Barney Frank

Mr. FRANK of Massachusetts

Mr. FRANK of Massachusetts. Mr. Speaker, just briefly, the gentleman talked about the bailout of General Motors and Chrysler which, of course, was under the Bush administration. The fact that the Bush administration decided to initiate a bailout of General Motors and Chrysler is not binding on this legislation. They are not under financial regulators and wouldn't be covered under this bill. I now yield 3 minutes to the gentleman from Georgia (Mr. Scott).

Mr. FRANK of Massachusetts. That's easy for you to say, Mr. Speaker.

Mr. FRANK of Massachusetts. Mr. Speaker, if the gentleman would yield to me, I would ask unanimous consent to amend the bill according to that language which the gentleman has seen.

Mr. FRANK of Massachusetts. Mr. Speaker, I reserve my time. I have, at most, one further speaker.

Mr. FRANK of Massachusetts. Yes.

Mr. FRANK of Massachusetts. Mr. Speaker, if the gentleman is going to close with his remaining time, I will just take, I think, 15 seconds to say that I've talked to the gentleman from Georgia. Again, we will still have a disagreement, but instead of ``require,'' it should say-- and he and I have agreed within the limited version here--``allow'' them to require it. In other words, we don't want the SEC to be able to make an inappropriate requirement. So that will be clarified. I will take our remaining time to say, yes, we did tentatively agree to it. There had been an SEC decision that day, which I wasn't aware of, and I did believe that the amendment as we originally agreed--and I did say to the gentleman that I thought we would want to make some further changes.

Mr. FRANK of Massachusetts. Mr. Speaker, I yield myself 30 seconds to acknowledge one thing that should have been drafted better. The word ``require'' is ambiguous here. The word should have been ``permit'' rather than ``require.'' That is, we did mean to say that you could not require the individual to give it back. We do want to restrain the SEC or anybody else from an inappropriate one. We will try to change that one word, and it will make a difference to the gentleman of Georgia, but I believe that ``permit'' would have been more appropriate. When we say ``require,'' we mean that you could not require the individual to give it back. That was it. I now yield 2 minutes to the gentleman from North Carolina (Mr. Miller).

Mr. FRANK of Massachusetts. Yes. I would ask unanimous consent, if that is permissible--we are in the whole House--to change line 2. Instead of ``require,'' it will read ``shall allow to require,'' ``shall allow the SEC to require.'' No. I take it back. Here is how I will say it: ``Shall be allowed to require.''

Mr. FRANK of Massachusetts. Who has the right to close, Mr. Speaker?

Mr. FRANK of Massachusetts. Yes.

Mr. FRANK of Massachusetts. I yield myself 1 minute. At the markup, the gentleman from Georgia (Mr. Price) offered an amendment, which I said we would be willing to accept subject to some further change. We've talked. We have not yet reached agreement, and this is going to be an entirely legitimate debate. What the gentleman was concerned about, and I think legitimately, was the possibility of a callback; that is, a requirement that people give back bonuses they'd already received. That would be arbitrary. Now, we hope that there will be rules adopted that will set those rules in place, and I agree that there should not be people's pay subjected unreasonably to arbitrary retroactive decisions. But there was--and I was not aware of it at the time--an SEC decision that said that where someone had received the compensation and it subsequently turned out that the transaction was not profitable, although it appeared to be, that a return of the money that was given because of the profitability might be appropriate. So our language reflects that. It does not overturn that SEC decision. It does give some protection against arbitrary return. I reserve the balance of my time.

Mr. FRANK of Massachusetts. How much time remains?

