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Geithner: Give Shareholders 'Say on Pay'

Executive compensation practices were partly to blame for the financial crisis, Treasury Secretary Tim Geithner has said.

Now the Treasury is rolling out a remedy.

The administration delivered draft legislation to Congress today that would require all publicly traded companies to give shareholders a vote on the pay plans of senior executives. Salaries, bonuses, stock and option awards would be subject to votes.

But the vote of the shareholders will be non-binding, meaning the execs and board could legally ignore the shareholders wishes.

So will it work?

Critics have said the so-called say-on-pay legislation would lead to investor uprisings and push firms to leave the country in search of friendlier regulatory regimes. Board members, they say, should set executive pay. When a similar measure was co-sponsored by then Senator Obama in 2007, many companies quietly opposed it.

But the administration points to similar laws in the United Kingdom, where, they say, it has caused no such problems and where studies have shown a stronger connection between pay and performance.

In the U.S., Aflac insurance became the first publicly traded company to adopt "say on pay" in 2007. Last May, 93 percent of shareholders approved the company's pay plan.

By Peter Whoriskey  |  July 16, 2009; 4:17 PM ET
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