In a vote qualified as historic by observers, the U.S House of Representatives passed on Friday April 20, by a vote of 269 to 134, H.R. 1257 the “Shareholder Vote on Executive Compensation Act” ensuring that shareholders will have a non binding and advisory vote on their company’s executive pay practices.
The legislation also contains a separate advisory vote if a company gives a new, not yet disclosed, “golden parachute”, while simultaneously negotiating to buy or sell a company. To become effective, the Bill has to be approved by the Senate and signed by the President of the United States.
This vote comes at a moment when executive remuneration in listed companies continues to make headlines, not only in the US, but also in several major other markets. In Switzerland too, in the context of the revision of the Swiss Code of Obligations (Swiss Company Law), the Parliament will debate regarding the competencies for setting executive pay.
As a long-term oriented institutional investor, Ethos would recommend task sharing between the Board of Directors and the shareholders with regard to executive remuneration. While the competency and responsibility of setting executive remuneration at individual level should remain with the Board, the shareholders should have the opportunity to confirm, annually and in an advisory capacity, the remuneration policy set by the Board.