Mr. FRANK of Massachusetts. Mr. Speaker, I yield myself 5 minutes. First of all, let me emphasize when the gentleman from New Jersey says ``trust the shareholders,'' that's a conversion. We are born-again shareholder advocates, because in 2006 when the Republicans controlled this institution, they would not even on the Financial Services Committee allow it to come up. We had a petition under the rules for a hearing. Then we asked for a markup and they refused it. Then in 2007 the gentleman from Alabama, the gentleman from New Jersey, and the others, they all opposed say-on-pay. The gentleman from Alabama told us in 2007 that the free enterprise system was taking care of pay excess. He said that in March of 2007. All of the problems that we've had with pay in the interim apparently were figments of our imagination. The gentleman from Alabama had such confidence in the free enterprise system 2\1/2\ years ago, he told us they weren't going to happen. And say-on-pay now, oh, it's not a big deal. It was a big enough deal for them to oppose it. By the way, let me say to the gentleman from New Jersey, here's the problem: No, it's not so much conscious acts of deregulation as nonregulation. What happened was new things grew up in the economy, particularly in the area of subprime mortgage and the way of packaging them and sending them around. And some of us in the minority wanted to change it. There were party differences. In 2004 my friend from North Carolina (Mr. Miller) who was here earlier, he spoke with people at the Center For Responsible Lending in North Carolina who told us in 2004 trouble was coming. By the way, trouble was coming because of an excessive encouragement of low-income people to buy homes, not from the CRA and not from liberal Democrats, but from the Bush administration. The gentleman from Texas (Mr. Hensarling) inserted an amendment which we adopted. In 2002 the Bush administration sped this up. In 2004, over my objection among others, the Bush Administration directed Fannie Mae and Freddie Mac to substantially increase the number of subprime mortgages they were buying and for people below income. That's in the amendment that Mr. Hensarling offered that we adopted. And some of us saw the problem at that point. I hadn't seen a problem with Fannie Mae and Freddie Mac before, but I did in 2004 become worried. I joined the gentleman Mr. Oxley in trying to pass a bill, although I had a housing problem on the floor. The gentleman from Alabama voted with Mr. Oxley and many others did. Other Republicans thought Mr. Oxley was too soft, and we then got into an intra- Republican dispute on Fannie Mae and Freddie Mac where the House passed the bill, the House under the Republicans, supported by the overwhelming majority of Republicans, every amendment offering to toughen it up rejected by an overwhelming majority of Republicans. And the Republican Senate had a difference. Ironically, the Democrats in the Senate agreed with Mr. Oxley. The Republicans in the Senate agreed with Mr. Bush. No bill. We also tried, as I said, to do something about subprime lending. The gentleman from North Carolina pushed for legislation. The gentleman from Alabama, to his credit, was somewhat interested in working with us on it. But the Republicans were overruled by the then-majority leader, Mr. DeLay, who used the rhetoric we're hearing today: keep the bureaucrats out of it and let the free enterprise system do it. That was the prevailing philosophy of the Republicans who ruled this House in 2004 and 2005. So when some of us, including the gentleman from Alabama (Mr. Bachus), tried to work on legislation to restrict subprime lending, Mr. Bachus was even chairman of the subcommittee, and he was overruled. The chairman of the committee, Mr. Oxley, was told, No, we don't do that. We're Republicans. We believe in free enterprise. So it was a conscious decision not to do anything about----

Mr. FRANK of Massachusetts. Mr. Speaker, I offer an amendment.

Mr. FRANK of Massachusetts. Yes. As to section 4, if they are public companies, they are covered by say-on-pay. And there may be companies not now federally regulated that may become so by decision. But as of now, if they're not federally regulated, they're not covered. Of course AIG was federally regulated by the OTS, so they would have been covered. The gentlewoman is correct. Mr. Speaker, I have no further requests for time, and I have only one more speaker. So I am going to reserve the balance of my time.

Mr. FRANK of Massachusetts. Well, Mr. Speaker, I yield myself 15 seconds to say I welcome the gentleman from Georgia to the cause of say-on-pay. When we debated this on March 22, 2007, he was quite critical of it. So maybe 2 years from now, he will think we should do something about excessive, incentivizing bonuses. I now yield for a question to the gentlewoman from California.

