interfering with the affairs of the corporation. Corporations do not 
exist in nature; they are the creations of positive legislative action. 
No corporation anywhere has powers except those that are given to it by 
a government, and governments tell the corporations what powers they 
have, what immunities they have, and what rules they follow. The SEC 
just intruded very deeply into the affairs of corporations by requiring 
the posting of the compensation.
  We say that under current rules, including some State laws, and it 
varies from State to State, the shareholders don't have enough rights. 
And all we do here is empower the shareholders to vote on the 
compensation of the people who work for them.

[[Page H3531]]

  The last dogma I would deal with is, well, how can the shareholders 
know that? It is extraordinary to me, Mr. Chairman, to listen to people 
who ordinarily are quite respectful of the wisdom of the market. And 
what is the market? The market is the people who buy the shares. Those 
are the people who make up the market. And apparently this group of 
people who are the shareholders are in most respects quite wise. But 
when it comes to deciding how much to pay the people who work for them, 
they get stupid, and this is somehow beyond their capacity.
  We disagree with that. We think this is a moderate and temperate 
approach to the issue of runaway compensation, excessive compensation, 
not in every case, and in every case it wouldn't be used negatively.
  I should have said one other thing. No one has shown any correlation 
between these outsized compensation examples and any metric of success. 
Indeed, too often they are metrics of failure because they are payoffs 
to get people to leave quietly.
  So we hope that this bill will be adopted and that shareholders who 
own the companies will have the right to express their opinion to the 
boards of directors on the level of compensation for the top employees 
of the company.
  Mr. Chairman, I reserve the balance of my time.
  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.

                              {time}  1730

  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. FRANK of Massachusetts. Mr. Chairman, I yield 5 minutes to the 
gentleman from Georgia (Mr. Scott), one of the most active members of 
our committee and a man with significant business experience.
  Mr. SCOTT of Georgia. Mr. Chairman, thank you very much.
  Let me first start by commending our chairman for taking on this very 
important and timely issue. This is an issue that speaks to the issue 
of confidence in the American enterprise system. There is no more 
greater issue that we need to deal with, and I think what the major 
point that we need to emphasize here is that there is a problem, and 
obviously there is a terrific problem. There is a terrific problem on 
several layers.
  Let me start with the first layer. First of all, we have a problem 
where we have a stretch of the differences between what the average 
worker is making in the American economy and this huge leap by 
multibillions of dollars by what CEOs are making. This is not an 
aberration. This is a fact in case after case.
  Plus, on top of that, none of these performances for these huge CEO 
packages are done based upon performance. As a matter of fact, some of 
the most outrageous demonstrations of this have been corporate CEO 
packages that have rewarded companies with hundreds of millions of 
dollars in their packages for a lack of performance, even while their 
company has been going down, even while their company has been laying 
off people, even as they have turned their backs on their pension 
obligations to employees. No, 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.
  Now, we are the people's representatives, and what the chairman has 
put forward, and I certainly appreciate the chairman for allowing me to 
have an opportunity to work with him on this, what we are putting 
forward here is basically a fair and moderate response, no 
overreaction.
  We have taken the marketplace with its basic components. What is the 
most important attribute of our system? It is the free marketplace. And 
what is the most important part of that? It is the exchange of stock 
ownership. And who plays that most important role there? It is the 
investor. Once that investor begins to lose confidence, we are all in a 
world of trouble.
  There is nothing in our bill that mandates a certain salary level, 
none of that. Our bill simply says: Let us let the system work. What is 
wrong with ending these egregious characteristics of what is happening 
in the marketplace as far as CEO packages is concerned? It begs for the 
shareholders who own the company to at least have a say, a nonbinding 
say.
  We understand the fragility of what we are doing. We are doing this 
in a gingerly manner. But let me just state to you in closing that all 
of the studies, and there will be some amendments which will come 
forward, some wanting to study this issue, some saying let the SEC 
rules work out, but what the American people and what the investor and 
what the situation cries out for are two things: transparency and 
accountability. That is the hallmark of what we are doing. We are 
bringing accountability, and we are bringing transparency to what is 
clearly, from all of the media accounts, from all of the evidence 
presented to us is clear, and it is dangerous, and it is present. What 
we have and what we are responding to is something that is clearly a 
clear and present danger to the future and the heart of our free 
economic system.
  Mr. ROSKAM. Mr. Chairman, I yield 5 minutes to the gentleman from 
Delaware (Mr. Castle).
  Mr. CASTLE. Mr. Chairman, I thank the gentleman from Illinois for 
yielding, and I thank you, Mr. Chairman.
  I rise in opposition to H.R. 1257, the Shareholder Vote on Executive 
Compensation Act, which seeks to ensure that shareholders have a say in 
their company's executive compensation and disclosures.
  Let me just say that I agree with both the speakers on the other side 
so far. There is a problem with CEO and other high-level compensation 
in the United States. I happen to disagree with the solution which is 
offered by this legislation. In fact, I would urge that this solution 
probably will not be a solution. I would like to go through that if I 
could.
  In July 2006, the Securities and Exchange Commission, the SEC, 
adopted a package of rules designed to enhance the transparency of 
proxy compensation disclosure for CEOs, CFOs and the other three 
highest paid executive officers and directors, the first major reform 
since 1992. These new disclosure

[[Page H3532]]

requirements are being implemented for the first time and are a major 
step forward in promoting transparency and arming shareholders with 
detailed information on how executives are being paid. Therefore, we 
are attempting to legislate in this area before there is any evidence 
to suggest that the current SEC robust disclosure requirements are not 
working.
  The bill before us intends to prevent excessive executive 
compensation. Yet, at a Financial Services Committee hearing on March 
8, all six witnesses agreed that a better way to prevent unmerited pay 
would be to require that publicly traded corporations adopt majority 
voting policies for the election of board members. At the present time, 
more than 150 stockholder proposals relating to majority voting have 
been filed, and more than half of the companies in the S&P 500 have 
some form of majority voting policy in place. Furthermore, company 
organization and structure is traditionally governed by State law, 
while Federal securities laws generally govern the disclosure of 
information to investors.
  In my home State of Delaware, corporate laws are already providing 
shareholders with majority votes. Majority voting enables stockholders 
to more easily unseat directors they believe have made poor judgments. 
The law enables stockholders to focus on compensation committee members 
in particular if they so choose.
  In addition, compensation for executives of publicly owned companies 
listed on the New York Stock Exchange is determined by a compensation 
committee that is composed of totally independent directors.

                              {time}  1740

  Clearly, the market and States are active in working in this area. 
H.R. 1257 intends to provide shareholders with an advisory vote on 
executive compensation. However, public company equity is 
overwhelmingly in the hands of intermediaries like retirement plans and 
mutual funds that manage the economic interests on behalf of others. 
Therefore, the actual shareholder is already two steps removed from the 
holders of the true economic interests in the company.
  In addition, intermediaries often rely on advice, sellers like the 
Institutional Shareholder Services, ISS, when voting on company 
proxies. Consultants such as the ISS are often criticized for their 
particular biases and their lack of transparency in their decision-
making.
  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.
  This legislation presents a counterproductive change to an American 
approach to corporate governance that, while not perfect, has produced 
better results for stockholders than any other financial system in the 
world. I have an article written by Secretary Robert Reich about this, 
in which he, too, opposes the changes that are being proposed here.
  He indicates, ``House Democrats are now working on legislation to 
give shareholders the right to have more say over pay.'' And that is a 
growing consensus, but he says it is wrong. Shareholders won't 
constrain the growth of CEO pay because most shareholders don't care 
about it. The vast majority own their shares through mutual funds and 
pension funds and don't know which companies they are invested in at 
any given moment. Then he says later, ``Depending on shareholders to 
rein in CEO pay is like relying on gamblers to rein in the owners of 
Las Vegas casinos.''
  That is my concern with this. While we have identified the problem, 
the solution which has been identified in this legislation is not the 
right solution. The SEC recently enacted substantial new disclosure 
requirements, as I indicated, governing executive compensation to 
ensure transparent compensation packages, and these requirements should 
be given time to take effect. Disclosure is a vital component of our 
financial system, which increases investor confidence, promotes market 
discipline, encourages fairness in the U.S. markets and enables more 
informed decision-making by investors.
  I believe there are many unintended consequences associated with the 
legislation before us today. Therefore, I urge my colleagues on both 
sides of the aisle to join me in opposing this legislation.
  Mr. FRANK of Massachusetts. Mr. Chairman, I will yield myself 1\1/2\ 
minutes.
  I congratulate the gentleman on the high art of selective quotation, 
because he quoted from former Secretary Reich. He left out the thrust 
of the article which was, he was against doing this because instead he 
thought we could change the Tax Code. In fact, that article is mostly 
an attack on the tax cuts which the gentleman from Delaware supported.
  Secretary Reich's article is essentially, and I will submit it for 
the Record under our general leave, I was waiting for the gentleman to 
quote those parts of Mr. Reich's article in which he calls for 
significant increases on taxation of upper-income people. I have to say 
to my friend, it is only a partial quotation.
  Mr. CASTLE. Reclaiming my time.
  Mr. FRANK of Massachusetts. I am on my time. I gave myself a minute.
  The CHAIRMAN. The time has expired for the gentleman from Delaware. 
The gentleman from Massachusetts controls the time.
  Mr. FRANK of Massachusetts. I was frankly waiting, and I was 
disappointed, but that happens a lot in life, for the gentleman to get 
to the part of the article that he quoted selectively in which that 
article says what you really want to do is make the tax system more 
progressive. I suppose the gentleman didn't want to quote criticism of 
tax cuts that he voted for, but it did seem to me, if we are going to 
be quoting things, Mr. Reich said not that he was opposed to this as a 
bad idea, but that a much better way to do it would be to undo the tax 
cuts that the gentleman from Delaware supported at the upper brackets.
  Mr. Chairman, I would ask to insert in the Record the article by 
Robert B. Reich.

               [From The American Prospect, April, 2007]

                      Don't Count on Shareholders

                           (Robert B. Reich)

       An acquaintance of mine sits on the board of a major 
     company that just agreed to pay its CEO close to $10 million 
     this year, including deferred compensation and stock options. 
     I asked him how he and his board colleagues could possibly 
     justify that kind of money. ``No choice,'' he said. ``That's 
     what our competition is paying. It's the going rate.'' As 
     Congress struggles to raise the minimum wage to $7.25 an 
     hour, the going rate of CEO pay is now $5,000 an hour.
       Polls show most Americans think this is obscene. But how to 
     rein in CEO pay? A growing consensus believes the best way is 
     to give shareholders more voice. New Securities and Exchange 
     Commission rules require companies to inform shareholders in 
     greater detail what their companies are paying top 
     executives. In recent months, shareholder activists have 
     submitted proposals to 60 companies seeking input on CEO pay. 
     House Democrats are now working on legislation that would 
     give shareholders the right to have more say over pay.
       But the growing consensus is wrong: Shareholders won't 
     constrain the growth of CEO pay, because most shareholders 
     don't care about it. The vast majority own their shares 
     through mutual funds and pension funds, and don't even know 
     which companies they're invested in at any given moment. 
     Their only concern is maximizing the return on their total 
     portfolios. They keep the pressure on fund managers to do 
     this by moving their savings from funds that underperform to 
     those that show better overall results.
       Fund managers, for their part, don't care much about CEO 
     pay, either. They're looking for companies whose share prices 
     are rising, and they push firms to get their prices up by 
     shifting capital out of those whose prices are lagging into 
     those that show more promise.
       Presumably, shareholders and fund managers would want to 
     constrain CEO pay if it hampered company performance, but it 
     hasn't. While CEO pay has soared over the last 25 years, 
     share prices have soared, too. Between 1980 and 2003, the 
     average value of America's 500 largest companies rose by a 
     factor of six, adjusted for inflation. What happened to 
     average CEO pay in those companies? It rose roughly sixfold. 
     Shareholders have no reason to complain. They don't--and they 
     won't.
       Depending on shareholders to rein in CEO pay is like 
     relying on gamblers to rein in the owners of Las Vegas 
     casinos. Just look at Britain. Since 2003, changes in British 
     securities law have given investors there more say over what 
     British CEOs are paid. Nonetheless, executive pay in Britain 
     has continued to skyrocket, and now just about matches that 
     of American CEOs. Companies listed on the London Stock 
     Exchange have done sufficiently well that British investors 
     don't care what CEOs are paid.
       The real scandal of CEO pay has almost nothing to do with 
     shareholders. It has to do

[[Page H3533]]

     with what's happened to the pay of most other workers as CEO 
     pay has soared. Shareholder returns have kept up with CEO 
     pay, but median wages have not. In 1980, the CEO of a major 
     company took home about 40 times what the median worker 
     earned; by 1990, that CEO's pay was about 100 times the 
     median worker's; in 2006, it was close to 300 times what the 
     median worker earned. (Last year, Wal-Mart's Lee Scott Jr. 
     earned 900 times the pay of the average Wal-Mart worker.)
       CEO pay is part of a much larger problem: the growing 
     portion of the nation's income that's going to a small number 
     of people at the top. The pay packages of many denizens of 
     Wall Street are even more outrageous than CEO pay--last year 
     reaching $40 million for top traders and more than a billion 
     dollars for top hedge-fund managers. The new stars of Wall 
     Street are private equity funds that are buying public 
     companies back from shareholders and raking in 20 percent to 
     25 percent annual returns for their private investors--mostly 
     wealthy individuals with yearly incomes already in the 
     stratosphere.
       Not since the robber-baron era have income and wealth been 
     as concentrated as they are today. This doesn't threaten 
     shareholders; after all, most shares are held by the wealthy. 
     It threatens democracy, as the wealthy use their fortunes to 
     bankroll politicians who tilt public policies in the 
     direction of the wealthy--by, say, reducing their taxes and 
     cutting public services for everyone else. It also threatens 
     our economy, as more and more investment decisions are made 
     by fewer and fewer people, and as the middle class loses its 
     capacity to pay for the goods and services the economy 
     produces.
       The answer is not to grant more rights to shareholders. 
     It's to enact a far more progressive income tax, including a 
     sharply higher marginal rate on yearly incomes above, say, a 
     measly million.

