The U.S. Treasury Department promised legislation to require “say on pay” provisions at public companies and regulatory oversight of compensation committee independence. It also outlined a set of principles that it expects should dictate compensation practices in the financial industry.

Treasury secretary Tim Geithner said that the department will seek legislation in two areas concerning executive compensation. It pledged to support efforts in Congress to pass “say on pay” legislation, giving the U.S. Securities and Exchange Commission authority to require companies to give shareholders a non-binding vote on executive compensation packages.

He also said that it will propose legislation giving the SEC the power to ensure that compensation committees are more independent and are adhering to standards similar to those in place for audit committees as part of the Sarbanes-Oxley Act. Compensation committees would also be given the responsibility and the resources to hire their own independent compensation consultants and outside counsel, he said.

Geithner also outlined the principles that it believes should be followed to better align pay with performance. They are: compensation plans should properly measure and reward performance; compensation should be structured to account for the time horizon of risks; pay practices should be aligned with sound risk management; the question of whether golden parachutes and supplemental retirement packages align the interests of executives and shareholders should be reexamined; and transparency and accountability in the process of setting compensation should be encouraged.

“By outlining these principles now, we begin the process of bringing compensation practices more tightly in line with the interests of shareholders and reinforcing the stability of firms and the financial system,” he said.

“I want to be clear on what we are not doing,” Geithner added. “We are not capping pay. We are not setting forth precise prescriptions for how companies should set compensation, which can often be counterproductive. Instead, we will continue to work to develop standards that reward innovation and prudent risk-taking, without creating misaligned incentives.”

He also noted that the President’s Working Group on Financial Markets will provide an annual review of compensation practices to monitor whether they are creating excessive risks.

“Many leaders in the financial sector have acknowledged the problems posed by past compensation schemes, and have already begun implementing reforms. But we have more to do to address this challenge, and we look forward to continuing this conversation with a wide range of stakeholders in the weeks and months ahead,” he said.