Mr. FRANK of Massachusetts. Mr. Speaker, Aflac was the first publicly traded company to give shareholders an opportunity to vote on executive compensation, commonly referred to as say-on-pay. Aflac CEO Daniel P. Amos explained the company's decision to voluntarily adopt the measure by saying, ``Our shareholders, as owners of the company, have the right to know how executive compensation works. An advisory vote on our compensation report is a helpful avenue for our shareholders to provide feedback on our pay-for-performance compensation philosophy and pay package.'' The first year of the vote, 2008, 93% of the shareholders voting approved the company's pay-for-performance compensation policies and procedures. In May of this year, 97% of the shareholders voting cast ballots in favor of the compensation policies, even though the stock price of virtually all financial companies had declined--including Aflac's. The results of both shareholder votes clearly demonstrate that shareholders appreciate Aflac's philosophy of paying for performance and the company's long history of transparency. I submit the following for the Record. [From USA TODAY, July 15, 2009] CEOs Openly Oppose Push for Say-on-Pay by Shareholders (By Del Jones) Top executives have taken a relentless public thrashing as they lay off workers and fight to keep stock prices above the floor. In a suffering economy, no one seems happy with leadership, and the image of CEOs has sunk so low that their approval scores are now south of those serving in Congress. But no matter how low their image sinks, nor how shrill the outrage, executives have remained steadfast in their opposition to one thing: They are roundly against legislation that would force companies to let shareholders vote on CEO compensation packages. ``I wonder if the congressmen backing this legislation would propose similar laws governing their own compensation,'' says Steve Hafner, CEO of travel search engine Kayak. ``I'd love to vote on congressional pay and perks,'' EXEC PAY: Proposal gives shareholders non-binding say That executives oppose congressional noodling with their pay is unsurprising. What is surprising is that they are willing to go so public in their opposition, even though passage of a so-called ``say-on-pay'' law is likely, says Dawn Wolfe, associate director of social research for Boston Common Asset Management. President Obama, who co-sponsored say-on-pay legislation while in the Senate, remains in support, as is the Democrat- controlled Congress. Likewise the public at large. Focus groups have been describing CEO pay with words such as ``obscene'' and ``immoral'' rather than words like ``excessive'' or ``overly generous'' as in the past, says Leslie Gaines-Ross, chief reputation strategist at Weber Shandwick. ``Everyone I talk to understands say-on-pay legislation to be a question of when, not if,'' Wolfe says. ``There is a sense in the investment community that it is inevitable.'' CEOs have opinions like everyone else, but the public rarely sees that side because positions on anything controversial risk upsetting customers. When they feel compelled to take a stand at odds with the public, it is usually articulated by trade associations and lobbyists, so as to put CEOs and the companies they run at arm's length from controversy. Not this time, Even though say-on-pay legislation is almost a sure thing, CEOs and former CEOs contacted by USA TODAY spoke out against it, both forcefully and individually. ``Say-on-pay is just another government regulation and intrusion into free enterprise,'' says Howard Putnam, former CEO of Southwest and Braniff airlines. No one likes downward pressure applied to their pay, and in this respect CEOs are no different than professional athletes, rock stars, union members, Social Security recipients--and elected officials. Howard Behar, former president of Starbucks, asks: Why not let people vote on the salaries of government workers? He says government employee unions influence politicians, who commit huge resources to pensions and raises to get re-elected. How say-on-pay would work Say-on-pay legislation would require companies to give shareholders an up-or-down vote each year on the compensation of the top five executives of publicly traded companies. The vote would not be binding, leaving the final decision in the hands of boards of directors. However, directors are elected by shareholders and a shareholder vote against a pay package would likely pressure directors to rethink the package and make changes. The Netherlands requires binding shareholder votes on executive pay. The U.S. law would model those in Britain, Australia, Norway, Spain and France, where the vote is non- binding. Boston Common Asset Management has been pushing shareholder say-on-pay resolutions for three years, and Wolfe says she doesn't understand the CEO opposition, as there are only two examples in Britain when shareholders voted a majority against a CEO's pay: at GlaxoSmithKline in 2003 and at home builder Bellway in 2009. It may be true that most CEOs are fairly paid, she said, which means they have nothing to fear. Only 24 U.S. companies have implemented say-on-pay without legislation, Wolfe says. Of those, only Aflac and RiskMetrics did so without it first coming to a shareholder vote. The Securities and Exchange Commission continues to get feedback regarding say-on-pay at companies that have accepted government money under the Troubled Asset Relief Program (TARP). At Aflac, shareholders approved the pay of CEO Dan Amos by 93% in 