Corporate and Financial Institution Compensation Fairness Act of 2009
July 27, 2009
The Honorable Barney Frank
Chairman
Committee on Financial Services
U.S. House of Representatives
Washington, DC 20515
The Honorable Spencer Bachus
Ranking Member
Committee on Financial Services
U.S. House of Representatives
Washington, DC 20515
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, believes that strong corporate governance is an important part of the foundation for a vibrant and growing economy. In February, the Chamber issued a Statement of Principles providing, among other things, that executive compensation should balance individual accomplishment, corporate performance, adherence to risk management, compliance with laws and regulations, and the creation of shareholder value. The complete Statement of Principles is attached. The Chamber opposes H.R. 3269, the "Corporate and Financial Institution Compensation Fairness Act of 2009," because it is inconsistent with these Principles.
Section 4 of H.R. 3269, particularly when read in conjunction with the compensation provisions proposed in H.R. 3126, the "Consumer Fairness Protection Agency Act of 2009," would establish direct government control and regulation of compensation for executives and workers alike. Employee compensation should be a decision by appropriate levels of management or the board of directors on a variety of factors such as merit, promotions, or cost of living increases. Furthermore, changes in corporate governance should occur through a dialogue between management, directors, and shareholders, as allowed by controlling state corporate law. The Chamber does not believe that the command and control regulatory scheme set forth in this legislation would lead to the economic growth and job creation that America desperately needs.
The Chamber is particularly concerned with a number of provisions in H.R. 3269 and offers the following recommendations:
1. This legislation would have federal agencies regulate the compensation of a vast number of employees of covered firms.
Pursuant to H.R. 3269, financial services firms would be required to submit practices and plans for incentive compensation for employees to their appropriate regulator. The regulator would then have the authority to approve or disapprove such plan, as well as take action for violations. In many firms, because incentive compensation plans range from the CEO to the receptionist, these provisions would place the federal government in the position of regulating compensation for all, or a vast majority of, employees in a company. This would be particularly intrusive when coupled with the provisions of H.R. 3126 which would allow the proposed Consumer Financial Protection Agency to regulate the compensation of employees who interact with consumers, regardless of industry, such as real estate agents, or even cashiers who accept credit cards. Taken together, these two proposed bills constitute an unprecedented governmental intrusion into matters that have historically been addressed by private actors.
2. The "Say on Pay" provisions can be improved by making the votes triennial and providing for a 5 year opt-out if approved by a super-majority of shareholders.
The Chamber believes that the "Say on Pay" provisions of H.R. 3269 can be improved. Currently, the bill requires an annual advisory vote at every company in the United States, regardless of size, industry, history, and governance. Rather, Congress should require such an advisory vote every three years, thereby tracking the typical life-span of an average executive compensation package. This change would give shareholders a more informed voice in the executive compensation policies of a company. The Chamber also believes that adding an opt-out provision is warranted. For example, if two-thirds of shareholders vote for a 5 year opt-out of "Say on Pay" votes, small and mid-size companies would be able to mitigate the undue costs and distractions associated with an annual vote.
3. Federal Law should not create a pre-emption if state corporate law contains mechanisms for independent compensation committees.
State corporate law has fostered a diverse set of corporate governance structures that have allowed the American economy to be the richest and most productive in world history. While the governance structures of some financial services firms have been questioned, 97 percent of the more than 15,000 public companies in the United States have had nothing to do with the financial crisis. Accordingly, the Chamber believes that the legislation should not preempt state law.
The Chamber believes these recommendations would represent significant improvements to the bill and assist in providing strong corporate governance policies needed for a growing economy.
The Chamber also supports the Garrett substitute amendment to the bill, which would allow for improved Say on Pay and Independent Compensation Committee provisions, while stripping section 4 of the bill. Finally, the Chamber supports the Garrett amendment to strike Section 4 of the bill, removing those provisions that would regulate incentive compensation practices.
The Chamber strongly supports corporate governance reforms in line with our Statement of Principles, but urges you to oppose H.R. 3269 because it is inconsistent with these Principles on corporate governance.
Sincerely,
R. Bruce Josten
Cc: The Members of the House Committee on Financial Services