Shareholders in the US would be given a non-binding vote on the pay of top executives once a year, under new ‘say on pay’ legislation delivered by the US Treasury to Congress on Thursday.

The legislation is modelled on British rules designed to encourage greater accountability and better disclosure in setting the pay packages of top executives, the US Treasury said in a statement.

It follows widespread political and public concern that pay and bonus packages based on short- term share price performance contributed to the excessive risk-taking that led to the economic crisis.

The new rules, part of the Treasury’s push for comprehensive regulatory reform, would require public companies to include a non-binding shareholder vote on the pay, bonuses, stock and option rewards, golden parachutes and pension packages of senior executive officers for any annual meeting held after December 15, 2009.

There would have to be a separate vote on golden parachute payments in the event of mergers or acquisitions to prevent managers re-negotiating a larger payout at the time of the deal.

The proposed legislation was co-sponsored by then-Senator Obama in 2007 and passed the House that year. It follows earlier proposals for restrictions on more than 500 large companies receiving money through Tarp federal bailout. These stopped short of $500,000 cap on pay for bankers.

The Treasury also delivered draft legislation to Congress that would take steps to ensure that compensation committees are independent of management and are able to bring in their own legal counsel.

Representative Barney Frank, chairman of the US House of Representatives Financial Services Committee, said that his panel will write and possibly vote in the last week of July on legislation concerning executive compensation.

"It's 'say on pay,' and it's instruction to the SEC to not allow compensation schemes that do perverse incentives, or too much risk-taking," he said.

The new rules are designed to increase dialogue between firms and shareholders over pay and are based on the Directors' Remuneration Report Regulations introduced in the UK in 2002. Similar policies have been introduced in the Australia, Sweden, Norway, and the Netherlands.

Yale corporate governance expert Stephen Davis, said: "A surprisingly broad consensus of corporate directors, shareholders and government in Britain sees ‘say on pay’ acting as a driver of corporate value, making public corporations more competitive and, by raising confidence in governance integrity, lowering risks for investors."

Shareholder groups such as the Association of British Insurers and the National Association of Pension Funds have developed detailed compensation guidelines that improve practices and systematize the consultation process.

In the US, while shareholder interest in say-on-pay has increased significantly and some companies have adopted it, other companies have declined to permit shareholders to vote on executive pay, even when shareholders have voted to ask the company for that right.

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