UPDATE:US House Considers Executive Comp Bill; May Exempt Small Cos

A U.S. House of Representatives panel on Tuesday began consideration of a measure setting new executive compensation standards for U.S. firms, one of the first substantive steps in Democrats' broader regulatory overhaul efforts.

The House Financial Services Committee, chaired by Rep. Barney Frank, D-Mass., started debating a measure that would give shareholders a greater ability to weigh in on compensation packages and would ensure that board compensation committees are made up of independent directors.

Financial services firms are specifically singled out in the legislation, with banks, broker-dealers and other financial firms potentially being required to disclose any incentive-based compensation structures. Federal regulators would also be authorized to restrict "inappropriate or imprudently risky" pay packages at financial firms.

The issue is a difficult one for Republicans, who oppose government interference on compensation matters but recognize the popular outrage over executive pay at firms such as American International Group Inc. (AIG) and other bailed-out financial institutions over the last year.

"It's not to our advantage being up here opposing executive compensation. It's a very popular thing to go after," said Rep. Spencer Bachus of Alabama, the panel's ranking Republican, during a heated exchange with Frank.

The panel made a number of changes to the bill, exempting financial firms with under $1 billion in assets, and adding Fannie Mae (FNM) and Freddie Mac (FRE) to the firms that would be covered.

GOP lawmakers raised the specter that "federal bureaucrats" would be setting how much pay employees receive, a charge Democrats aggressively rejected.

"There's nothing in this bill that allows the government to set compensation," said Rep. Mel Watt, D-N.C. "Quit trying to hide behind the government as a big, bad entity."

-By Michael R. Crittenden, Dow Jones Newswires; 202-862-9273; [e-mail]