  Mr. ROSKAM. Mr. Chairman, I yield 1 minute to the gentleman from 
Delaware (Mr. Castle).
  Mr. CASTLE. In response to Chairman Frank, I would just say, he is 
correct. We have not had that debate, by the way, on the progressive 
income tax rate. However, he opposes everything with respect to this 
legislation, leading up to that little squib at the end as to how he 
would fix that particular problem.
  I personally think, as I have outlined here, there are many solutions 
to this: what the SEC has done, the majority election of directors, 
what the various States are doing and where this problem should be 
handled. For that reason, I would encourage us to look at a different 
method of addressing what you have identified, in my judgment a very 
real problem.
  Mr. Chairman, I yield to the gentleman from Massachusetts.
  Mr. FRANK of Massachusetts. I would say to the gentleman, I am 
baffled by this. On the one hand, this is too intrusive, but the 
gentleman says a better way would be to require corporations to elect 
directors by a majority. That would be a far greater intrusion into all 
of the aspects of the corporation.
  But I will say this, if the gentleman prefers and the Members on the 
other side prefer: that we instead pass legislation that requires all 
corporations to allow a majority election for directors in an effective 
way as an alternative to nominations. Maybe we will hold off on this 
bill and consider it. I await that bill.
  The gentlemen on the other side are all full of other solutions, none 
of which have ever been put to paper.
  Mr. Chairman, I yield 6 minutes to the gentleman from Missouri (Mr. 
Cleaver) a member of the committee and a great ethical expert.
  Mr. CLEAVER. Mr. Chairman, today I rise in support of H.R. 1257, the 
Shareholder Vote on Executive Compensation Act. I think that it has 
been going on far too long where shareholders and, frankly, the 
American people, have had to pay for services not rendered and jobs not 
performed well.
  The chairman of our committee, Chairman Frank, has already spoken 
about Mr. Nardelli. There are others, Pfizer's Henry McKinnell, and he 
also received a $200 million, $200 million exit package in spite of the 
fact that his performance was poor. KB Home, former CEO, Bruce Karatz, 
could collect $175 million despite his involvement in backdating stock 
options at the company. Some CEOs were, in fact, undeserving of 
compensation packages they received. This is not fair.
  The one that I think troubles most Americans the most is Lee Raymond, 
former CEO of ExxonMobil. During our committee hearing, I raised this 
issue with our panel to ask if they had any problems with the 
compensation package for Mr. Raymond. He received a $400 million pay 
and retirement deal as the prices of gasoline soared and millions of 
hardworking Americans going to the pump every single day are paying 
more and more money for gas.
  Twelve years ago, when Mr. Raymond became the CEO of Exxon, the 
average price of gasoline was $1.02 a gallon. In June, 2006, when he 
retired, the price, the average price of gasoline was $2.96 a gallon. 
Yet he received $400 million in retirement. The people who are watching 
this debate, the overwhelming majority, will say to themselves, that is 
not right.
  Now, during the same period of time that the CEO of ExxonMobil was 
building up for this great exit package, real wages for the average 
American worker actually declined. While I believe deeply in, and that 
prosperity is as American as apple pie, I don't believe that we should 
reward CEOs for doing a poor job.
  So I want to thank committee Chairman Frank and our ranking member, 
Spencer Bachus, and the members of the Financial Services Committee for 
bringing this bill forward to the floor today. I cosponsored this 
legislation, I voted for it in committee, and I will be voting for it 
when it comes to the floor.
  Now, the sad thing about this legislation is that many hardworking 
Americans get up each day and go to work. If they perform poorly, they 
lose their job, and they certainly will not get an exit package that 
will take care of them and most of the people in their cities for life, 
$400 million.
  I would ask the people watching this program, do you have a problem 
with that? The answer, I think, is echoing all around this country. 
Yes, I have a problem with that.
  This bill enables shareholders to express their views on their 
company's executive compensation practices without setting up caps on 
the size and nature of executive pay. This legislation requires only, 
only, that public companies include on their proxy statements to 
shareholders, an annual nonbinding, nonbinding, nonbinding advisory 
shareholder vote on the company's executive compensation disclosures, 
which are already required by the SEC, and an additional nonbinding 
advisory vote if the company awards a new, not already disclosed, 
golden parachute while negotiating the purchase or sale of the company. 
The nonbinding advisory vote will give shareholders an opportunity, an 
opportunity to express themselves.
  They can say ``yes'' or ``no'' to the proposed executive compensation 
without diminishing, reducing, interfering with the board's legal 
authority.

                              {time}  1750

  Ultimately, if a CEO is doing a good job, I am sure that that CEO 
will receive the support of that company's shareholders and the 
appropriate compensation package. That is the way America operates. But 
what is going on now is an abomination that we will allow people to run 
a company into the ground and then walk away set, not only for life for 
themselves but five or six generations to come.
  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. PAUL asked and was given permission to revise and extend his 
remarks.)

[[Page H3534]]

  Mr. PAUL. Mr. Chairman, I thank the gentleman for yielding me this 
time.
  Mr. Chairman, I rise in opposition to this bill. I happen to agree 
with all of the concerns expressed by those sponsoring the bill due to 
the inequities in the amount of money that some of the CEOs are 
getting. But I am also convinced that this particular piece of 
legislation won't do very much to help, and I am convinced that unless 
we deal some day with our monetary system and understand better how it 
participates in these inequities, we will never get a solution for this 
because the monetary system does play a role in this.
  I am as outraged as anybody about a company that can hand out $16 
billion in bonuses. But where my disagreement is, is that it is not as 
a result of free market capitalism; that it is the result of an 
economic system that we have today which is called economic 
interventionism, and it leads to these inequities.
  Mr. Chairman, H.R. 1257 gives the Securities and Exchange Commission 
the power to force publicly traded corporations to consider 
shareholders' votes on nonbinding resolutions concerning the 
compensation packages of CEOs. Giving the SEC the power to require 
shareholder votes on any aspect of corporate governance, even on 
something as seemingly inconsequential as a nonbinding resolution, 
illegitimately expands Federal authority into questions of private 
governance.
  In a free market, shareholders who are concerned about CEO 
compensation are free to refuse to invest in corporations that do not 
provide sufficient information regarding how CEO salaries are set or do 
not allow shareholders to have a say in setting compensation packages.
  Since shareholders are a corporation's owner, the CEO and the board 
of directors have a great incentive to respond to shareholders' 
demands. In fact, several corporations have recently moved to amend the 
ways they determine executive compensation in order to provide 
increased transparency and accountability to shareholders.
  Some shareholders may not care about CEO compensation packages. 
Instead, they may want to devote time at shareholder meetings to 
reviewing corporate environmental policies and ensuring the corporation 
has family-friendly workforce policies. If H.R. 1257 becomes law, the 
concerns of those shareholders will take a back seat to corporations 
attempting to meet the demands of Congress.
  It is ironic to me that Congress would concern itself with high 
salaries in the private sector when, according to data collected by the 
CATO Institute, Federal employees on average make twice as much as 
their private sector counterparts. One of the examples of excessive 
compensation cited by the supporters of the bill is the multimillion 
dollar package paid to the former CEO of Freddie Mac. As a government-
sponsored enterprise that, along with its counterpart Fannie Mae, 
received almost $20 billion worth of indirect Federal subsidies in 
fiscal year 2004 alone, Freddie Mac is hardly a poster child for the 
free market.
  For the most part, all economic interventions fail and end up 
creating new problems that we are forced to deal with. This 
legislation, although well-motivated in an effort to deal with a very 
real problem, is unnecessary and should be rejected.
  Past government actions have made it more difficult for shareholders 
to hold CEOs and boards of directors accountable for disregarding 
shareholder interests by, among other things, wasting corporate 
resources on compensation packages and golden parachutes unrelated to 
performance. During the 1980s, so-called corporate raiders helped keep 
corporate management accountable to shareholders through devices such 
as ``junk'' bonds that made corporate takeovers easier.
  The backlash against corporate raiders included the enactment of laws 
that made it more difficult to launch hostile takeovers. Bruce 
Bartlett, writing in the Washington Times in 2001, commented on the 
effects of these laws, ``Without the threat of a takeover, managers 
have been able to go back to ignoring shareholders, treating them like 
a nuisance, and giving themselves bloated salaries and perks, with 
little oversight from corporate boards. Now insulated from shareholders 
once again, managers could engage in unsound practices with little fear 
of punishment for failure.'' The Federal ``crackdown'' on corporate 
raiders, combined with provisions in Sarbanes-Oxley disqualifying the 
people who are the most capable of serving as shareholder watchdogs 
from serving on corporate boards, contributed to the disconnect between 
CEO salaries and creation of shareholder value that is being used to 
justify another expansion of the regulatory state.
  In addition to repealing laws that prevent shareholders from 
exercising control over corporations, Congress should also examine 
United States monetary policy's effects on income inequality. When the 
Federal Reserve Board injects credit into the economy, the result is at 
least a temporary rise in incomes. However, those incomes do not rise 
equally. People who first receive the new credit--who in most instances 
are those already at the top of the economic pyramid--receive the most 
benefit from the Fed's inflationist polices. By the time those at the 
lower end of the income scale experience a nominal rise in incomes, 
they must also contend with price inflation that has eroded their 
standard of living. Except for the lucky few who take advantage of the 
new credit first, the negative effects of inflation likely more than 
outweigh any temporary gains in nominal income from the Federal 
Reserve's expansionist polices.
  For evidence of who really benefits from a system of fiat money and 
inflation, consider that in 1971, before President Nixon severed the 
last link of the American currency to gold, the typical CEO's salary 
was 30 times higher than the average wage of the typical employee; 
today it is 500 times higher.
  Explosions in CEO salaries can be a sign of a Federal credit bubble, 
which occurs when Federal Reserve Board-created credit flows into 
certain sectors such as the stock market or the housing market. Far 
from being a sign of the health of capitalism, excessive CEO salaries 
in these areas often signal that a bubble is about to burst. When a 
bubble bursts, people at the bottom of the economic ladder bear the 
brunt of the bust.
  Instead of imposing new laws on private companies, Congress should 
repeal the laws that have weakened the ability of shareholders to 
discipline CEOs and boards of directors that do not run corporations 
according to the shareholders' wishes. Congress should also examine how 
fiat money contributes to income inequality. I therefore request that 
my colleagues join me in opposing H.R. 1257 and instead embrace a pro-
freedom, pro-shareholder, and pro-worker agenda of free markets and 
sound money.
  Mr. ROSKAM. Mr. Chairman, I yield 5 minutes to the gentleman from 
California (Mr. Campbell).
  Mr. CAMPBELL of California. Mr. Chairman, I thank the gentleman for 
yielding.
  Let's stipulate here that there are and have been instances, plenty 
of instances, in which executive compensation has been excessive for 
the return given to shareholders.
  I have spent my entire life investing, and there have been times when 
I have seen excessive executive compensation, and return for the 
company wasn't there. And it made me mad, and I wasn't happy about it. 
Let's stipulate to that.
  Let's also understand there is a difference between that and when an 
executive gets high pay for a very excellent result. Pay for executives 
has been increasing, as it has for sports stars, as it has for people 
in the music business, authors, actors and investors.
  Chairman Bernanke of the Federal Reserve, when he spoke before our 
committee and when he has spoken before other committees, has been 
quoted as saying this is, to a degree, because of the effective 
technology of being able to take the talents of these various people 
and make them more valuable because it spreads across the world much 
quicker.
  But let's take that aside and stipulate that there have been 
instances, plenty of instances, where executive compensation has not 
been commensurate with the results. But there are a lot of other things 
that are more injurious to shareholders. There are other highly 
compensated individuals as well who have been overpaid for their jobs 
or for whatever they have done.
  There have been union contracts that have been out of line. Let's 
take Ford Motor Company right now. People are objecting to the current 
compensation package of the new chairman of Ford Motor Company; but no 
one is suggesting that that pay package is going to bring Ford Motor 
Company under. People are not happy because they say Ford Motor Company 
isn't making money, and the chairman is getting too much pay, but no 
one is suggesting that is going to take the company

[[Page H3535]]

under. But what most observers say will take the company under is all 
of the retiree pay that they have due to union contracts that were 
inadvisable that were done some time ago. That may take the company 
under.
  There could be acquisitions. There could be legal settlements. There 
could be just poor management. All of those things can actually take a 
company under, whereas executive compensation that is excessive, 
although maddening, won't drive a company down.
  This bill does absolutely nothing to deal with any of those other 
problems. Why not? If we are worried about shareholders and care about 
shareholders and their ability to influence a company, then why don't 
we give them the right to influence the company on something that 
actually might bring the company down.
  Some people on the other side mentioned several instances, and I 
can't recall them all right now, but where a company is doing poorly 
and an executive received very high pay. I agree with you; bad, I don't 
like it. I didn't like it. But what ought to upset the shareholders 
more is not the pay; it is the poor performance. And this doesn't do 
anything to help shareholders with that.
  We should give shareholders more rights. I agree with that, through 
the board. Otherwise, why not let shareholders vote on other highly 
compensated individuals, on union contracts, on acquisitions, on legal 
settlements, on the marketing budget, on all kinds of others things 
that might have something to do with affecting the company's pay?

                              {time}  1800

  I believe this is a statement, not a solution.
  Mr. FRANK of Massachusetts. Will the gentleman yield?
  Mr. CAMPBELL of California. I am happy to yield to the gentleman from 
New York.
  Mr. FRANK of Massachusetts. I am from Massachusetts, but I do want to 
report a theft, Mr. Chairman. Apparently someone has broken into our 
committee office and stolen a whole series of bills that the other side 
had to deal with all these other things, because I am hearing now about 
all these other things we should be doing and these other things that 
we should be addressing, and I haven't seen any of them.
  So I want to say to people, unfortunately, all these wonderful ideas 
that you previously had, and I wouldn't suggest that you are only 
saying them now as an excuse to beat this bill, please send me copies, 
because somebody stole the ones you sent me.
  Mr. CAMPBELL of California. Reclaiming my time, Mr. Chairman.
  You saw an amendment in committee which you voted against and voted 
down. You will see that amendment again this evening that gives 
shareholders rights through the board, not just on executive 
compensation, if they are unhappy with the management for any reason, 
to work through the board and change the board, give them more rights 
to change the board rather than do this sort of thing.
  Mr. Chairman, you will have your own time shortly, the gentleman from 
New York.
  Mr. FRANK of Massachusetts. I am still in Massachusetts.
  Mr. CAMPBELL of California. Did I say New York? I am sorry. The 
gentleman from Massachusetts.
  The CHAIRMAN. I would remind both Members that there is a chairman 
from New York in the room.
  Mr. FRANK of Massachusetts. And one is quite enough.
  Mr. CAMPBELL of California. I thank the chairman so much for that 
clarification.
  Mr. Chairman, this bill is a statement, it is not a solution. It 
deals with one thing which is annoying and can be bad, but is not a 
major, it is not that major an issue relative to all the other things 
that can deal with corporate governance and bringing corporations down.
  Mr. FRANK of Massachusetts. Mr. Chairman, I would take 10 seconds to 
say that the gentleman from California mischaracterized his own 
amendment. No amendment he offered would expand shareholder rights. He 
did offer an amendment that said if there is a preexisting right to 
vote for the majority, then this bill does not apply. But no amendment 
he offered would expand existing shareholder rights.
  Mr. CAMPBELL of California. Will the gentleman yield?
  Mr. FRANK of Massachusetts. I yield to the gentleman from California.
  Mr. CAMPBELL of California. The amendment I wished to offer would 
simply have required that there be a majority.
  Mr. FRANK of Massachusetts. What do you mean you wished to offer? I 
will take back my time.
  Mr. CAMPBELL of California. It was ruled not germane.
  Mr. FRANK of Massachusetts. I understand that, but let me just give 
myself 30 seconds.
  Mr. Chairman, why didn't he file it as a separate bill? He had no 
interest in this that I could discover until we brought this bill up. 
The gentleman said he wanted to offer a nongermane amendment.
  Well, you are allowed to introduce bills. Introduce a bill. We will 
have a hearing. If the gentleman, let me tell my colleagues right now, 
if they want to introduce legislation expanding the right of 
shareholders to vote for members of the boards of directors, I will 
guarantee them a hearing. But the bill has not yet been introduced.
  Mr. Chairman, I yield 30 seconds to the gentleman from Georgia (Mr. 
Scott).
  Mr. SCOTT of Georgia. Mr. Chairman, I think it is very important for 
us to just take a look, very briefly, at what some of the executives, 
some of the companies are saying and are doing about this now, because 
I think it goes right to your argument.
  Let us, first of all, let me just call to your attention, one such 
company, AFLAC, in Georgia. Now, AFLAC announced that it would give 
shareholders a nonbinding vote on executive compensation. As a matter 
of fact, AFLAC CEO Dan Amos said these words, which I want you to pay 
very important attention to. He said this. He said, as the owners of 
the company, the shareholders should know how executive compensation 
works.
  Now, I think Mr. Amos is right on the money. He simply stated what I 
think a lot of other companies do in order to maintain integrity.
  Mr. FRANK of Massachusetts. Mr. Chairman, I yield 4 minutes to the 
gentleman from New Jersey (Mr. Sires).
  Mr. SIRES. Mr. Chairman, thank you for yielding me time, and thank 
you for your leadership on this legislation.
  As an original cosponsor of H.R. 1257, I rise in support of this 
bill. CEOs should be held accountable to shareholders. Whether you have 
invested $100 or $100 million in a company as a shareholder, you should 
be allowed to find out the terms and conditions of the compensation 
package for the company's CEO.
  Shareholders should also have the right to express their satisfaction 
or dissatisfaction over a proposed compensation package. And that is 
exactly what H.R. 1257 does. It allows shareholders a chance to share 
their opinion with the board, which will help grant boards pause before 
approving a questionable compensation package.
  This bill does not represent a completely new idea. In fact, the 
United Kingdom has used a nonbinding shareholder vote approach since 
2003. Australia has a similar system. Granting shareholders a say over 
executive compensation in these two countries has improved dialogue 
between executives and shareholders and has increased the use of long-
term performance targets in incentive compensation. This policy change 
has clearly worked.
  American companies have also started to take notice. Most recently, 
AFLAC adopted a nonbinding shareholder vote for its CEO's compensation 
package. In addition, Institutional Shareholder Services reports that 
52 other companies are also considering adopting similar policies.
  It is now time to grant shareholders in the United States the same 
rights as their British and Australian counterparts. We need to make 
sure that all companies take AFLAC's lead by passing H.R. 1257. I urge 
my colleagues to grant the shareholders more access to the process of 
forming an executive compensation package.
  I urge a ``yes'' vote on this bill.
  Mr. ROSKAM. Mr. Chairman, I yield myself 1 minute.
  Just kind of a point of interest, and that is, in response to 
Chairman Frank

