SEC Approves "Say on Pay" Rule

The Securities and Exchange Commission (SEC) today approved the so-called "say-on-pay" rule that requires firms that are TARP recipients to let their shareholders vote on executive pay structure.

The SEC also voted to make all public companies give shareholders more information about pay policies, risk management and corporate governance, such as the relationship of a company's overall compensation policies to risk and the background and qualifications of directors, executive officers and nominees. The proposed rules will go through a two-month public comment period before they can be enacted.

The disclosure of the executive compensation was last approved by the SEC in 2006. That move required companies to disclose their executives' pay and perks in greater detail, and required noting the date of stock option grants. The SEC is now seeking to improve the reporting of stock and option awards.

One of the reasons for the financial crisis was the executive compensation structure that encouraged excessive risk-taking. The Obama Administration is trying to revamp compensation policies of financial firms as a part of the broader regulatory reforms package.

Restrictions on executive compensation have been the main reasons behind the repayment of TARP money by some of the major banks like Goldman Sachs (GS - Analyst Report), JP Morgan (JPM - Analyst Report), BB&T (BBT - Analyst Report), US Bancorp (USB - Analyst Report) and Morgan Stanley (MS - Snapshot Report).