- The Washington Times - Wednesday, June 10, 2009

Treasury Secretary Timothy F. Geithner said Wednesday that he will work with Congress to pass legislation designed to tie corporate executive pay more closely to performance and “sound” risk management.

“Compensation should be tied to performance in order to link the incentives of executives and other employees with long-term value creation,” Mr. Geithner said.

The secretary said incentive-based pay often is undermined by compensation practices that “set the performance bar too low” or that rely on benchmarks that trigger bonuses even when a firm’s performance is subpar.

Mr. Geithner made his remarks to reporters after a morning meeting with Securities and Exchange Commission (SEC) Chairwoman Mary Schapiro, Federal Reserve Governor Dan Tarullo and industry experts to discuss the need to reform compensation policies.

Mr. Geithner said he will push Congress to pass “say on pay” legislation that would give the SEC authority to require companies to give shareholders a non-binding vote on executive compensation packages.

Say on pay — the norm for several major U.S. trading partners and a measure backed by President Obama when he served in the Senate would encourage boards to ensure that the paychecks of top executives are closely aligned with the interest of shareholders.

The secretary said that he also will propose legislation giving the SEC the power to ensure that compensation committees are more independent, including having the power to hire outside consultants and counsel.

He added that he doesn’t support legislative efforts to directly cap executive pay or compensation.

“We are not setting forth precise prescriptions for how companies should set compensation, which can often be counterproductive,” he said. “Instead, we will continue to work to develop standards that reward innovation and prudent risk-taking, without creating misaligned incentives.”

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