[[Page H3536]]

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. JONES of North Carolina. Mr. Chairman, first, I thank the 
gentleman from Illinois for this time.
  Mr. Chairman, if this bill was about Congress or the Federal 
Government setting salary levels for top executives, then I would be 
opposed to it. But that is not what this bill does. This is about 
letting stockholders, the owners of publicly traded companies, have the 
right, if they want, to render a judgment about whether the 
compensation for top executives, their employees, is appropriate.
  I know that this bill is not perfect, but neither is the present 
system. Corporate directors and executives work for shareholders. I do 
not see how anyone can look at the present system where sometimes CEOs 
who have failed their shareholders are getting hundreds of millions of 
dollars of shareholder money, and then say with a straight face that it 
is bad for shareholders to be able to directly tell corporate directors 
what they think about these compensation packages.
  Mr. Chairman, let me remind the House of a few of the outlandish 
compensation packages that have been made public: Home Depot CEO Robert 
Nardelli, total compensation for 2006, $131 million; Merrill Lynch CEO 
Stanley O'Neal, total compensation 2006, $91 million; AT&T CEO Edward 
Whitacre, Jr., total compensation for 2006, $69 million; Ford Motor 
Company CEO Alan Mulally earned $39.1 million for 4 months in 2006, 
$39.1 million for 4 months of work in 2006.
  Mr. Chairman, numerous people in the Third District of North 
Carolina, which I have the pleasure and the privilege to serve, have 
spoken to me and expressed their concerns about these multimillion-
dollar packages. Mr. Chairman, many people have said that America is 
losing its middle class, but in modern America, more and more middle-
class families are becoming stockholders. In 1989, just 30 percent of 
American households owned stock. Today 52 percent of households own 
stock; 80 million Americans now own shares of directly held stock, 
mutual funds or 401(k) retirement plans.

                              {time}  1810

  The right to have an advisory vote would strengthen shareholders and 
strengthen the capitalistic system. Therefore, Mr. Chairman, I support 
this bill.
  And, again, I thank the gentleman from Illinois for the time.
  Mr. FRANK of Massachusetts. Mr. Chairman, I reserve the balance of my 
time.
  Mr. ROSKAM. Mr. Chairman, I yield such time as he may consume to the 
gentleman from Alabama (Mr. Bachus), the ranking member.
  Mr. BACHUS. Mr. Chairman, I thank the gentleman from Illinois for 
yielding.
  The gentleman on the other side from Kansas City said that he had a 
problem with excessive executive compensation. And let me say this: I 
don't think there is a Member of this body in the majority or the 
minority who hasn't been outraged by what we judge by looking in the 
paper is a lavish, uncalled-for executive pay compensation. Some of 
them are indefensible. I would never try to defend them; nor should 
they be defended. And that is not what we are doing today.
  At the start of this debate some 3 hours ago, I said, this debate is 
not about excessive executive compensation because by its very term, 
``excessive executive compensation'' is excessive. The gentleman from 
Georgia said it. The gentleman from Kansas City said it. Our 
constituents are upset about it. And, in fact, last year, this Congress 
responded to concerns of shareholders, investors and our constituents 
and voters. And working with the SEC, the Securities and Exchange 
Commission, we said, you are going to have to disclose these salary 
compensations. You are going to have to put them out for public 
scrutiny. And those regulations are just now going into effect. And 
many of us look at it, and we are dismayed.
  Now, we all have a problem with excessive executive compensation. But 
I think most of my constituents and I think most Americans also have a 
problem with something else. They have a problem with the Congress 
micromanaging or mandating what private corporations do. This debate is 
not about excessive executive compensation, which we all condemn. This 
bill is not about income inequities, which we all are concerned about. 
This legislation is about this Congress beginning to tinker and mandate 
and obligate corporate governance with a vote, not a vote that we say 
they can take, because today they can take such a vote. A shareholder 
can ask for such a vote on executive compensation. What this 
legislation does is it mandates, it requires, it obligates every 
publicly held corporation in this country to take a vote on their top 
executives, not just the CEO but the CFO and on down the line. Each 
shareholder, if this legislation passes, will each year vote on the 
compensation of all these executives.
  And as so often happens in this body, when Congress begins to 
substitute its judgment for someone else's judgment, we have all kinds 
of problems that are created. I will predict today one of the problems 
will be that more companies will become privately held or closely held 
corporations. I will predict that hedge funds will grow, and they are 
already doing that, but this will just be gas on the fire. Publicly 
held corporations will be taken private by hedge funds. We will have 
private equity offerings. And all of a sudden, we don't have 
shareholders. We don't have a right to vote on compensation. We don't 
even have a right to own the assets of most American corporations.
  Now, today I have all kinds of rights. One of the rights that the 
gentleman from California mentioned, and I have done this, I have owned 
stock in companies, and I have seen those companies, those boards of 
directors and those CEOs, capture most of the profits of those 
companies. I have seen them award excessive option awards. And what I 
have done is I have sold my stock, and I have gone on and owned another 
company where that didn't happen. I voted with my feet.
  Now, the most successful corporations across this world are not in 
Australia. They are not in England. They are right here in America. And 
for over 100 years, we have allowed shareholders to bring proxies and 
ask for votes when they wanted to and by a certain majority get those 
votes. We have allowed that if the board of directors vote for 
excessive compensation today, shareholders have a right to put that 
board of directors on the road, and they have done that on cases. They 
have rescinded compensation packages. But whatever else you may 
disagree or agree with me, certainly you ought to be skeptical of the 
Congress of the United States, a Congress which does not allow the 
voters or our constituents to set our pay. They don't set our pay, but 
all of a sudden, we want the shareholders of corporations to actually 
vote on the pay of every executive. And we are mandating it. We are not 
just simply making it possible. It is possible today. It is more 
government intrusion. And, unfortunately, every time the government 
overreaches, the consequences don't come back to us in Congress. We 
will continue to earn a salary. We will continue to be up here. The 
consequences will be in these corporations, which are the drivers of 
our economy.
  So, in closing, let's not confuse this as a debate on excessive 
executive compensation. Let's just all agree we don't like it. Let's 
all agree that we have given the SEC the right, and they publish these 
salaries. And as we have seen so often, there is criticism in the 
papers, criticism by shareholders and boards of directors taking 
action. But let's not substitute our decision, and let's not second 
guess. Let's not interject the Congress and have the Congress start 
telling shareholders that they have to, have to pass judgment on the 
salaries of all top management in every public corporation.
  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

[[Page H3537]]

U.S. Chamber of Commerce, HR Policy Association and American Bankers 
Association.
                                         The Association of Senior


                                    Human Resource Executives,

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

     Hon. Spencer Bachus,
     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.
           Sincerely,
                                             Jeffrey C. McGuiness,
                                                        President.
                                 ______
                                 
                                        Chamber of Commerce of the


                                     United States of America,

                                   Washington, DC, March 27, 2007.
     Hon. Barney Frank,
     Chairman, Committee on Financial Services, House of 
         Representatives, Washington, DC.
     Hon. Spencer Bachus,
     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.
           Sincerely,
     R. Bruce Josten.
                                  ____



                                 American Bankers Association,

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

     Hon. Barney Frank,
     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

[[Page H3538]]

     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.

                              {time}  1820

  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. FRANK of Massachusetts. Mr. Chairman, I yield myself such time as 
I may consume.
  Mr. Chairman, I would just note in passing that I saw the letter from 
the Chamber of Commerce, and I was particularly struck that the Chamber 
of Commerce said we don't need this bill because Sarbanes-Oxley has 
been such a good law. Specifically, what they said was, Sarbanes-Oxley 
has yielded significantly stronger and more independent boards and 
compensation committees. So I think that the Chamber of Commerce's 
endorsement of the good results of Sarbanes-Oxley also ought to be made 
public here.
  Mr. Chairman, I yield my remaining time to the gentleman from North 
Carolina (Mr. Miller), a relatively senior Member. Not particularly the 
one I had in mind, but a very able and useful Member.
  The Acting CHAIRMAN (Mr. Etheridge). The gentleman from North 
Carolina is recognized for 5 minutes.
  Mr. MILLER of North Carolina. Mr. Chairman, I disagree with my 
friend, Mr. Bachus, who said this bill is not about income and 
equality. I think it is at least partly about income and equality. And 
I disagree with Mr. Roskam, who said that corporate executives, the 
CEOs, are responsible for the growth in the American economy, the 
increase in productivity in the American economy, and therefore they 
should be getting paid much more than they are.
  Mr. Chairman, I think the American worker is not getting enough 
credit for the growth in the American economy, for the increase in the 
productivity of the American economy. They are not getting enough 
credit on the floor of this House tonight, and they aren't getting 
enough credit in their paychecks, in how they are compensated, and 
there is a widening gap.
  It has never been a particularly small gap in this country. Fifteen 
years ago, the average CEO, the typical CEO, made 140 times what the 
average American worker at that corporation made. Now, 15 years later, 
it is 500 times what they make. It is a significant part of what the 
corporation makes overall; it is now 10.3 percent. The aggregate 
compensation of the top five executives is now 10.3 percent of the 
corporate profits of major corporations, public corporations in 
America. That is twice what it was 15 years ago.
  Yes, top corporate executives, CEOs, are getting more and more of the 
benefit of the growth in productivity and the profitability of 
corporations, and it is wildly out of alignment with what they are 
doing, how well they are leading the corporations.
  In fact, if you allow shareholder democracy, if you let shareholders 
have a say in how corporate executives are paid, because it is, after 
all, their company; they are going to insist that corporate performance 
be in alignment with corporate executives.
  We don't have shareholder democracy now, Mr. Chairman. This bill 
begins to get at that. But right now CEOs pick the boards of directors, 
the boards of directors pick the CEOs, they answer to each other, they 
don't answer to the shareholders.
  What we are considering now is very similar to what Great Britain has 
had for about 5 years, and it has worked pretty well in Great Britain. 
It has inhibited outrageous pay packages that have gone to CEOs and top 
executives in Britain.
  Here is what is happening: The boards of directors know that they are 
going to have to explain themselves. They are going to have to explain 
themselves to shareholders. They are going to have to tell shareholders 
exactly what the compensation is, and they are going to have to explain 
what it is and what they have done.
  That has inhibited what they have done. And they have gone back to 
the CEOs and said to the CEOs, look, we know you are worth every penny 
of what you are asking. But you know what a Bolshevik rabble our 
shareholders are. We will never be and to explain it to them. So they 
scale it back a little bit. And executive compensation in Great Britain 
has not gone up in the last 5 years the way it has in the United 
States, and the performance of Great Britain's corporations has been 
every bit as strong as what we have had here.
  Mr. Chairman, if we let corporate shareholders vote, if we allow 
corporate democracy, they are going to insist, they are not going to 
throw out every pay package. In fact, it has only happened one time in 
England in the 5 years. GlaxoSmithKline was embarrassed pretty badly, 
and they went back and they renegotiated their pay compensation for 
their CEO. But it has inhibited their conduct, and shareholders have 
voted for very generous pay packages where it is justified by the 
performance of the corporate executives.
  This bill makes a very modest change. But by simply requiring 
corporate boards of directors to explain what they are doing, to say 
right out in front of God and everybody what they are paying the CEO 
and why they are paying him that much, it has had an important change 
in corporate conduct in Great Britain, and it should here as well.
  Mr. Chairman, I yield back the balance of my time to Mr. Frank.
  The Acting CHAIRMAN. The gentleman from Massachusetts has 30 seconds 
remaining.
  Mr. FRANK of Massachusetts. Mr. Chairman, I would just say I also 
want to welcome this renewed faith that I have heard from my colleagues 
in the American corporate system. Recently corporate America and 
financial America has been lamenting how badly we regulate compared to 
England.
  We have heard from the Paulson Committee, so-called after the 
Secretary of the Treasury, we have heard from the Chamber of Commerce, 
we have heard from the McKinsey report that we should be more like 
England. I am glad now to have this affirmation that even with 
Sarbanes-Oxley that the Chamber of Commerce praises so loudly, even 
with the Securities and Exchange Commission apparently not being the 
FSA, the American system

[[Page H3539]]

still works. That is a good counter to some of what we have heard 
lately.
  Mr. MARKEY. Mr. Chairman, the ``Shareholder Vote on Executive 
Compensation Act'' is a bill whose time has come, and I am pleased to 
rise in strong support of this important legislation.
  According to the Congressional Research Service (CRS), in the past 
ten years, CEO pay has more than doubled, and the ratio of median CEO 
pay to worker pay has risen to 179 to 1. The escalation in executive 
pay raises significant issues, including the equity of widening income 
disparities and the potential that such extraordinary CEO salaries may 
be a result of inefficient labor markets. The bill before the House 
today provides a balanced, pro-market approach to this addressing 
issue. Specifically, the nonbinding advisory vote mandated in this bill 
will give shareholders a mechanism for supporting or opposing their 
company's executive compensation practices without diminishing the 
board's legal authority. Such a vote will signal to the board, without 
tying its hands, that the individuals who actually own the firm will 
hold the board accountable for CEO pay packages, which should give 
board members some pause before approving excessive compensation plans.
  H.R. 1257 does not cap, limit or change any CEO's pay. Rather, it 
simply requires that shareholders have a ``nonbinding'' say on their 
company's salary decisions. Moreover, the SEC already requires 
companies to disclose compensation. The SEC's recent executive 
compensation disclosure rules already require that companies disclose 
their compensation packages in their annual proxy. The annual vote 
requirement simply requires that companies add a line to that 
disclosure permitting shareholders to approve or disapprove the 
compensation packages and also tally the votes. Shareholders are the 
owners of our Nation's public companies. They should have the right to 
vote on the compensation packages for companies' senior officers.
  The cost to businesses complying with the bill's provisions would be 
minimal. In fact, CBO estimated that costs from the annual vote would 
fall well below the annual threshold for private sector mandates--that 
is, below $131 million in 2007 for the entire country. This is a tiny, 
and worthwhile, cost that is more than offset by the significant 
benefit it provides shareholders by enabling them to have their voices 
heard in the board room. Additionally, businesses are provided more 
than enough time to make the logistical arrangements necessary for the 
nonbinding advisory vote, as it would not be required until the 2009 
proxy season.
  The nonbinding vote has been used successfully in other countries. 
For example, the nonbinding advisory vote approach has been used in the 
United Kingdom since 2003 and is now used in Australia, without 
impeding economic activity in any way. To the contrary, the policy 
change is credited with improving management-shareholder dialogue on 
executive compensation matters and increasing the use of long-term 
performance targets in incentive compensation. In the United States, 
the nonbinding advisory vote on CEO pay recently was adopted 
voluntarily by Aflac, and is currently pending before numerous U.S. 
public companies.
  I commend my colleague from Massachusetts, Barney Frank, the Chairman 
of the House Financial Services Committee for bringing this important 
bill to the Floor today and urge an ``aye'' vote.
  Ms. JACKSON-LEE of Texas. Mr. Chairman, rise in strong support of 
this legislation. The average American has lost faith in corporate 
America. The typical consumer perceives these corporations as mighty 
entities who control this very floor that we speak on, ensuring that 
the corporations have their needs met at the expense of your average 
American. However, as members of Congress we represent middle class 
America, and we have to ensure that their interest are protected and 
addressed with fair and thoughtful legislation. That is why I am 
pleased to offer my support to H.R. 1257.
  As the average pay for non-management workers remains stagnant, 
corporate executives have enjoyed hefty pay raises. These payouts 
include the CEO's salary, expense accounts, stock shares, and 
retirement packages. The underlying legislation does not seek to punish 
these CEO's, or take from them what they have received. However, this 
legislation does hold accountable the board members responsible for 
making decisions on executive compensation although it does not take 
away their power.
  This legislation is about transparency. Transparency leads to trust 
which leads to consumer confidence, which means our economy will 
benefit in the long run. As Justice Brandeis said long ago, ``sunshine 
is the best disinfectant.
  Some may argue that the rise in salaries is in response to a 
competitive job market with very few qualified individuals. In part 
that may be true, but this is about protecting the shrinking middle 
class in a society where the rate of inflation and the cost of living 
has increased.
  To my colleagues who oppose this legislation, I ask that you 
seriously reconsider. In the end we have more to gain when corporations 
are forthright with business practices, especially as it pertains to 
executive compensation. The SEC has responded to this issue by revising 
its disclosure rules regarding executive compensation, but it is not 
enough. A publicly held corporation owes it to their shareholders, 
i.e., its investors to give them some type of consideration regarding 
executive compensation. Many middle class Americans have their 401(k) 
plans tied into stock options, thus they have a vested interest in what 
is occurring behind the closed doors of corporate America.
  I support H.R. 1257, I support middle class America, and I encourage 
my colleagues to do the same.
  The Acting CHAIRMAN. All time for general debate has expired.
  Pursuant to the rule, the amendment in the nature of a substitute 
printed in the bill is considered as an original bill for the purpose 
of amendment and is considered read.
  The text of the amendment in the nature of a substitute is as 
follows:

                               H.R. 1257

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Shareholder Vote on 
     Executive Compensation Act''.

