Congress is thinking of restricting the freedom of corporate boards to set the compensation of officers and directors without interference from shareholders. The Securities & Exchange Commission has generally barred shareholder resolutions on pay, ruling they would put the stockholders in the position of managing the "ordinary business" of the company, a job that belongs to management and directors. Staffers say Senator Carl M. Levin (D-Mich.) was angered after learning of the SEC prohibition in BUSINESS WEEK's May 8 Cover Story on executive pay and decided to act.
Trouble is that Levin's reforms don't do much to change the situation. He would allow only advisory resolutions on compensation, meaning that officers and directors would be legally free to ignore the vote. And the shareholder proposals could not get into specifics, such as imposing a $1 million annual cap on executive pay. Resolutions could, however, set general guidelines, for example by urging that salaries not rise in years when profits fall. Although Levin's proposal faces a long road through Congress, the SEC is thinking of taking some modest steps on its own. One possibility: letting shareholders vote on directors' compensation but not executives' pay.