The Obama administration on Wednesday announced a broad plan meant to curb executive compensation by giving more power to shareholders and independent committees that assign corporate pay.
Treasury Secretary Timothy Geithner announced the plans, which would require Congress to pass legislation. The proposals would impact corporations regardless of whether they have received government handouts.
Geithner emphasized that the proposals stop short of endorsing caps on pay for top corporate officers.
“I want to be clear on what we are not doing: We are not capping pay. We are not setting forth precise prescriptions for how companies should set compensation,” Geithner said following a meeting with SEC Chairwoman Mary Schapiro, Federal Reserve Governor Daniel Tarullo and executive pay experts.
“Instead, we will continue to work to develop standards that reward innovation and prudent risk-taking, without creating misaligned incentives."
Geithner said the administration would recommend “relatively soon” legislation to Congress on compensation for companies that have received federal bailouts. But he declined to answer questions about reporters the administration is set to establish a “special master” who with the power to reject executive pay seen as excessive at bailed-out companies.
“We're going to be laying out relatively soon the detailed regulations to apply to congressional conditions on compensation for companies that have capital investments from the government,” Geithner said.
Geithner said "executive compensation practices were a contributing factor" to the current financial crisis, having encouraged risky practices by financial service professionals earlier this decade.
Geithner said the Obama administration would push Congress to approve legislation for both so-called "say on pay" legislation -- which gives shareholders a chance to review compensation packages -- as well as legislation to give the Securities and Exchange Commission (SEC) the power to ensure greater independence for firms' compensation committees.
The Obama proposal on “say on pay” appears to be similar to legislation Obama sponsored in 2007. It would give shareholders a non-binding vote on the pay of executives. Business groups including the U.S. Chamber of Commerce already are lobbying against legislation that would provide this shareholder right.
Compensation committees determine the pay of executives and other corporate officials and are intended to balance the needs and interests of executives and shareholders.
"Our role is really to protect investors by making sure they have all the information to make sound investment decisions," SEC Chairwoman Mary Schapiro said of the new role her own agency would receive in regulating executive pay.
Geithner said four principles would guide the administration's effort to guide its work on compensation. The secretary said compensation should be tied to performance, must take into account long-term risks and would have to minimize risk management. He said the agency will reexamine so-called "golden parachutes," as well as retirement packages.
This story was updated at 2:01 p.m.