     SEC. 2. SHAREHOLDER VOTE ON EXECUTIVE COMPENSATION 
                   DISCLOSURES.

       (a) Amendment.--Section 16 of the Securities Exchange Act 
     of 1934 (15 U.S.C. 78n) is amended by adding at the end the 
     following new subsection:
       ``(h) Annual Shareholder Approval of Executive 
     Compensation.--
       ``(1) In general.--Any proxy or consent or authorization 
     for an annual or other meeting of the shareholders occurring 
     on or after January 1, 2009, shall permit a separate 
     shareholder vote to approve the compensation of executives as 
     disclosed pursuant to the Commission's compensation 
     disclosure rules (which disclosure shall include the 
     compensation discussion and analysis, the compensation 
     tables, and any related material). The shareholder vote shall 
     not be binding on the board of directors and shall not be 
     construed as overruling a decision by such board, nor to 
     create or imply any additional fiduciary duty by such board, 
     nor shall such vote be construed to restrict or limit the 
     ability of shareholders to make proposals for inclusion in 
     such proxy materials related to executive compensation.
       ``(2) Shareholder approval of golden parachute 
     compensation.--
       ``(A) Disclosure.--In any proxy solicitation material for 
     an annual or other meeting of the shareholders occurring on 
     or after January 1, 2009, that concerns an acquisition, 
     merger, consolidation, or proposed sale or other disposition 
     of substantially all the assets of an issuer, the person 
     making such solicitation shall disclose in the proxy 
     solicitation material, in a clear and simple form in 
     accordance with regulations of the Commission, any agreements 
     or understandings that such person has with any principal 
     executive officers of such issuer (or of the acquiring 
     issuer, if such issuer is not the acquiring issuer) 
     concerning any type of compensation (whether present, 
     deferred, or contingent) that are based on or otherwise 
     relate to the acquisition, merger, consolidation, sale, or 
     other disposition, and that have not been subject to a 
     shareholder vote under paragraph (1).
       ``(B) Shareholder approval.--The proxy solicitation 
     material containing the disclosure required by subparagraph 
     (A) shall require a separate shareholder vote to approve such 
     agreements or understandings. A vote by the shareholders 
     shall not be binding on the board of directors and shall not 
     be construed as overruling a decision by such board, nor to 
     create or imply any additional fiduciary duty by such board, 
     nor shall such vote be construed to restrict or limit the 
     ability of shareholders to make proposals for inclusion in 
     such proxy materials related to executive compensation.''.
       (b) Deadline for Rulemaking.--Not later than 1 year after 
     the date of the enactment of this Act, the Securities and 
     Exchange Commission shall issue any final rules and 
     regulations required by the amendments made by subsection 
     (a).

  The Acting CHAIRMAN. No amendment to that amendment shall be in order 
except those printed in the portion of the Congressional Record 
designated for that purpose in a daily issue dated April 17, 2007, or 
earlier, and pro forma amendments for the purpose of debate. Each 
amendment so printed may be offered only by the Member who caused it to 
be printed or his designee and shall be considered read.


                 Amendment No. 1 Offered by Mr. Bachus

  Mr. BACHUS. Mr. Chairman, I offer an amendment.
  The Acting CHAIRMAN. The Clerk will designate the amendment.
  The text of the amendment is as follows:

       Amendment No. 1 offered by Mr. Bachus:
       Page 4, beginning on line 8, strike ``Section 16'' and 
     insert ``Section 14'', and on line 11, strike ``(h)'' and 
     insert ``(i).


[[Page H3540]]


  Mr. BACHUS. Mr. Chairman, as has been said during this debate, this 
legislation amends the 1934 Securities and Exchange Act, and it seeks 
to amend section 16. Section 16 covers reports by officers, directors 
and owners of 10 percent or more of the equity of a corporation and 
requires them to disclose certain equity positions. Section 14 of that 
act, on the other hand, deals with proxy statements and shareholder 
votes.
  Quite simply, this legislation requires a corporation, the 
shareholders of a corporation, to take a vote on the executive 
compensation of the top five or six executives, and therefore this 
legislation more appropriately ought to be placed under section 14.
  I want to thank Chairman Frank. I noted that it was more 
appropriately placed in section 14. He offered an identical amendment 
moving it to section 14 also, and has allowed me the courtesy of 
actually offering my amendment, as opposed to his amendment, which I 
think is just further evidence during the committee hearing on this 
issue and in the floor debate of his willingness and openness to fully 
discuss, fully debate and allow the minority to have participation in 
this debate. So I commend him for doing that.
  Mr. Chairman, I would simply move that we reorder this legislation 
and place it more properly in section 14 of the act.
  The SEC supports my amendment, and I urge its adoption.

                              {time}  1830

  Mr. FRANK of Massachusetts. Mr. Chairman, I move to strike the 
requisite number of words to first thank the gentleman from Alabama for 
his kind remarks about the way we have been working together in 
committee. I would just say that I have too recently been in the 
minority to be abusive. I hope that will last. I certainly intend it 
to. I am told, by the way, by our Parliamentarian, who, as the 
gentleman knows, was the Parliamentarian when the other side was in the 
majority, we have already had more rollcalls in committee in this year 
than we have had in the previous congressional session. While we have 
been moving a lot of bills and we have been able to do it 
expeditiously, I think we've aired a lot of issues, on this particular 
case, members of the minority made this suggestion, and it is a 
plausible one. It improves the bill. I realize that they still don't 
like it, but I appreciate this constructive spirit, and so I urge 
adoption of the amendment.
  The Acting CHAIRMAN. The question is on the amendment offered by the 
gentleman from Alabama (Mr. Bachus).
  The amendment was agreed to.


                 Amendment No. 12 Offered by Mr. Roskam

  Mr. ROSKAM. Mr. Chairman, I have an amendment at the desk.
  The Acting CHAIRMAN. The Clerk will designate the amendment.
  The text of the amendment is as follows:

       Amendment No. 12 offered by Mr. Roskam:
       Page 4, line 13, strike ``In general'' and insert ``Annual 
     vote''.
       Page 4, beginning on line 14, strike ``or other meeting of 
     the shareholders'' and insert ``meeting of the shareholders 
     (or a special meeting in lieu of the annual meeting)''.
       Page 5, beginning on line 7, strike ``or other meeting of 
     the shareholders'' and insert ``meeting of the shareholders 
     (or a special meeting in lieu of the annual meeting)''.

  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. FRANK of Massachusetts. Mr. Chairman, I move to strike the 
requisite number of words.
  The gentleman from Illinois has accurately described this, and I urge 
its support.
  The Acting CHAIRMAN. The question is on the amendment offered by the 
gentleman from Illinois (Mr. Roskam).
  The amendment was agreed to.


  Amendment No. 4, As Modified, Offered by Mr. Frank of Massachusetts

  Mr. FRANK of Massachusetts. Mr. Chairman, I rise to offer amendment 
No. 4 and to make a unanimous consent request to modify it.
  The Acting CHAIRMAN. The Clerk will designate the amendment.
  The text of the amendment is as follows:

       Amendment No. 4 offered by Mr. Frank of Massachusetts:
       Page 4, line 13, strike ``In general'' and insert ``Annual 
     vote''.
       Page 4, beginning on line 14, strike ``or other meeting of 
     the shareholders'' and insert ``meeting of the shareholders 
     (or a special meeting in lieu of the annual meeting)''.
       Page 4, line 16, strike ``shall permit'' and insert ``shall 
     provide for''.
       Page 4, line 22, insert ``the corporation or'' after 
     ``binding on''.
       Page 5, beginning on line 7, strike ``or other meeting of 
     the shareholders'' and insert ``meeting of the shareholders 
     (or a special meeting in lieu of the annual meeting)''.
       Page 6, line 3, strike ``shall require'' and insert ``shall 
     provide for''.
       Page 6, line 6, insert ``the corporation or'' after 
     ``binding on''.

  The Acting CHAIRMAN. The Clerk will report the modification.
  The Clerk read as follows:

       Modification to amendment No. 4 offered by Mr. Frank of 
     Massachusetts:
       Page 4, line 19, strike ``shall permit'' and insert ``shall 
     provide for''.
       Page 4, line 25, insert ``the corporation or'' after 
     ``binding on''.
       Page 6, line 5, strike ``shall require'' and insert ``shall 
     provide for''.
       Page 6, line 8, insert ``the corporation or'' after 
     ``binding on''.

  Mr. FRANK of Massachusetts (during the reading). Mr. Chairman, I ask 
unanimous consent that the amendment, as modified, be considered as 
read and printed in the Record.
  The Acting CHAIRMAN. Is there objection to the request of the 
gentleman from Massachusetts?
  There was no objection.
  The Acting CHAIRMAN. Without objection, the amendment is modified.
  There was no objection.
  Mr. FRANK of Massachusetts. I appreciate the other side going into 
their non-objectionable mode, at least for the nonce.
  I did this because I had an amendment that included several 
provisions, one of which was identical to the provisions the gentleman 
from Illinois just offered, and that having been adopted, it would be 
redundant to do it again. This is, again, I believe, a technical 
amendment. It simply tries to conform the language in the bill with 
regard to what it requires.
  I think the best way to say it, Mr. Chairman, is this. There was 
disagreement on the substance of what we require. We did want to make 
it clear, however, that we weren't requiring any more than that, and 
any suggestion that we might have been creating procedural or other 
kinds of obstacles, we wanted to work together to avoid. This is in 
furtherance of that, so I ask that the amendment be adopted.
  The Acting CHAIRMAN. The question is on the amendment offered by the 
gentleman from Massachusetts (Mr. Frank), as modified.
  The amendment, as modified, was agreed to.


          Amendment No. 6 Offered by Ms. Jackson-Lee of Texas

  Ms. JACKSON-LEE of Texas. Mr. Chairman, I offer an amendment.
  The Acting CHAIRMAN. The Clerk will designate the amendment.

[[Page H3541]]

  The text of the amendment is as follows:

       Amendment No. 6 offered by Ms. Jackson-Lee of Texas:
       Page 6, line 13, strike the close quotation marks and 
     following period and after such line insert the following new 
     paragraph:
       ``(3) Website disclosure of vote.--Not later than 30 days 
     after the votes provided for in paragraphs (1) and (2)(B) are 
     counted, the issuer shall post the results of such vote in a 
     prominent location on the issuer's Internet website (if the 
     issuer maintains an Internet website).''.

  Ms. JACKSON-LEE of Texas. Mr. Chairman, let me thank the chairman of 
the full Committee on Financial Services and the ranking member. Let me 
answer, in the course of debating or discussing this amendment, a 
question that was raised in debate earlier today, and it made the point 
that nothing is being done. Let me make a resounding point of 
opposition to that statement and say, yes, something is being done. It 
is making the shareholders of America stakeholders in the major 
corporations of America. It's making them relevant. It's making them 
equal, if you will, to those who make decisions about the termination 
of employees, the direction of business, and yet have no input from the 
holders of the company on the compensation of the chief executive.
  This is a positive step in the right direction. It is a light at the 
end of the tunnel. And I say that because most recently we heard of the 
most shocking termination of large numbers of employees of Citicorp. 
But some 24 hours later, we heard a small voice say that also the CEO 
would be looking to cut his compensation to let the shareholders know 
and the employees know that he, too, would experience the pain of 
cutbacks.
  My amendment simply augments this legislation by suggesting, or 
requiring, that the votes that were taken by the shareholders be 
actually posted. So even though this is a nonbinding vote, all might be 
able to see. And I know that there are certainly other means of 
reporting this particular vote count, but I think it would be important 
to do so.
  Now, let me indicate that I want this bill to pass, and frankly, I 
want to find every way that we never have an Enron or WorldCom where 
individuals such as a Mr. Fastow had an enormous latitude of salary but 
wasn't worried about bringing the company down. I want to work with 
this committee as we move forward.
  Mr. FRANK of Massachusetts. Mr. Chairman, will the gentlewoman yield?
  Ms. JACKSON-LEE of Texas. I would be happy to yield to the 
distinguished gentleman from Massachusetts.
  Mr. FRANK of Massachusetts. I thank the gentlewoman. She is, as 
always, a staunch defender of her constituents, including those who 
were hurt by Enron.
  I could not object to this in principle, and I did say this. We made 
an effort to make this bill minimally intrusive. I would expect that 
these votes would be promptly published. But the gentlewoman has a 
legitimate concern, and I would make this commitment to her: If this 
bill becomes law and we encounter any effort not fully and promptly to 
publish these, then I promise her an immediate hearing and action on 
her amendment.
  So I think we will take this, I hope, as a chance to give people the 
message, if this bill becomes law, it should be complied with 
forthrightly and effectively; and if we encounter any efforts at any 
kind of obfuscation, then the gentlewoman, I promise her, will be back 
on the floor with our support.
  Ms. JACKSON-LEE of Texas. Reclaiming my time, let me indicate in 
conclusion my desire to work with this committee, particularly since 
such a great impact has been experienced by those in the Houston area 
and certainly around the country.
  With that in mind, my intent was, of course, to further enhance the 
rights of stakeholders and shareholders. I look forward to working with 
the chairman and more importantly look forward to the compliance when 
this bill becomes law so that all are, if you will, in concert with the 
prompt and efficient leadership of America's corporations.
  Thank you for the opportunity to speak on my amendment to H.R. 1257, 
the ``Shareholder Vote on Executive Compensation Act.'' My amendment is 
a step towards transparency.
  By requiring the company to post in a prominent place, on the 
company's website the results of any shareholder votes on executive 
compensation, shareholders, consumers, and the general public will 
regain their confidence in corporate America.
  My amendment is non-controversial and makes sense, and its 
Shareholders, employees, vendors, and the public have a vested interest 
in transparency, especially in light of the numerous corporate scandals 
that have occurred in recent years.
  I urge my colleagues to support this legislation. Executive salaries 
have risen dramatically, while the average American worker continues to 
struggle.
  My amendment and the underlying bill will hold board members 
accountable for their decisions regarding executive compensation. While 
many on the other side of the aisle have mentioned unintended 
consequences in their objection to this legislation, I will mention the 
real consequences. The real consequence of passing this legislation 
along with my amendment is the positive message we will send to the 
American people. That message is that we, Members of Congress are more 
concerned with the problems facing the struggling middle class than we 
are in helping corporate CEO's hide the amount of their compensation 
from the American people. I urge you to support my amendment.
  Mr. Chairman, I ask unanimous consent to withdraw this amendment.
  The Acting CHAIRMAN. Without objection, the amendment is withdrawn.
  There was no objection.

