House Passes Bill to Fix "Flawed" Compensation Systems

On July 31, the full House of Representatives passed, by a vote of 237-185, the Corporate and Financial Institution Compensation Fairness Act, which House Financial Services Committee Chairman Barney Frank (D-Massachusetts) called the “first piece of a larger regulatory reform package” which his Committee is drafting “to address the causes of the recent financial crisis.”

The bill, H.R. 3269, is designed, Frank said, to “rein in compensation practices that encourage excessive risk-taking at the expense of companies, shareholders, employees, and ultimately the American taxpayer.”

The bill would give public company shareholders a nonbinding, advisory vote on pay practices for a company’s top executives, would allow federal regulators to proscribe “inappropriate or imprudently risky compensation practices as part of solvency regulation of all financial institutions,” and would require financial institutions with more than $1 billion to disclose any compensation structures that include incentive-based elements.