2008, and that approval rose to 97% this year when Amos did not accept a $2.8 million bonus even though he had met the conditions of the bonus as set by the Aflac board. ``That tells me that (shareholders) had the ability to look beyond the price of stocks and understand,'' says Amos, who supports say-on-pay at Aflac but declines to weigh in on what is best at other companies. Giving shareholders a voice ``takes away the frustration that is out there,'' he says. ``People just want to be heard.'' Sarah Anderson, director of the global economy program for the liberal think tank Institute for Policy Studies, says say-on-pay is a first step but does not go far enough to rein in abuses. She cites oil executives who had big paydays that had nothing to do with personal performance and everything to do with spikes in oil prices. But shareholders didn't ``bat an eye'' because they were happy with rising stock prices. ``Everyone, not just shareholders, has a stake in fixing the executive compensation system,'' Anderson says. Ralph Ward, publisher of Boardroom Insider, an online newsletter about boards of directors, agrees that say-on-pay does not go far enough, because it offers shareholders ``so little substance.'' Substance or not, CEOs complain that say-on-pay is government intrusion into the private sector. Such consensus among CEOs is rare because they run very different companies that can be made winners and losers on a range of sensitive issues, from energy to health care. They lean Republican, but there are signs that they are increasingly blue, and 40% supported Democrats during the last presidential primary season, according to an unscientific USA TODAY survey. But when USA TODAY last month contacted 31 CEOs and former CEOs of large companies, 77% were against say-on-pay. Are CEOs fairly compensated? Two of the 31 CEOs declined to answer, but 24 of the other 29 (83%) said yes. Five (17%) said that, in general, CEOs are overcompensated. When asked if say-on-pay would influence CEO compensation, 76% said yes. CEO median compensation at S&P 500 companies rose 23% from 2003-2008 despite going down 7.5% to $8 million from 2007 to 2008, according to Equilar, which tracks executive compensation. John Castellani, president of the Business Roundtable, an association representing CEOs of companies with more than $5 trillion in annual revenue, says shareholders have always had the ability to enforce say-on- pay by using the shareholder resolution process. That makes legislation unnecessary, he says. The pro-business U.S. Chamber of Commerce is also against legislation. ``The decision to allow say-on-pay votes should come, as it has, through a dialogue between shareholders, directors and management, not via a Washington mandate,'' says Tom Quaadman, the chamber's executive director for capital markets. CEOs' arguments against it CEOs say the legislation would open the door to micromanagement by largely uninformed shareholders, who understand neither the competitive market forces that drive executive pay nor the complex incentives designed by experts to get the best results. The law could drive top talent to private companies and injure the ability of U.S. companies to compete in a global market, they say. ``You cannot run companies effectively through the democratic process of voting on all things,'' says Judy Odom, former CEO of Software Spectrum. ``Independent boards should be elected, and they should do their jobs.'' While most shareholders are uninformed, some are so informed that they could use a say-on-pay law to an unfair advantage, says Andrew Puzder, CEO of CKE Restaurants, which operates Carl's Jr. and Hardee's. For example, certain investors could threaten to vote ``no'' on the CEO's pay to coerce the CEO into making decisions for short-term gain, such as delaying capital investment or taking on unnecessary debt. Such tactics could temporarily boost the stock price to the detriment of the company's long-term health, he says. An argument could be made that CEO pay is excessive and does not drive performance, says Anders Gustafsson, CEO of publicly traded Zebra Technologies, which sells printing services to 90% of Fortune 500 companies. But he says CEOs have a significant impact on company performance and are being unfairly targeted in a bad economy because their pay is publicly disclosed. CEOs are not unanimous in their opinions, even where it comes to pay. Patrick Byrne, CEO of Internet retailer Overstock, says he is more concerned about CEOs influencing boards than shareholders influencing CEOs. ``The CEO is hired by shareholders. He works for them, just like a farmhand works for the folks who own the ranch,'' says Byrne, among the CEOs who support say-on-pay legislation. He says CEOs ``capture'' their boards, leaving shareholders unrepresented. Real estate developer Don Peebles, recently named by Forbes as one of the 20 wealthiest African-Americans, also supports say-on-pay. He says CEOs who have no significant ownership often have compensation packages designed to reward them on the upside, but they suffer few consequences on the downside. ``There is no real alignment of interests,'' Peebles says. But Behar says he has served on eight boards and says directors are not stupid, and they are in control of CEOs. ``How will our country be better off if CEOs earn less than $2 million a year?'' says Behar. ``Are we trying to create a country without the opportunity to get rich? We had better be careful about the buttons we push down. We may not like the ones that pop up.''