                              {time}  1840


                Amendment No. 13 Offered by Mr. Sessions

  Mr. SESSIONS. Mr. Chairman, I offer an amendment.
  The ACTING CHAIRMAN. The Clerk will designate the amendment.
  The text of the amendment is as follows:

       Amendment No. 13 offered by Mr. Sessions:
       Page 6, line 13, strike the close quotation marks and 
     following period and after such line insert the following new 
     paragraph:
       ``(3) Disclosure of activities to influence vote.--
     Notwithstanding paragraphs (1) or (2)(B), a shareholder's 
     vote shall not be counted under such paragraphs if the 
     shareholder has spent, directly or indirectly, more than a de 
     minimis amount of money (as determined by the Commission) on 
     activities to influence a vote of other shareholders, unless 
     such shareholder discloses to the Commission, in accordance 
     with rules prescribed by the Commission--
       ``(A) the identity of all persons or entities engaged in 
     such a campaign;
       ``(B) the activities engaged in to influence the vote; and
       ``(C) the amount of money expended on such a campaign.''.

  Mr. SESSIONS. Mr. Chairman, my amendment would, very simply, provide 
sunshine and transparency for shareholders so that there is full 
disclosure about who is financing efforts to influence their vote on 
this new congressionally mandated, nonbinding shareholder resolution. 
Let me give an example of a substantially similar disclosure 
requirement that every Member of this body understands, because it is 
already a current practice.
  As Federal candidates, we are each obligated to disclose to the 
Federal Election Commission the name, occupation and amount given from 
each of our donors. These funds can then be used for FEC-approved 
campaign purposes. We require this, as well as we create caps for the 
amount that can be donated over a legislation cycle, because public 
interest is advanced by letting those who cast votes for their Members 
of Congress know who funds these campaigns.
  My amendment would not limit the amount that can be spent like the 
FEC does for political contributions on the amount that people or 
organizations like labor bosses, environmental groups or consumer 
advocates spend on influencing this new mandatory nonbinding vote.
  The purpose of this amendment is not to impede the ability of 
organizations to influence this vote. If they hold shares in stock, 
they would be willing to express their desires. The point of this 
amendment is simply to provide voters, in this case, shareholders, with 
access to information about who is spending money to influence that 
vote.
  My amendment tasks the Securities and Exchange Commission with 
setting a de minimis level of spending and with collecting important 
information about anyone or any organization that spends over that 
amount to influence this vote, including who is spending the money, 
what they are spending the money on and how much they are spending to 
influence the votes of other shareholders. If an individual wants to

[[Page H3542]]

spend more than this de minimis amount and not disclose their identity 
to shareholders, they are still perfectly able to do so. However, their 
votes would no longer count in this mandatory vote.
  My amendment provides an appropriate level of transparency for 
shareholder elections. And if we believe that voters deserve this 
information, then we should also be willing to give shareholders this 
same level of transparency.
  I firmly disagree with the Democrat majority, with the underlying 
premise of this legislation that it is the Federal Government's job to 
place this nonbinding mandate on private entities, especially because 
public companies are already empowered to take this shareholder vote if 
they so choose and because there is no obligation for anyone to own 
shares in the company if they do not like the way that it is being 
managed.
  I am also confused by the Democrat majority's recent conversion to 
the merits of democracy in determining an organization's actions. Less 
than 2 months ago, the same leadership brought to the floor legislation 
that strips American workers of the right to use a secret ballot to 
decide whether or not to unionize, and provides for unprecedented 
intimidation of employees by union bosses under a fundamentally 
antidemocratic process known as ``card check.''
  But if we are going to pass this interventionist legislation, my 
amendment would be one small step in the right direction towards giving 
shareholders all the disclosures that they might need to make an 
informed decision.
  Mr. Chairman, I include for the Record a letter of support from the 
American Shareholders Association that was sent to Speaker Pelosi in 
support of my amendment.


                            American Shareholders Association,

                                   Washington, DC, April 18, 2007.
     Hon. Nancy Pelosi,
     Speaker, House of Representatives,
     Washington, DC.
       Dear Speaker Pelosi: On behalf of American Shareholders 
     Association (ASA), I wish to express this organization's 
     strong support for an amendment to be offered to H.R. 1257 by 
     Rep. Pete Sessions. In short, this amendment seeks greater 
     disclosure of funding designed to influence shareholder 
     votes.
       Over the past several years we have witnessed the rise of 
     special interest groups seeking to turn boardroom votes into 
     political campaigns. While activist investors seeking to 
     increase shareholder value is welcome by our standards, we 
     have become increasingly concerned by activist investors 
     seeking to achieve political gain with board votes and little 
     regard to what is in the best interests of shareholders.
       As such, today's vote on H.R. 1257 should be amended to 
     impose sunlight on the political campaigns being waged in 
     corporate boardrooms, which the Session amendment achieves. 
     This is accomplished by tasking the Securities and Exchange 
     Commission with collecting information regarding the 
     shareholders spending money to influence the vote; the amount 
     spent; and the activities the money was spent on.
       While corporate governance is a worthwhile objective we 
     have witnessed a substantial increase in the number of 
     shareholders using this term as a guise at the expense of 
     individual shareholders. The Sessions amendment is designed 
     to protect individual investors from these activities and I 
     urge you and the entire Democratic Caucus to support this 
     very worthy amendment.
           Sincerely,
                                                   Daniel Clifton,
                                               Executive Director.

  Mr. GEORGE MILLER of California. Mr. Chairman, I rise in opposition 
to the amendment.
  I don't know how many conversations Members of this House have had 
with corporate officers and leaders, but very often when you ask them 
why they will do something or not do something, they tell you that they 
are there because they have to take care of their shareholders, they 
have to protect their shareholders, and the shareholders control the 
corporation.
  But when we get to executive pay, all of a sudden we find out that 
they really don't want to have this discussion among shareholders about 
executive pay. And here we are presented with an amendment that is 
designed to close down those discussions, and it is certainly designed 
to close down those discussions among average shareholders.
  I don't know when the shareholder gets the determination of whether 
or not they have spent a de minimis amount of money or not. I don't 
know for a retiree, for a pensioner or a worker of that corporation, if 
they spend $100 or $500, if they give to a campaign, is that a de 
minimis amount? Maybe to them it is not, but it may be to the campaign. 
I don't know when that determination is made so that they can then 
speak out or not speak out or have their vote counted.
  And when are they in jeopardy or not in jeopardy? I don't know. Are 
they responsible for the rest of the campaign if they simply decide to 
send money to a campaign and vote their vote because it is the only 
organization available when it is an organization if pensioners decide 
that they don't like the direction this company is going?
  So what you are really doing here is, you are trying to chill the 
speech and freeze the speech by putting them and holding them 
responsible for the disclosure that they may not have any control over. 
They may not have any control over the entities, all persons or 
entities engaged in such a campaign, they may not know that. They may 
know they just don't like that executive compensation or they want a 
discussion of it. They don't necessarily know the activities engaged in 
to influence the vote.
  You know, a lot of times people will hear about these campaigns in 
the newspaper because they are there, and they don't know the amount of 
money that is expended on the campaign. When do they get to vote? When 
do they get to vote? They don't have this information on their person, 
so to speak, but unless they can comply with this form, their vote is 
not counted.
  Now, let's flip it over to the other side. The corporation can use 
corporate funds to make a general solicitation of proxies. They don't 
even have to speak about this campaign, they don't even have to speak 
about executive pay. They make a general solicitation. They say the 
shareholders' meeting is coming up, this is the agenda and this is what 
is going to be on it. Then they get to vote any way they want. What the 
hell is going on here?
  I want to spend $100 or $500 because I think that this is not in the 
best interest of me. I am a shareholder, I own the stock, and I have 
got to jump over all the hoops; and the corporation just glides through 
an election and they have the proxies. This sounds like the problem 
with executive compensation; the decision is made at the corporate 
level, and nobody gets to second-guess it.
  Send out a general solicitation. Maybe there is no campaign against 
executive pay at the time that the solicitation for proxies goes out. 
You know why? Because very often most people don't know what the 
executive pay is. You can read that form until you are blue in the face 
and you don't know what it is.
  How many times have we heard executive compensation boards say, I was 
in the room, I didn't know we were paying them $37 million? I was in 
the room, I didn't know he got those stock options. I was in the room. 
That is why we started putting responsibility on people who were in the 
room.
  But now this poor shareholder, this poor shareholder who is not in 
the room, who is not on the inside deal, this person has to jump 
through hoops. And then I guess what do you do? You petition to have 
them count your vote, and then in the petition you say, to the best of 
my knowledge, these are all persons who were engaged in the campaign, 
and to the best of my knowledge, this is what they did to influence a 
vote, to the best of my knowledge, this is the amount of money spent; 
and if it turns out to be wrong, your vote is thrown away. You call 
that democracy? That sounds like what they call democracy in Latin 
America or something.
  Mr. FRANK of Massachusetts. Mr. Chairman, will the gentleman yield?
  Mr. GEORGE MILLER of California. I yield to the gentleman from 
Massachusetts.
  Mr. FRANK of Massachusetts. The gentleman should give my friends on 
the other side credit for consistency. As he knows, their definition of 
democracy has recently frequently included throwing votes away.
  Mr. GEORGE MILLER of California. You mean those 13,000 in Florida 
that are missing? I thank the gentleman.
  So this is an incredibly one-sided amendment. This should not be 
accepted by this House. This certainly should not be accepted when the 
purpose of the legislation is to expand the participation, the 
meaningful participation of the shareholders, the people who made a 
decision to go out and to buy the

[[Page H3543]]

stock, or they earned it in their retirement fund.

                              {time}  1850

  The Acting CHAIRMAN. The time of the gentleman from California (Mr. 
George Miller) has expired.
  Mr. GEORGE MILLER of California. Mr. Chairman, I ask unanimous 
consent to proceed for 2 additional minutes.
  The Acting CHAIRMAN. Is there objection to the request of the 
gentleman from California?
  Mr. SESSIONS. I don't have an objection. I would ask the same.
  Mr. FRANK of Massachusetts. I will extend the gentleman a similar 
courtesy.
  Mr. SESSIONS. Then that would be fine; the gentleman may continue.
  The Acting CHAIRMAN. Without objection, the gentleman is recognized 
for 2 additional minutes.
  There was no objection.
  Mr. GEORGE MILLER of California. The point is this. The purpose of 
this legislation is to address a situation which has unfolded in this 
country in front of so many American workers, so many retirees, so many 
people who are close to retirement, when all of a sudden they see that, 
in the executive suites, they take care of themselves in the cloak of 
secrecy. And so when all of a sudden a major airline, a major 
automobile company or any other major corporation goes into bankruptcy, 
they find out that the executives, as part of their compensation, 
decided that they would have a bulletproof deferred retirement 
compensation plan, a bulletproof pension plan; while everybody else was 
in bankruptcy, that they created a trust, all part of executive 
compensation. And that is why people are now saying these shareholders, 
the vaunted basic fundamental makeup of the corporation, the 
shareholders should be engaged in this conversation.
  This amendment comes to the forefront and really starts to strip away 
that discussion. Reminding you, this is a discussion, since this is a 
nonbinding advisory vote, so this is a discussion and a vote. And so 
the question really is, are we going to take the very same people who 
we pay great deference to when the corporation wants to tell you why 
they have to do something or they can't do something, it is because of 
the shareholders; but when it comes to executive compensation, we are 
going to shut down the ability of those individual shareholders and 
retirees and others to be able to have this discussion about executive 
compensation. And executive compensation is getting so large now that 
it in fact does impact the shareholders, because many corporations if 
you look at it, you think how much would they have to do to drive that 
amount of money to the bottom line? What would they have to do to drive 
that amount of money to the bottom line? This amendment should be 
rejected because it is contrary to the purpose and intent of this bill.
  Mr. FRANK of Massachusetts. Mr. Chairman, I ask unanimous consent 
that the gentleman from Texas be permitted to proceed for 2 additional 
minutes.
  The Acting CHAIRMAN. Without objection, the gentleman from Texas is 
recognized for 2 minutes.
  There was no objection.
  Mr. SESSIONS. Mr. Chairman, I appreciate the gentleman from 
California as well as the gentleman from Massachusetts, who, as the 
chairman of the committee, has forthrightly come before the Rules 
Committee, made himself available and is doing so again tonight on the 
floor.
  Mr. Chairman, it is quite simple that this is about transparency, and 
I think that is what this bill is about. It is about bringing 
transparency and some clarity to a shareholder, to be able to know a 
little bit more and to express themselves about what they think about 
executive compensation.
  I disagree with that. But let's add some more transparency and at 
least say that if someone else is going to become engaged in the 
effort, other than the individual shareholder, that they be given an 
opportunity to have to at least register their activities and what they 
are doing. The Securities and Exchange Commission, just like the 
Federal Election Commission, has a lot of knowledge about how business 
works and how transactions work. I have no reason to assume that, let's 
say, GE, that they would have a shareholder for GE held to some 
standard of $500 or $1,000 as the gentleman suggests, that some retiree 
could not influence as many people as they wanted, that they would have 
to go through a reporting process.
  Mr. Chairman, the bottom line is that this should be about doing the 
right thing, where we would understand who was on what side, what they 
were attempting to influence and whether they were trying to influence 
the corporation in some way. I think shareholders should know about 
that.
  I believe that the SEC could forthrightly understand that the size of 
the company, the size of the mailing and those things that happen would 
be appropriately determined. Obviously, if you are going to go on TV, 
that threshold might be less. If you are going to go in the mail, 
perhaps a different threshold. But what I am suggesting to you is it is 
not us setting the standard; it is the Securities and Exchange 
Commission that wants to regulate, in a fair and proper way, the 
marketplace.
  The Acting CHAIRMAN. The time of the gentleman from Texas (Mr. 
Sessions) has expired.
  (On request of Mr. Frank of Massachusetts, and by unanimous consent, 
Mr. Sessions was allowed to proceed for 1 additional minute.)
  Mr. SESSIONS. I do thank the gentleman in fairness for giving me the 
additional minute that they were given.
  So I would ask this body to understand today that we might well be 
passing this bill, but that this amendment process is to bring forward 
ideas that bring clarity and understanding of transparency. I believe 
shareholders would also be entitled to know who is attempting to 
influence them and what those words might be that they choose, rather 
than just beating up a company. I don't think it is good for anybody in 
this country to receive a message that might be aimed at someone 
without full disclosure, without the proper notification about who they 
were and what their intentions were. This is about transparency. This 
is about sunlight. This is about doing the right thing that would 
enhance the bill that is before us today.
  Mr. Chairman, I appreciate the opportunity for Mr. Frank to be able 
to not only forthrightly offer me the time in fairness, I would also 
like to thank the Rules Committee, of which I have been a member now 
for 9 years. I understand what we are doing here, and I will say that I 
appreciate the way this bill has been handled.
  Mr. WATT. Mr. Chairman, I move to strike the last word.
  I rise in opposition to the gentleman's amendment.
  The gentleman has indicated that this is about transparency. I really 
don't think it is about transparency. The underlying bill is about 
transparency and giving shareholders the information they need to at 
least express themselves about salary increases and golden parachutes, 
both of which I think all of my colleagues have acknowledged are 
problems that need to be addressed.
  What this amendment is about is more about two things. One is the 
ability to express ourselves to each other as shareholders without 
impediments. That at some level is a free speech issue. The second 
thing this amendment is about is balance. What the gentleman would say 
to shareholders is, if you communicate with other shareholders about 
executive compensation or a golden parachute, then your vote gets 
disqualified. But if the corporate executive communicates with other 
shareholders about this issue, they can do it in an unimpeded way and 
without any consequence.
  So if the gentleman were interested in making this a balanced 
amendment, what he would do is to add a provision that said, if the 
executives communicated with the shareholders about the vote, then they 
would be disqualified from getting any salary increase if they didn't 
disclose if they had spent anything other than a de minimis amount of 
money communicating with the shareholders. That would give it some 
balance. But right now, it is, as the gentleman from California has 
pointed out, a completely unbalanced equation. And it is not unlike 
what is already existing in this executive compensation arena because 
the scales are

[[Page H3544]]

totally unbalanced against shareholders, and the underlying bill 
attempts to at least in some measure restore a sense of balance and 
give shareholders more rights. It doesn't do it in an intrusive way. In 
fact, there are a number of proposals, including one on the Senate 
side, that would be a lot more intrusive than this bill.
  I think this is the least intrusive way to do it, and I support the 
underlying bill and oppose the gentleman's amendment to the bill.

