Middle Class Supports. Today nearly half of Americans own some stock, with many middle-class families relying on 401(k)s and other investments to finance their retirement security or help their children afford college. Workers with traditional pension plans, including many public employees, also have a stake in the long-term financial performance of companies their pensions are invested in. As a result, the retirement security middle-class Americans work a lifetime to earn can be thrown into jeopardy by lavish CEO pay and retirement packages that reward executives with hundreds of millions of dollars even if they perform poorly, behave unethically, or manipulate pay through a biased compensation committee. As the financial crisis demonstrates, excessive pay can provide incentives for executives to take on excessive risk, endangering both shareholder value and the entire economy.

When executives get sumptuous rewards for inferior or mediocre work, middle-class Americans get shortchanged on the retirement benefits they have earned. Yet there is little shareholders can do to curb the excesses of companies in which they have a vital stake. This bill would introduce an important element of accountability, giving all shareholders “a say on pay” in the form of a nonbinding advisory vote to the Board of Directors. Although the vote is nonbinding, knowing they have option to vote increases shareholders’ scrutiny of executive pay and provides regular shareholder feedback to Boards of Directors. The mechanism of a nonbinding vote on compensation has been used successfully in other countries to put the brakes on questionable compensation plans and tie CEO pay more closely to performance. Some U.S. companies, such as Blockbuster, have also voluntarily adopted a shareholder vote on executive compensation, which they regard as a “best practice” in corporate governance. The improved independence of compensation committees, which can be heavily influenced by management and compensation consultants overly favorable to the interests of executives, and federal oversight of the riskiness of pay schemes will further improve accountability.