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Executive pay legislation could create private right of action

The House of Representatives has just started debating H.R. 3269, the Corporate and Financial Institution Compensation Fairness Act, and a final vote on the bill is expected this afternoon.

The bill sponsored by Rep. Barney Frank (D-MA) requires annual, non-binding shareholder votes on senior executive pay at most publicly held firms, and includes many other regulatory provisions meant to influence compensation throughout the company. The National Association of Manufacturers -- my employers -- sent a letter to the House opposing the bill, and the Heritage Foundation released a memo on the bill's flaws, "House Executive Pay Legislation Puts Pay Czar's Boot in the Door."

Rep. Pete Sessions (R-TX), in debating the rule, noted he has proposed consideration of an amendment to make clear the bill does not create a private right of action: "Without this amendment, trial lawyers will be able to exploit a new opportunity to shake down companies for huge payments by challenging any action for being non-compliant with this non-binding vote."

As the minority comments in the committee report state: "Because this bill explicitly states that no shareholder proxy rights are prejudiced by the non-binding executive compensation vote, it could also spur frivolous litigation if corporate boards reject or refuse to abide by the results of the shareholder vote."

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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.