                              {time}  1900

  The Acting CHAIRMAN. The question is on the amendment offered by the 
gentleman from Texas (Mr. Sessions).
  The question was taken; and the Acting Chairman announced that the 
noes appeared to have it.
  Mr. SESSIONS. Mr. Chairman, I demand a recorded vote.
  The Acting CHAIRMAN. Pursuant to clause 6 of rule XVIII, further 
proceedings on the amendment offered by the gentleman from Texas will 
be postponed.


          Amendment No. 5 Offered by Mr. Garrett of New Jersey

  Mr. GARRETT of New Jersey. Mr. Chairman, I offer an amendment.
  The Acting CHAIRMAN. The Clerk will designate the amendment.
  The text of the amendment is as follows:

       Amendment No. 5 offered by Mr. Garrett of New Jersey:
       Page 4, line 13, strike ``Any proxy'' and insert ``Subject 
     to paragraph (3), any proxy''.
       Page 5, line 6, strike ``In any proxy'' and insert 
     ``Subject to paragraph (3), in any proxy''.
       Page 6, line 13, strike the close quotation marks and 
     following period and after such line insert the following:2
       ``(3) Conditions triggering vote.--The shareholder vote 
     requirements of this subsection shall only apply if the 
     executive compensation (as disclosed pursuant to the 
     Commission's compensation disclosure rules) exceeds by 10 
     percent or more the average compensation for comparable 
     positions--
       ``(A) in companies within the issuer's industry; and
       ``(B) among companies with comparable total market 
     capitalization,

     as determined in accordance with regulations issued by the 
     Commission.''.

  Mr. GARRETT of New Jersey. Mr. Chairman, I rise to offer this 
straightforward and commonsense amendment today to provide shareholders 
and companies better guidance on what constitutes an excessive 
executive compensation package that this interventionist, otherwise, 
legislation before us does.
  But before I do that, I commend the distinguished chair of the 
committee for his hard work on this legislation, but I would like to 
point out an inconsistency in his approach to this legislation.
  We now have before us new SEC guidelines on executive compensation 
transparency. These new rules, unfortunately, have not even been given 
a chance, not an opportunity to bear any results or any fruit 
whatsoever. So without giving time to see if these new SEC rules will 
work, the chairman and this House are rushing ahead to consider 
legislation to address the issue.
  But on the other hand, Mr. Chairman, in regards to Sarbanes-Oxley 
reform, the SEC is also considering new guidelines to address numerous 
concerns, and in that case, the chairman believes that Members need to 
be patient and let the SEC do its job. In fact, we have not even had a 
single hearing on that topic. We are told we need to wait and see if 
the new regulations will fix the current problems in the corporate 
sector.
  But after listening to numerous arguments by the chairman about 
inconsistency, and even tonight as well, I thought it important to 
point this out, that we should be consistent on these two matters and 
to give both avenues an appropriate time to work things through. But if 
we are not going to do that, that is why I propose this amendment.
  This commonsense amendment I have offered today attempts to keep us 
focused on the perceived problems of excessive compensation. This 
amendment would establish a trigger that would have to be met before 
shareholders vote on executive compensation packages. The trigger would 
require that executive compensation exceed by 10 percent or more the 
average compensation for comparable industries in that particular 
sector and would require that the executive compensation question 
exceed by 10 percent or more the average compensation for comparable 
positions among companies with comparable total market capitalization. 
In essence, the SEC is being tasked with deciding which companies fit 
into these two categories for the purposes of determining these two 
percentages.
  So, it is simple. Essentially my amendment seeks to limit the 
required votes to instances where the disclosed excessive compensation 
in question grossly exceeds the norm and provides a quantitative 
guideline for what constitutes the norm and what constitutes gross 
excess. If the underlying bill were to pass as it is currently drafted, 
we will be forcing literally thousands of public companies across this 
country to conduct shareholder votes on every single pay package for 
every single CEO of every single public company all the time.
  Now, while the courts have said before ``we know it when we see it'' 
can be a useful test in certain circumstances, if we have the ability 
to provide better guidelines to American businesses and consumers, then 
we should do so in this legislation.
  We all know of the large compensation packages that have been given 
over the last several years. The media has ensured that those that 
receive extraordinary pensions make it to the media, but you know, for 
every one of those huge packages, there are literally hundreds, maybe 
thousands, of other compensation packages that are far more standard. 
They are within the norm, and we really should not be requiring a vote 
on each and every one of those that are falling into that category and 
failing to give the shareholders in those cases the proper information.
  So, by adopting this amendment, we will allow thousands of 
hardworking public companies to continue their day-to-day work without 
interruption, and we will be better able to focus on the new executive 
compensation packages that are outside of the comparative norm and may 
not be in the best interests of the shareholders.
  Mr. WATT. Mr. Chairman, will the gentleman yield?
  Mr. GARRETT of New Jersey. I yield to the gentleman from North 
Carolina.
  Mr. WATT. Mr. Chairman, I am just trying to be clear, under your 
amendment, who would make this determination of whether it is outside 
the norm? Where would the information come from? Has anybody done a 
cost analysis of what it would cost to obtain this information?
  Mr. GARRETT of New Jersey. Reclaiming my time, the SEC, as I said, 
will be tasked with deciding which companies fit into these categories 
for the purposes of determining these percentages.
  Mr. WATT. Is that spelled out in your amendment?
  Mr. GARRETT of New Jersey. Yes.
  Mr. WATT. Okay.
  Mr. SCOTT of Georgia. Mr. Chairman, I move to strike the last word.
  I rise to oppose the amendment from my good friend from New Jersey. I 
certainly can appreciate and value his thought and his effort. He 
presented this amendment in committee. It was voted down at that time. 
The chairman has seen fit for us to explore it here.
  I think it is very, very important to, first of all, take a very good 
look at this amendment because I think the American people have 
certainly tuned into this debate, and on the surface of it, it sounds 
very nice and good. You recognize that there is a problem; you are just 
saying that it ought to be, let us just deal with that that is above 10 
percent.
  But let us look at the wording of this amendment for a moment just to 
show the difficulty of it. It would allow shareholder votes on 
executive compensation packages but only if executive compensation at 
the company exceeds 10 percent or more the average compensation at 
companies within the same industry and among companies with comparable 
total market capitalization. A very complicated procedure at best.
  One of the first and most fundamental reasons why we oppose this 
amendment is because it is cleverly designed to do one thing and one 
thing only, and that is basically to gut this bill because it is 
totally unenforceable.
  The gentleman from North Carolina raises a very important point that 
I

[[Page H3545]]

raise. You know, how can you determine this? Who determines this? And 
when you say, the Securities and Exchange Commission, they are not in 
power to do this. What sanction do you have? And is it ``and'' or is it 
``or'' market capitalization of 10 percent?
  Let me get my point out a little further. As you go in and you talk 
about the Securities and Exchange Commission and their rules and what 
they are doing, it is clear to understand that there is nothing within 
what the SEC is proposing that ensures the bottom line of what we are 
after, and that is investor confidence in the transparency and 
accountability.
  This is a very different time within the history of American 
enterprise. We have ballooned into a stratosphere of CEO compensation. 
That is also compounded by a new culture within corporate America. You 
no longer have the sole cases of the man coming up, working his way up 
through the company, works his way up and spends 20, 30 years with the 
company, 25, 40 years with the company and becomes CEO. No, what you 
have now is a series of hired guns who move from company to company, 
with a battery of lawyers, with packages and sort of like free agents 
here at this corporation, one at another, one the next, different 
industries.
  So what we have here is a response to that situation that has 
resulted in these very personalized compensation packages that are made 
among two or three interested parties and a board of directors member 
perhaps of a compensation team and this individual without any input 
from the legitimate owners of the company that invest in it.
  Now, let me make one other point very clear of what we are doing. All 
the companies, we should not single out any companies say if it is 10 
percent of this or that, even if you could define the rather 
complicated formula that you have. What we are saying is every 
stockholder, every company with shareholders publicly traded, should 
have that opportunity to weigh in and have a say on the compensation 
packages.
  I might add that, in the point that was spoken before, when you said, 
well, these companies will fold up and they will come off and not be 
public anymore and be private, that in and of itself points out the 
need for this bill. For if a company, based upon just wanting to keep 
secret or keep within the domain what one CEO, one employee, that 
desire would force them to go private, that lets you know right there 
if that happens, but as the information is flowed to us, every company 
that has had a say-so on this, you name it, I mentioned AFLAC, the 
Coca-Cola company and Home Depot, which just had a little hit here, but 
even they are moving.
  Mr. ROSKAM. Mr. Chairman, I move to strike the last word, and I yield 
to the gentleman from New Jersey (Mr. Garrett).
  Mr. GARRETT of New Jersey. Mr. Chairman, the amendment before us, in 
fact, is intended to strengthen the bill and not, as the gentleman 
says, to gut the bill.
  How does it strengthen the bill? It does so by addressing the exact 
problem that the gentleman just set forth as what they were intending 
to do with the legislation in the first place.
  The gentleman, and also in committee, went on and all the testimony 
was about excessive compensation packages and how this is an egregious 
situation for this country and for the investors. I do not think we had 
one person who came before the committee, nor has anyone from the other 
side of the aisle made an example of saying that we should be doing 
something about fair compensation packages or compensation packages 
that only went up a small percentage.
  All the testimony, all the argument before, all the argument we have 
heard tonight is about excessive compensation packages, and that is 
what my amendment does. It says, look to, how do we focus this thing on 
really where the problem is, excessive compensation packages, and we do 
that by specifically delineating it, by saying that it is 10 percent or 
more of the above averages for the industry's norm.
  Secondly, the gentleman from the other side points out that the 
investor does not have any input. Of course, he does, and when the case 
is involving an excessive compensation package, then he will have the 
input to make his voice heard.
  Thirdly and finally, I think we see the difference of approach as to 
where the burden in these situations should apply. Should it apply to 
honest, law-abiding, good, hardworking citizens and businesses in this 
country, or should the burden be placed on government? My amendment 
would say that the burden is put on the SEC to make the determination 
to make those findings, and yes, it will be some burden to do so, but 
it is on the SEC to make those findings. We should not be placing these 
excessive burdens on the business sector. If they are doing what their 
stockholders want them to do, growing and expanding their businesses, 
hiring CEOs that are making salaries that are fair for them and are 
within the norm, we should not be placing an additional burden on them.
  Mrs. MALONEY of New York. Mr. Chairman, I move to strike the last 
word.
  I thank my dear colleague, Mr. Garrett, on the other side of the 
aisle for your strong support for the TRIA bill and for coming to New 
York for that very important hearing. It is a challenge that both of 
our States face, and I congratulate your leadership on that very 
important measure.
  But, regrettably, I rise in opposition. I do not see this amendment 
as straightforward and helping the process. It appears to just 
complicate it. It sets triggers and hoops that you have to jump through 
before we can get to a vote.
  The underlying purpose of this bill is to allow shareholders to have 
a vote on a link between pay and performance. If a CEO is doing an 
absolutely fabulous job and coming up with new ideas and creating new 
industries and employing thousands and thousands of Americans, as a 
shareholder, I would probably vote a big pay increase.

                              {time}  1915

  But if that CEO was like New Century, where the CEO recently, I think 
was in the paper today, this gentleman walked away with a multimillion-
dollar bonus and $13 million of profit in stock options while his 
company went bankrupt, and thousands of their borrowers are facing the 
loss of their homes. As a shareholder, I would be voting, very 
strongly, ``no'' on that pay package.
  To me, the underlying thrust of this is to allow the voice of 
shareholders in the democracy of their companies and our country and to 
tie pay to performance. As a shareholder, I would vote for a large pay 
increase to someone who is doing a good job. But too often we hear 
about people who are doing a terrible job, bankrupting pensions, 
running their companies into the ground. With their cronies on the 
board, and their close friends walking away with these huge packages, 
it's really not good for the country, it's not good for capitalism, 
it's not good for business.
  This proposal also would increase the cost and length of the time for 
both the firms and the SEC. The SEC is overburdened now, but this puts 
more burdens on them to collect the data and calculate the 10 percent 
that is required before they come forward and make the decision.
  I join my colleagues. This was roundly defeated in the committee 
earlier, and I believe it should be defeated on the floor.
  I would like to speak just a little bit about what I am so deeply 
concerned about, and why I think this is such an important bill. Like 
many of my colleagues, I am very concerned about the rising economic 
inequality in this country. Under the Bush administration, it has just 
gone like that. I don't think it's good for the country or for our 
future.
  Despite 5 years of economic expansion, most American families have 
struggled just to hold their economic ground on President Bush's watch. 
Strong productivity growth has not translated into higher wages for 
most American workers. Those who were already well-to-do are those who 
continue to grow.
  As this chart shows, and I think it's an important one, the red bar 
shows only modest gains concentrated in the upper half of the 
distribution from 2000 to 2006. The divergence between the haves and 
the have-nots and the Bush economy stands in marked contrast to the 
second term of the Clinton administration. The blue bars, where real

[[Page H3546]]

wages and gains were strong up and down the economic ladder for all 
people, the economy grew, not just for the top, but for all of our 
citizens.
  The people experiencing the largest wage gains are executives and 
highly compensated individuals. While ordinary workers are not really 
sharing in this economic growth, their paychecks have not really grown 
after inflation.
  I want to show the CEO chart, because it goes really to part of this 
bill. Now, this chart shows the compensation, as the bar on the left 
shows, in the 1980s, the average CEO made about 50 times as much as the 
average worker. As the bar on the right shows in 2004, that ratio was 
seven times greater. The average CEO made about 350 times the pay of 
the average worker.
  According to recent studies, that figure has only gone up. The 
average CEO made 500 times the pay of the average worker in 2006. I say 
that it's time for shareholders to have a say and that this underlying 
bill is long overdue.
  I congratulate Chairman Frank for his effort here. It's measured, 
it's reasonable, and it will enhance shareholder democracy and rein in 
the excesses of executive compensation.
  I would just like to conclude, the main reason I am opposed to your 
amendment, Mr. Garrett, although I have a great deal of respect for 
your work and we have agreed in many ways, is, it does not link the pay 
to performance. That is what we want to get to the shareholders. That 
is what is good for economic growth for our country.
  The Acting CHAIRMAN. The question is on the amendment offered by the 
gentleman from New Jersey (Mr. Garrett).
  The question was taken; and the Acting Chairman announced that the 
noes appeared to have it.
  Mr. GARRETT of New Jersey. Mr. Chairman, I demand a recorded vote.
  The Acting CHAIRMAN. Pursuant to clause 6 of rule XVIII, further 
proceedings on the amendment offered by the gentleman from New Jersey 
will be postponed.


