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Rep. Barney Frank, the House Financial Services Committee’s ranking Democrat, introduced legislation Thursday that would require public companies to disclose the compensation of top executives to shareholders. The Protection Against Executive Compensation Act is meant to address what Frank calls the “problem of runaway executive compensation” by requiring greater disclosure of executive compensation to shareholders. The Massachusetts lawmaker stressed that the measure would not set any artificial limits on individual executive compensation. Rather, the legislation would give shareholders more information about management pay packages and empower shareholders to take action against management abuse and self-dealing. The Securities and Exchange Commission would write and enforce rules implementing the bill’s provisions. Frank is pushing his legislation in reaction to a spate of scandals in recent years in which executives at companies such as Adelphia Communications Corp. and Tyco International Ltd. lavished outrageous perks upon themselves and ensured they would receive golden parachutes worth millions if forced to leave their companies. “We have witnessed a number of high-profile executive pay packages that are hidden to the owners of the company, the shareholders, and I want to make sure we have full disclosure,” Frank said. “We are not taking anybody’s pay or even setting any limits, we just believe these owners should know how their employees [management] are being paid and have some ability to do something about it if they so desire.” William Galvin, secretary of the Commonwealth of Massachusetts, said outrageous salaries and perverse incentives often encourage chief executives to sell out the best interest of their shareholders. “Congressman Frank’s legislation will turn a much-needed spotlight on these incentives that have warped so much of our corporate culture,” Galvin said in a statement. The bill would require that public companies include in their annual report and accompanying proxy solicitations a comprehensive “Executive Compensation Plan.” The plan must be approved by shareholders, and it must include full disclosure of top executives’ compensation, including any and all types of compensation, and disclosure of compensation policies for top executives, including short- and long-term performance targets used to determine compensation. Companies also would be required to implement policies mandating return of bonuses and other incentive compensation if later found to be based on incorrect financial results or otherwise unjustified. To limit the burdens on smaller companies, the legislation sets specific thresholds. For companies with less than $250 million in assets, only the chief executive officer would be considered a top executive; companies with more than $250 million but less than $500 million in assets would be required to list the compensation of the chief executive and the next two highest-paid executives; and companies with more than $500 million in total assets would be required to reveal the compensation of the chief executive and the next four highest paid executives. The bill would also require that shareholders separately approve any additional compensation for top executives that coincides with a merger or acquisition of any substantial company assets. Frank says there is a natural conflict of interest in this situation when senior management is negotiating a deal while simultaneously negotiating a personal compensation package. “Executive compensation has now become a race to the top and a significant cost to shareholders and the economy,” Frank said. Copyright �2005 TDD, LLC. All rights reserved.

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