Mr. FRANK of Massachusetts. Mr. Speaker, there is a little bit of an imbalance. I would ask if I could reserve for one more speaker while I work something out.

Mr. FRANK of Massachusetts. Mr. Speaker, I yield 4 minutes to a member of the committee, the gentleman from Georgia (Mr. Scott).

Mr. FRANK of Massachusetts. Mr. Speaker, pursuant to H. Res. 697, I call up the bill (H.R. 3269) to amend the Securities Exchange Act of 1934 to provide shareholders with an advisory vote on executive compensation and to prevent perverse incentives in the compensation practices of financial institutions, and ask for its immediate consideration.

Mr. FRANK of Massachusetts. Mr. Speaker, I ask unanimous consent that all Members may have 5 legislative days on this bill to revise and extend their remarks and include therein extraneous material.

Mr. FRANK of Massachusetts. Mr. Speaker, I recognize myself for such time as I may consume. Mr. Speaker, I have encountered gaps between rhetoric and reality in this Chamber, never one as great as the wildly distorted description of this bill that we've got before us. Let's be very clear. There are differences between the parties here on the whole, at least as reflected in the committee vote. I think it will probably be different on the floor. There is much less difference than there used to be about one piece of it, the say-on-pay. When the say-on-pay bill came up previously in 2007--by the way, when the Republicans were in the majority prior to 2007, on this, as on many other issues, we Democrats tried to do some reforms, predatory lending being one--we got nowhere--credit cards being another. We did try, in our Committee on Financial Services, to bring this up. The Republicans used their majority not to allow it. In 2007, when we were in the majority, we did bring it to the floor, and it passed over the objection of most Republicans, and I will introduce into the Record their comments denouncing say-on-pay. But 2 years later, they have moved some. So they are now for reform on say- on-pay, many of them, although a somewhat watered-down form. I should say there is a stark difference between us remaining on whether or not any action should be taken whatsoever by the Federal Government to restrain compensation practices that inflict excessive risk on the economy. We should be very clear; this assertion that this amounts to control of all wages and prices is nonsense. There is, of course, nothing about prices at all in the bill. As to wages, what it says is that the SEC shall impose rules that prevent excessive risk- taking, and the reference to wages is only in that context. The amount of wages is irrelevant to the SEC. What this bill explicitly aims at is the practice whereby people are given bonuses that pay off if the gamble or the risk pays off but don't lose you anything if it doesn't. That is, there is a wide consensus that this incentivizes excessive risk for you a shorter time. If you're the head of a financial institution or you're one of the decisionmakers or you take actions that are risky and 1 month later it looks like they paid off and you get your money and then 6 months later it turns out it blew up, you don't lose any of the money you got. And if at the outset you take a risk and it costs the company a lot of money, that doesn't cost you anything. All we are saying is that there has to be some balance to the risk- taking. And people ask, What is excessive risk? Excessive risk is when the people who take the risk pay no penalty when it goes wrong; when they have a heads they win, tails they break even situation; when the company loses money and the economy may suffer, but the decision-makers do not. Now, one of the sillier remarks we heard was this will cause us a problem with international competition. In fact, say-on-pay, when the Republican Party overwhelmingly opposed it 2 years ago, was already borrowed from Great Britain, the United Kingdom. And we were told during 2006 that we were losing a lot of business to Great Britain, that we should cut back on Sarbanes-Oxley, for instance, because people would go to England. But England had the very proposal that they were saying was going to drive people away. In fact, today--I will read from an article from a couple weeks ago. The Prime Minister of England says they are going to adopt plans forcing banks to hold back half of all bonuses for up to 5 years to discourage excessive risk-taking. That's our major financial competitor. And the conservative opposition is critical because it's not mandatory. We have been in conversations with the European Union, the United Kingdom, with Canada, and others. This will be done on a coordinated basis. In fact, American salaries, American compensation has been much higher. So, no, there is no price control; no, there is no wage control; no, it is not a problem for international competition. And by the way, as to every institution, every credit union--you heard that rhetoric--the bill exempts any institution with less than $1 billion in assets, and it gives the SEC the authority to even raise that so there's even less. But here's the nub of it: The Republican Party has reluctantly been dragged--reality sometimes has an impact--to supporting a watered-down version of say-on-pay. Say-on-pay, by the way, says that the shareholders of the company can vote and express their opinion. The gentleman from Texas was upset that we don't have a Federal Election Commission mechanism for these votes. But why only these votes? Shareholders vote on everything. Apparently it's only when the shareholders tend to vote on pay that Republican sensibilities are trampled. We do not, in this bill, talk about the amounts. We do say the shareholders should. We say, in consultation with all the advocacy groups who represent shareholders and pension funds and elsewhere, that the people who own the company, the shareholders, should be able to express their opinion on the compensation. We go beyond that to say that we believe the Federal Government has interest--not in the level of compensation, that's up to the shareholders--in the structure. When you have, as we have seen, structures whereby companies lose lots of money, and they lose lots of money on particular deals, but the people who made those deals make money on them, that has a systemic negative impact on this society because it incentivizes much too much risk. Now, what is the Republican approach to that? Nothing. They admit that these are problems. They regret that these things are happening, but their regrets won't stop the damage. In the Republican substitute there is a watering down of say on pay, but they at least acknowledge that reluctantly. But when it comes to the practice of large corporations in the financial area structuring bonuses that incentivize excessive risk, my Republican friends admit that that's the case and lament it and are adamant that we should do nothing about it. That's the big difference. We believe that the SEC--and by the way, as to the form, it was a Republican former Member of this body, Christopher Cox, who was Chair of the SEC, proposed disclosure. He broached it first. He said we have an important public interest in knowing it. So we are going to take the form of disclosure of compensation prescribed by a Republican Member of this House as Chairman of the SEC, with his colleagues, and let the shareholders say yes or no. We are going to go beyond that and say that the SEC should look at this and say, you know, you have a situation here where people making the decisions will have an incentive to take too much risk. If you tell people that if they take a risk and it pays off they are enriched, and if it fails miserably, they don't lose anything, they will take more risk than rationally should be taken. You should not incentivize people to take risks where they can only benefit and never suffer a penalty. That's all this bill says. We will prevent that kind of thing from happening. We won't set amounts. We won't deal with wage controls. We won't do anything else, and we exempt institutions under $1 billion. So I await the Republican counter. Yes, they want to water down say- on-pay, but they reluctantly accept it, but they have zero to offer with regard to the situation of excessive bonuses. And yes, we did get some reluctant agreement that we put some limits on the people who are recipients of TARP funds, but one of those who received TARP funds prospered with those funds, paid back the funds, and are now engaging in the same risky bonus practices they had before. The Republican position, at least in committee, was to do nothing about it, zero. Ours is, have rules, not that set the limits, not that set wage controls, but simply say that you cannot structure it so that whatever level of compensation you have, you profit if the bonus pays off and you lose nothing if the bonus causes great damage to your company and the economy. Mr. Speaker, I reserve the balance of my time.