         Amendment No. 2 Offered by Mr. Campbell of California

  Mr. CAMPBELL of California. Mr. Chairman, I offer an amendment.
  The Acting CHAIRMAN. The Clerk will designate the amendment.
  The text of the amendment is as follows:

       Amendment No. 2 offered by Mr. Campbell of California:
       Page 4, line 13, strike ``Any proxy'' and insert ``Subject 
     to paragraph (3), any proxy''.
       Page 5, line 6, strike ``In any proxy'' and insert 
     ``Subject to paragraph (3), in any proxy''.
       Page 6, line 13, strike the close quotation marks and 
     following period and after such line insert the following:
       ``(3) Majority-elected board exemption.--The shareholder 
     vote requirements of this subsection shall not apply with 
     respect to any issuer that requires the members of its board 
     of directors to be elected by a majority of the votes cast in 
     a shareholder election of such board.''.

  Mr. CAMPBELL of California. Mr. Chairman, as has been mentioned in 
the debate tonight, we had a substantive hearing on this subject, and 
there were six witnesses at that hearing. The witnesses were split as 
to the substance of the bill that is before us. Four of them liked the 
bill, supported it, and two of them opposed the bill. However, there 
was one thing on which there was unanimity with the witnesses. All six 
witnesses agree that a better solution, a better proposal, would be to 
allow to have shareholders, or to require companies to require a 
majority vote before seating a shareholder on the board.
  All six witnesses preferred that to this very prescriptive executive 
compensation proposal. Because, as we discussed earlier, that would 
actually give shareholders more rights, through the board, to express 
their displeasure with a company for excessive executive compensation 
or simply executive operations that they don't like: for a poor 
performance, for a bad union contract, for whatever they wanted to 
express their displeasure more effectively by voting against people who 
were proposed to be on the board. Because if a majority vote is 
required to put anyone on the board, it's going to take a lot more 
votes to get people on there than would have happened under the current 
system.
  What this amendment does is, this amendment says that a company will 
not be required to have an advisory vote on executive compensation if 
they, instead, require a majority vote, a majority of those voting, to 
seat a director on the board. That is simply all this would do.
  Now, therefore, companies, if they didn't really like the executive 
compensation proposal, they could go for a majority vote instead, if 
they felt that was better for them. And as I stated before, I and 
people all over the spectrum believe that is a better solution.
  Interestingly enough, the Business Roundtable believes that is a 
better solution, and I have a letter here from the Teamsters Union from 
March 13, 2007, bragging about how FedEx recently adopted a majority 
vote by law and how important this was for the management of that 
company. So it is clear that on all sides of this the people believe 
that majority votes to seat someone on the board of directors is a more 
effective way to deal with this issue.
  Now, let me anticipate some things that my friend, I will get your 
State right this time, from Massachusetts will say. I have heard the 
argument that this proposal is too intrusive, that it is more intrusive 
than the basic bill that is before us. I would argue that it is not, 
because it actually gives the corporations a choice. They can either 
accept the vote on executive compensation that is before them, or if 
they wish to go the route of majority voting for directors, they can do 
that instead.
  I have also heard the gentleman argue that my proposal here is not 
intrusive enough because it does not require a majority vote of 
directors for all corporations at all times.
  I will tell you that if the author of this bill, the chairman of the 
committee, wished to amend this bill or pull this bill back, or 
whatever would be the correct parliamentary procedure, to replace this 
with a requirement for a majority vote of directors, I would support 
him on that.
  However, with the bill that is before us, this is the only germane 
solution that can be offered to give shareholders the opportunity to 
have a majority vote for directors, which will really give them more 
voice, instead of this silly advisory vote thing, which is so narrowly 
focused on just one thing that shareholders may have a problem with, 
rather than the greater issues of governance of corporations.
  Mr. FRANK of Massachusetts. Mr. Chairman, I move to strike the 
requisite number of words.
  The gentleman from California mischaracterized my argument. I didn't 
say that it wasn't intrusive enough because it wasn't mandatory. I was 
responding to his earlier assertion which might have led people to 
think it was mandatory. I was simply correcting the characterization.
  I would say this. If the gentleman wants to introduce a bill, and he 
complains a little bit, well, that he was only able to offer this 
amendment because only in this form is it germane to this bill; I know 
the gentleman is a relatively new Member, maybe he didn't understand 
that Members have the right to file any legislation they want.
  Had the gentleman genuinely wanted to deal with this and broaden the 
right of shareholders with regard to elections of the boards of 
directors, that if I were here, I would have filed such a bill, I will 
tell him now, I will yield only if I can get unanimous consent to 
extend my time.
  If Members tell me that, I will be glad to yield. No problem. I will 
be glad to yield in a minute just to say this: If the gentleman now 
decides, having considered this, that he wants to file such a bill, I 
will guarantee him a hearing. I will say this: We will find more 
opposition to it if we were to mandate that. That is one of the factors 
I will introduce.
  I would say, until we had filed this bill, I had not seen any 
indication from the gentleman this is what he wants to do. If he wants 
to file a bill to give shareholders the right to vote by a majority for 
directors, and I think there has to be further change, then I would be 
happy to guarantee a hearing.
  I will yield to him.
  Mr. CAMPBELL of California. Thank you. I will assure the gentleman 
that I will do that.
  Mr. Chairman, I would like to suggest that the gentleman withdraw the 
bill that is before us. If you believe that it is a better solution, I 
believe you do, then let's withdraw the bill.
  Mr. FRANK of Massachusetts. I am taking back my time.

[[Page H3547]]

  I will explain why to the gentleman, because I think it's going to be 
hard enough to get even this through. We have had people who said this 
is way too much. I do not think the gentleman speaks for his party in 
being supportive of something that will be far more opposed by a 
broader segment. If, in fact, that would happen, I would be supportive, 
but I do not want to have the chance to sacrifice this.
  I will say one other point. The argument is, why do you single this 
out? I believe there have been problems with boards of directors in 
general, although I will repeat again that the Chamber of Commerce, as 
was noted, thanks Sarbanes-Oxley for significantly improving the 
quality of boards of directors. I think our former chairman should be 
pleased to have this ringing endorsement of his handiwork from the 
Chamber of Commerce.
  But there is still this problem, boards of directors are at their 
least independent in dealing with the CEO who may have selected them. I 
do think there is reason to single out the CEO-board relationship from 
other issues.
  The other question I have is this and why I wouldn't vote for this 
amendment in any case, it says a majority vote, but here is the 
problem. In many corporations, there is no way to nominate someone to 
be on the board, other than by the board. There are many corporations 
that do not allow that.
  If the gentleman wants to come in with a bill that says shareholders, 
a certain minimum number, not any one person, but if we could agree 
that a reasonable number of shareholders could designate alternative 
candidates, then we could do this. An election in which you require a 
majority to be elected is part of the democracy, but an alternative is 
also part of the democracy.
  The gentleman has half of the democracy in here. He has a requirement 
of the majority vote, but no requirement that there be any competition. 
As we all know, the fact of competition could affect the final vote.
  If the gentleman's newly found interest in this sustains itself, and 
he says it will, and he wants to file a bill that requires that there 
be access, proxy access to our nomination process and then a majority 
vote, he will have my support. Until then, though, I see no reason, in 
the hopes of that, to get rid of this bill.
  I do want to respond to an earlier comment by the gentleman from New 
Jersey who said we could only do it for excessive compensation. He 
fundamentally misunderstands this bill and contradicts itself.
  It is not the job of the Congress to say what it is or isn't 
excessive. We have individual opinions about excess. We are leaving it 
to the shareholders.
  The gentleman said they should only have to vote if it is more than 
such and such above the average. What about if you are getting average 
pay for a subpar performance? What if the shareholders of a particular 
corporation say, this man doesn't deserve the average, this woman 
hasn't lived up to the average?
  The notion that we should qualify the abilities of shareholders to 
vote on what to pay the owners of their own company, based on what we 
think is excessive, an empirical definition put in the bill, 
fundamentally misunderstands what we are trying to do, which is to 
empower the shareholders to express their opinion.
  Members keep saying it is simply only advisory. I do not think, Mr. 
Chairman, that anyone believes that. I do not think that anyone thinks 
that an advisory vote of shareholders would be easily dismissed by 
boards of directors.
  One final point, the suggestion if we do this, the boards of 
directors and CEOs in pique will take their companies private, when 
presumably they otherwise wouldn't, because that is the only way it 
could be causal, what a condemnation of CEOs. How dare you vote on my 
pay? I will take my company private.
  By the way, in fact, you can't take the company private over the 
shareholders' objections.

                              {time}  1930

  The Acting CHAIRMAN. The time of the gentleman from Massachusetts 
(Mr. Frank) has expired.
  (By unanimous consent, Mr. Frank of Massachusetts was allowed to 
proceed for 2 additional minutes.)
  Mr. FRANK of Massachusetts. I just want to repeat the point I made. 
This threat that we will take the company public, the CEO will take the 
company public, understand what that says: That if the CEO's pay is 
subject to a shareholder vote, in retaliation, he will make a 
fundamental change in the ownership structure. And, by the way, that 
assumes that the shareholders don't have anything to say about it. No, 
I do not think that shareholders will sit and vote for a takeover of 
the company just to allow the CEO to shelter his or her pay; so this 
threat, I think, is an empty one.
  Mr. McHENRY. Mr. Chairman, I move to strike the last word.
  Mr. CAMPBELL of California. Mr. Chairman, will the gentleman yield?
  Mr. McHENRY. I yield to the gentleman from California.
  Mr. CAMPBELL of California. I thank the gentleman from North 
Carolina.
  Just to respond to the gentleman from Massachusetts' comments, I will 
introduce such a bill, as we have discussed, and I am happy to work 
with the chairman on that.
  But what is before us right now is this amendment and this bill, 
which I wish you would withdraw so we could work on the other; but, 
apparently, you are not going to do that.
  And since you are not, what we have before us is this bill right now 
and this amendment right now. You said it is only half democracy. Well, 
what we have before us is zero democracy. This amendment is at least 
half democracy. Maybe it is not full democracy, as you say, but it is 
better than none. That is what this amendment is.
  I would caution Members on the other side, if you oppose this 
amendment, you are opposing majority voting for the opportunity to have 
in this bill a large incentive for companies to put majority voting for 
directors. If you vote ``no'' on this, you will be voting ``no'' on 
that opportunity in this bill. Let's understand that is where we are. 
In the future, I will be happy to work with the chairman on other 
things.
  Mr. McHENRY. In order to move this along because the reason I am 
allowing the gentleman from California to speak on my time is so I can 
have an opportunity to offer my amendment, and we are pushing up 
against a time limit.
  Mr. FRANK of Massachusetts. Mr. Chairman, would the gentleman yield 
me 1 minute? I will talk fast.
  Mr. McHENRY. The gentleman certainly talks fast, and I will yield him 
30 seconds.
  Mr. FRANK of Massachusetts. I just wanted to say that this does not 
in any way enhance democracy. The notion that if you vote against this 
bill, you vote against democracy, makes no sense.
  The gentleman says it is an incentive to make the corporations do 
this. Apparently he believes that, assuming a nonbinding, ineffective, 
toothless advisory vote will provide a major incentive to corporations 
to make a major structural change; I don't.
  Mr. McHENRY. Mr. Chairman, reclaiming my time, I yield to Mr. 
Campbell.
  Mr. CAMPBELL of California. The gentleman from Massachusetts may have 
heard others say it is toothless and ineffective. I didn't say it was 
toothless and ineffective. In fact, I think it creates problems when 
companies have to hire somebody quickly and that sort of thing. I 
didn't say it was toothless and ineffective. I said it was silly. I did 
say it was silly because it only targets one element of shareholder 
displeasure with a company, which is an element, and although it can be 
very irritating, amongst many, many elements that are out there, is the 
least likely to actually destroy shareholder value, and that is what 
shareholders are interested in, is shareholder value.
  So I didn't say it was toothless and ineffective. I said that I think 
it is the wrong solution to the problem that is before us.
  The Acting CHAIRMAN. The question is on the amendment offered by the 
gentleman from California (Mr. Campbell).
  The question was taken; and the Acting Chairman announced that the 
noes appeared to have it.
  Mr. CAMPBELL of California. Mr. Chairman, I demand a recorded vote.

[[Page H3548]]

  The Acting CHAIRMAN. Pursuant to clause 6 of rule XVIII, further 
proceedings on the amendment offered by the gentleman from California 
will be postponed.


                 Amendment No. 7 Offered by Mr. McHenry

  Mr. McHENRY. Mr. Chairman, I offer an amendment.
  The Acting CHAIRMAN. The Clerk will designate the amendment.
  The text of the amendment is as follows:

       Amendment No. 7 offered by Mr. McHenry:
       Page 3, line 18, strike the close quotation marks and 
     following period and after such line insert the following new 
     paragraph:
       ``(3) Disclosure of vote to pension fund beneficiaries.--A 
     shareholder who is casting the vote permitted under this 
     subsection on behalf of the beneficiaries of a pension fund 
     shall be required to disclose to such beneficiaries whether 
     such vote was cast to approve or disapprove the 
     compensation.''.

