Earlier today, by a 237-185 vote, the House approved H.R. 3269, the "Corporate and Financial Institution Compensation Fairness Act of 2009." As stated in the report of the House Financial Services Committee accompanying the legislation, H.R. 3269 is "designed to address the relationship between compensation structures and health of the broader financial system. However, the strictures of the bill would not be limited to the compensation practices of regulated financial institutions. The bill would:

  • give shareholders of all public companies a nonbinding, advisory “say on pay” for top executives (effective for annual meetings occurring 6 months after the SEC adopts implementing rules);
  • whenever shareholders of a public company are asked to approve an acquisition, merger, consolidation or sale of assets, require a separate non-binding shareholder vote to approve any compensation arrangement that is "based on or otherwise relates" to the acquisition (effective for meetings occurring 6 months after the SEC adopts implementing rules);
  • require public disclosure of compensation-related votes by all institutional investment managers subject to Section 13(f);
  • prohibit any compensation that has been approved by shareholders from being subject to any clawbacks, except in accordance with contractual requirements or in the case of fraud on the part of the executive, to the extent provided by Federal or State law;
  • impose stricter independence requirements for compensation committee members (similar to those applicable to audit committee members) and for compensation consultants and advisers retained by them at companies that have a class of equity securities listed on a national securities exchange or subject to the rules of a national securities association (effective 9 months after the Act becomes law);
  • require financial institutions with more than $1 billion in assets to disclose to their regulators any compensation structures that include incentive-based elements, for the purpose of determining whether the structures are consistent with sound risk management, structured to account for the time horizon of risks, or otherwise threaten the safety and soundness of the institution or have serious adverse effects on economic conditions or financial stability; and
  • require federal regulators to proscribe inappropriate or imprudently risky compensation practices as part of solvency regulation of all financial institutions with more than $1 billion in assets.

The Senate is expected to consider this measure after its August recess.