Mr. FRANK of Massachusetts

Mr. FRANK of Massachusetts. Mr. Speaker, that speech would have been impressive--I might have disagreed with it--if it applied to all shareholder votes. The recommittal motion singles out the say-on-pay. And if you want to influence pay, you have to report everything. If you want to vote on a merger or an acquisition or if you want to vote on anything else, you don't have to do it. It's not a uniform requirement of a disclosure. It burdens the say-on-pay vote and leaves every other vote in the dark. If that's so important, why did we not have a broader version of it? It also is quite burdensome. If you want to spend money to oppose large bonuses, to oppose large salaries, to oppose a company paying 72 percent of its revenue, as recently happened, in compensation, if you are a pension fund, if you are a union, if you want to write to your own members and say this is a bad idea, if you hold shares, vote ``no.'' You have to give the identity of all persons or entities engaged in the activity and the activities engaged. It is not simply a reporting of the amount of money. It is a very detailed one, and it burdens only those voting on say-on-pay. It clearly comes from a hostility of the notion of say-on-pay. Members who opposed it 2 years ago can't oppose it today, so they now have a new tactic. They are trying to aggravate it. And while we are on the subject of aggravation, I hope to reduce the level here by asking people to vote ``no.'' Mr. Speaker, I yield back the balance of my time.

Mr. FRANK of Massachusetts

Mr. FRANK of Massachusetts. Well, I don't want to inflict further excess on the body.

Mr. FRANK of Massachusetts. Mr. Speaker, I have a parliamentary inquiry.