  Mr. McHENRY. Mr. Chairman, I thank the gentleman for the opportunity 
to offer this amendment under this semi-open rule.
  My amendment is simple and straightforward; and I know that is always 
a misnomer in this place. But it is simple and straightforward. It 
holds pension funds accountable to their member shareholders for their 
proxy votes.
  Really, the intent I believe the bill's sponsors had is for 
transparency, so shareholders can actually have their voices heard, and 
they are transparent in their corporate voting structure.
  This amendment requires a shareholder who is casting a nonbinding 
advisory vote to disclose to their beneficiaries whether such vote was 
cast to approve or disapprove the compensation.
  As we well know, pension funds hold stocks for others. I think it is 
important that the managers of those pension funds disclose to the 
actual owners of those retirement funds, those pension funds, how their 
managers cast their votes. And if the purpose of the Shareholder Vote 
on Executive Compensation Act is to attain a greater level of 
accountability to shareholders, then my amendment simply must be 
adopted in order to fulfill that.
  Union leadership or pension fund leadership should have to inform 
their shareholders how they cast votes on their behalf. I think that is 
a matter of openness and transparency.
  As Members of Congress, this issue should hit close to home. Do you 
believe your constituents back home, the people you represent, should 
know how you vote? Well, that is exactly what we are offering here 
today, what I am offering in this amendment. It is a very commonsense 
thing about disclosure to those that it actually affects. Voting 
against my amendment sends a clear message to your constituents that 
you value secrecy over transparency.
  Why should only the mutual fund industry have to inform their 
shareholders how they cast their votes? So what we are doing is 
applying what is already done for mutual funds. Mutual funds are 
required to disclose to the owners of that mutual fund how the 
leadership, the management, casts proxy votes; and in this instance, it 
would be operational. They would have to disclose to their owners how 
they cast a vote.
  Well, let's apply that to the pension fund. Let's apply that to union 
pension funds, let's apply that to State-managed pension funds. I think 
it is a reasonable thing.
  What I find disturbing, though, is in some ways you are allowing 
activist shareholders to participate in this vote without actually 
having to disclose to those that own the pension funds, to those who 
actually own the stocks in this case, how they vote. I think it is a 
matter of disclosure, and it is what is necessary and fair.
  Political groups like big labor and huge pension funds will have the 
power to ransom business leaders with their votes. But what we are 
trying to do is hold them accountable for their actions and activities, 
and ensure that those people who own those stocks and have a financial 
interest in the pension fund have an idea of what their management is 
doing.
  Look, if we don't do this, it will create a situation where critical 
business decisions are being made by those least prepared to make them. 
In the name of fairness, transparency and accountability, I urge my 
colleagues to adopt this amendment.
  Now I don't want to misstate what the chairman said when I offered 
this during committee and what some of my colleagues on the other side 
of the aisle said, but in many respects, they like the intent of this, 
and I know that the chairman is trying to keep this, his original bill, 
free and clear of any amendments. I understand that. I certainly 
understand that. But I think this is a proper addition to ensure that 
shareholders truly understand what those who are controlling their 
votes actually are doing. I think it is a necessary and proper thing to 
do.
  I urge my colleagues to support this amendment.
  Mr. WATT. Mr. Chairman, I move to strike the last word, and I yield 
to the chairman of the committee.
  Mr. FRANK of Massachusetts. I think the gentleman from North Carolina 
did correctly state my view, but my position was not simply to keep 
this bill clean, we did accept a couple of technical amendments. I 
would point out to him, in committee, the gentleman from Connecticut 
(Mr. Shays) had a substantive amendment, which we accepted, dealing 
with rights.
  My view is this: I agree on the principle that a fiduciary's vote 
should have to be made public, but I wouldn't want to limit it only to 
pension funds. I also don't think it should be limited only to this 
subject matter, although I agree, given germaneness, the gentleman 
couldn't have broadened it beyond that subject in this bill. But it 
could be broadened beyond pension funds.
  I believe we should have a hearing on the principle where the 
gentleman is correct, and I agree with him, that fiduciaries should 
have to be made public, but that is all fiduciaries on all issues.
  Mr. WATT. Reclaiming my time, that was exactly the point I was going 
to make.
  So a broader amendment, were it germane to this bill, would probably 
be received favorably by all of us because we believe that fiduciaries 
in general should be reporting to the people that they are 
representing. But when you limit it only to pension plans, you 
eliminate foundations, you eliminate family trusts, and you eliminate a 
whole range of other fiduciaries that should have the same obligation. 
And singling out pension plans in this context I think is the wrong 
thing to do.
  I am happy to yield to the gentleman from North Carolina.
  Mr. McHENRY. Mr. Chairman, while I appreciate my colleague speaking 
to that, I would ask if you would be willing to write a letter to the 
SEC with me encouraging them, through the regulatory process, to do 
what you just outlined. I certainly appreciate what you are doing. I 
would like to have a vote on this because I think we should get on 
record saying this is the right move. But I would like to work with you 
all on this.
  Mr. FRANK of Massachusetts. Mr. Chairman, will the gentleman yield?
  Mr. WATT. I yield to the gentleman from Massachusetts.
  Mr. FRANK of Massachusetts. I appreciate that spirit of cooperation, 
but it is getting late, and Friday is coming, so I would offer either a 
letter or roll call, but not both.
  Mr. WATT. Reclaiming my time, I am not sure that the SEC would have 
the authority to go outside without some legislation anyway. So a 
letter to the SEC saying, do this, would take two conditions: Number 
one, it would take the passage of this bill, and I presume the 
gentleman is not planning to vote for it. So you would be asking us to 
accomplish something for you without a quid pro quo.
  Number two, it would take some legislation.
  I yield to the gentleman from North Carolina.
  Mr. McHENRY. I would be happy to vote for the legislation if my 
amendment passes because I think that furthers it, and if I have a 
commitment from the chairman to maintain it through conference.
  Mr. FRANK of Massachusetts. Mr. Chairman, will the gentleman yield?
  Mr. WATT. I yield to the gentleman from Massachusetts.
  Mr. FRANK of Massachusetts. I have just been advised by staff, who is 
very knowledgeable on this, that part of the problem is, and I 
understand the gentleman has, as I think is appropriate, substantively 
the model of what was done with mutual funds, but I have been reminded 
that the SEC has a plenary power over mutual funds that it

[[Page H3549]]

does not have over foundations. I have now been instructed that the SEC 
could not do that. You cannot reason that what they can do over mutual 
funds to what they can do over these other fiduciaries, so I think it 
would take separate legislation.
  Mr. WATT. I am delighted that my chairman has reaffirmed that because 
my colleague from North Carolina would never take that piece of advice 
from me. I'm joking.
  I oppose the gentleman's amendment because it is not broad enough to 
cover all fiduciaries. We ought to work on it in a different context, 
and I hope we will have that opportunity.
  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.

                              {time}  1945

  And it is a little bit of a procedural Catch-22 that he is in.
  Mr. FRANK of Massachusetts. Mr. Chairman, I move to strike the last 
word.
  I am disappointed in the characterization. In the first place, it is 
not accurate that germaneness prevented this from being a broader 
amendment. As I acknowledged, germaneness does prevent this from 
getting into other subject matters. But nothing would have prevented 
this from applying to the other entities that my colleague from North 
Carolina enumerated. Nothing would have said that other fiduciaries 
could have been covered. And that is why I am against this amendment.
  Frankly, we have a difference between the parties here to a very 
great extent on labor unions and the contribution they make to the 
United States.
  Mr. McHENRY. Will the gentleman yield?
  Mr FRANK of Massachusetts. Yes.
  Mr. McHENRY. Well, if the gentleman seeks to perfect my amendment, 
that is a whole another deal. Through unanimous consent we could expand 
this to not just pension funds but all issues.
  Mr. FRANK of Massachusetts. No, I will take back my time to say to 
the gentleman, I will not legislate on serious subject matter involving 
large numbers of institutions on a unanimous consent agreement to an 
amendment that he filed when he could have filed whatever he wanted at 
a quarter to 8 or at any other time. I think there should be hearings. 
I have said we will do this.
  You know, the gentleman on the other side may, with the motions to 
recommit, believe in the 5-minute solution to complex problems. I 
don't. I think it degrades the legislative process. I will not be a 
party to it. I will not agree.
  The gentleman could have filed any amendment he wanted to that was 
germane. He could have filed a broader amendment. We could have had 
more debate and discussion on it.
  I do not agree I or he or any of us off the top of our heads are able 
to decide how better to broaden this. And there is a disagreement 
between us about labor unions. Let's make it explicit. That is partly 
what is involved here.
  There has been a degree, I believe, of denigration and demonization 
of labor unions, that is part of the reason I think we have the 
economic inequality we have. For pension funds I read labor unions 
because they are identified with unions.
  The gentleman from North Carolina, who is a very good lawyer, 
mentioned a number of other entities that should be covered if you were 
going to be covering fiduciaries. I do not think it is accidental that 
only pension funds are mentioned. I think that bespeaks this notion 
that labor unions are somehow in need of more supervision, that they 
are more damaging and dangerous. I think the opposite is the case. I 
think there have been abuses from foundations. There have been some 
abuses from unions. So that is why I object to doing this, because I do 
not think it is the first step. I think it is part of a denigration of 
the role of labor unions from which this country suffers. Indeed, I 
will just say I am struck as we debate now whether or not to put 
standards from the international labor organizations into our trade 
treaties. We are now being told by opponents that we can't do that 
because America doesn't meet those standards; that because of the years 
of denigration of the labor unions, we don't meet those standards. So I 
do not agree to single out pension funds because I do not agree that we 
should join in this somehow, this suspicion of unions. And I don't 
agree that in a unanimous consent agreement off the top of our heads we 
ought to decide how more broadly to do it. I would rather legislation 
responsibly.
  The committee that we are all members of, those of us who are now on 
the floor, has been, I think, a very thoughtful forum, not just under 
my chairmanship, under the chairmanship of my predecessor. We have 
hearings. We have an excellent staff on both sides. We have worked 
together.
  I look forward to hearings on extending the principle of fiduciaries 
having to reveal how they have voted on all issues and to all 
fiduciaries. But I do not think we should single out pension funds 
tonight, nor do I think we should on the fly try to broaden it, so I 
oppose the amendment.
  And I will yield now to the gentleman.
  Mr. McHENRY. Well, I appreciate the chairman yielding, and I don't 
want to belabor this point. So the gentleman is saying he is willing to 
work for legislation that makes sure that all fiduciaries disclose--
  Mr. FRANK of Massachusetts. All votes.
  Mr. McHENRY. All votes. And so the gentleman will be happy to work on 
legislation together on this.
  Mr. FRANK of Massachusetts. Well, it is late and I am sometimes 
cranky. I can't say that I would be happy to work with the gentleman, 
but I would be willing to.
  Mr. McHENRY. Well, I certainly appreciate the Chairman's willingness, 
and although not pleased or happy about it but, you know, his 
willingness to work with me.
  And just in a final note, I was trying to actually get both of you, 
both my colleague from North Carolina and the gentleman from 
Massachusetts, in favor of this amendment and I actually accepted your 
arguments on broadening this. Once I accepted them, then you said it 
was on the fly. So it is circular logic that is very interesting.
  Mr. FRANK of Massachusetts. I will take back my time to say that you 
cannot, the gentleman could have offered a broader agreement. I do not 
agree. Yes, I would ask for unanimous consent to make a slight 
technical change in an amendment to fix wording. But to go into a much 
broader version of the subject, under these circumstances, without a 
hearing, without full participation in a mark up would be 
inappropriate, and that is what I mean by on the fly.
  Mr. HENSARLING. Mr. Chairman, I move to strike the requisite number 
of words.
  I rise in support of this amendment. I rise to support it because I 
think it would make a bad bill less bad.
  As I look at the underlying bill, I am reminded of a couple of things 
that my colleagues on the other side of the aisle do well. One is 
mandate, and the other is class warfare.
  Now, what we are debating here tonight on the underlying bill is a 
mandate, a mandate for a voluntary shareholder, non binding referendum 
on executive compensation.
  I have listened to the debate today very carefully, and it seems to 
strike me that if there was ever a case of a remedy in search of a 
problem, this very well may be it. I have heard many of my colleagues 
come to the well and speak about outrageous and unreasonable executive 
compensation. I suspect

[[Page H3550]]

that unreasonable and outrageous are to be found in the eyes of the 
beholder. A CEO that rescues a troubled company, creates thousands of 
jobs, increases shareholder value by 80 percent so that folks can help 
send their kids to colleges, maybe help a parent with long term health 
care, my guess is that if that person made a gazillion dollars he was 
probably underpaid. A CEO who runs a company into the ground, who loses 
80 percent of shareholder value, maybe he isn't worth 50 cents.
  But the question ought to be, what is the state of corporate 
governance in America, and the shareholders, do they have say so? They 
have the most important decision that they can make. Mr. Chairman, they 
don't have to buy the shares in the first place. And we know that the 
SEC has just engaged in creating even greater and more disclosure. So 
if shareholders have the opportunity not to purchase this stock in the 
first place, I don't understand, and if we have disclosure where it 
should be, why we are trying to mandate a voluntary, non binding 
referendum on executive compensation. I don't quite understand. 
Clearly, in America, you still have a right not to buy a stock.
  Now, I have heard a lot about what I would characterize as the 
typical class warfare that we hear from our friends on the other side 
of the aisle. And it reminds me, sometimes, that one of the accepted 
forms, really in some respects of bigotry in this society is bigotry 
against those who are successful. And so we come and we see charts 
about this disparity in pay. But, you know, Mr. Chairman, the outrage 
seems to be kind of selective. Where is the outrage of the hundreds of 
millions of dollars made by personal injury, trial attorneys and 
tobacco attorneys, and their legal secretaries maybe make $30,000? 
Where is the outrage there? Where is the outrage at Hollywood actors 
and actresses making tens of millions of dollars, and the guy moving 
the set around, maybe he is making $20,000?
  I recently learned that Julia Roberts made $25 million for the film 
Mona Lisa. It cost $65 million to make, but only earned $64 million at 
the U.S. box office. I don't know for a fact a public company had to 
pay that salary, but I suspect they did. Now, where is the moral 
outrage there?
  And, in addition, where is the proposal for the mandatory, voluntary 
non binding referendum on the compensation that may be paid to one of 
these individuals?
  I mean, what comes next? Are we going to have the mandate for the non 
binding shareholder referendum on the amount of R&D expenditures that a 
company makes? Perhaps their marketing budget, Mr. Chairman? Maybe 
their choice of an auditor? I mean, why do we stop here at executive 
compensation?
  And let me speak momentarily about the mandate. My guess is that to 
any individual company, this mandate may not be too costly. And I was 
very happy to have, in the last Congress, the chairman's support on a 
piece of legislation that I worked on that provided regulatory relief 
for our financial institutions.
  And it is not one particular item. And every single mandate may sound 
pretty good, looking at it singularly, but collectively they are all 
adding costs to these companies, and you have to ask yourself, is it 
serving a good purpose? Because if it isn't, what is helping send jobs 
overseas is too much regulation, litigation and taxation and we need to 
support the amendment and vote down the bill.
  Mr. SCOTT of Georgia. Mr. Chairman, I move to strike the requisite 
number of words.
  This has been a very lively debate and a very good debate. And I 
think it points out the need for us to examine this issue within the 
context of a very pressing concern the American people have. We are not 
up here because we have sat in a room someplace and decided this is 
what we ought to do. There is a great demand to bring some integrity, 
to bring some transparency and accountability to this whole issue of 
executive pay compensation that has gotten out of bounds. And our 
answer is simply to look at the system as it is there, as it is 
situated, and extend to the shareholders, to the board to make 
available to the shareholders on their proxy statement, a block that 
says, do you approve or you disapprove of the compensation packages. 
What happens after that we have nothing to do with. That is their 
decision to make.
  And I think we have to also look at the whole issue of what is 
happening in America today, this whole issue of a war on the middle 
class; this great divide that is happening. I am telling you, it is 
dangerous to the future of this country.
  This is simply an effort to respond, to give some confidence, and to 
give another tool, an effective tool that works within the system, that 
is very fair, that is very moderate, as an example of trying to correct 
a situation that clearly, clearly has gotten out of hand.
  Now, you all have offered amendments. You have offered them in the 
committee. Now, in all deference to our chairman, our chairman has been 
very fair in the committee and on this floor and on the pension issue. 
He has clearly stated, as he did in committee, and again on the floor, 
we will have a hearing on this, where it should be.
  But by the very nature of this issue even exploding into the area of 
pensions and other fiduciaries, it shows the great need for us to 
examine our compensation structure in the system.
  Gentlemen on the other side, we owe it to the American people. We owe 
it to our system to protect it. Throughout history we have had to make 
adjustments. Go all the way back to the fall of the stock market, 1929. 
There are reasons that that happened. The SEC itself was born as a 
result of a need to do some things. And we continue to muscle right 
along.
  I think it is very important that we put in the Record also, before 
we conclude tonight, because we have had some of our companies names 
bandied around here, one of which was Home Depot. And I certainly want 
to recognize Home Depot for moving and taking this issue on and 
understanding, even to them, the surprise and the concern and the tone 
that they want to correct for what happened with their predecessor, the 
CEO, Mr. Darnelli. They are now moving very aggressively to look at 
this issue itself.
  And let me just read, for the Record here, Mr. Chairman, where it 
says that other companies have already begun a process of allowing 
their shareholders to decide on implementing say on pay. This week 
Citigroup, no class warfare here, Wachovia. No class war here. Coca-
Cola are holding annual meetings at which time their shareholders will 
vote on say on your pay proposals.
  Every company that has had a chance to weigh in on this issue is 
moving ahead because they know it is the right thing to do, because 
they know, at the end of the day, what is needed is for us to make sure 
that the confidence of that investor is strong.
  That is what makes this country great. Our free enterprise system, 
our move here is to protect it. I commend the chairman, and I thank our 
committee for pushing this forward.

                              {time}  2000

  The Acting CHAIRMAN. The question is on the amendment offered by the 
gentleman from North Carolina (Mr. McHenry).
  The question was taken; and the Acting Chairman announced that the 
noes appeared to have it.
  Mr. McHENRY. Mr. Chairman, I demand a recorded vote.
  The Acting CHAIRMAN. Pursuant to clause 6 of rule XVIII, further 
proceedings on the amendment offered by the gentleman from North 
Carolina will be postponed.
  Mr. FRANK of Massachusetts. Mr. Chairman, I move that the Committee 
do now rise.
  The motion was agreed to.
  Accordingly, the Committee rose; and the Speaker pro tempore (Mr. 
Johnson of Georgia) having assumed the chair, Mr. Etheridge, Acting 
Chairman of the Committee of the Whole House on the state of the Union, 
reported that that Committee, having had under consideration the bill 
(H.R. 1257) to amend the Securities Exchange Act of 1934 to provide 
shareholders with an advisory vote on executive compensation, had come 
to no resolution thereon.

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