A Congressional Ultimatum for CEOs
Passage of a financial bailout with flimsy constraints on executive compensation has invigorated the public and policymakers alike to take action to curb excessive executive pay. Just this morning, Senator Chris Dodd warned that Congress might take a step that would send shivers down the spines of every CEO: federal caps on executive pay.
But another tool to limit executives' pay is also gathering legislative strength. "Say on pay" provisions grant shareholders a vote -- often nonbinding -- on executive compensation. The vote encourages corporate compensation committees to communicate with shareholders and explain compensation packages to ensure that shareholders understand how (and why) executives are being compensated in the manner they are. The U.K. has laws requiring say on pay and a number of U.S. companies, most notably Blockbuster and Aflac, have adopted the policy.
At a Drum Major Institute forum earlier today Blockbuster CEO James Keyes, who will be subject to a say-on-pay vote in 2009, talked about his company's adoption of a nonbinding shareholder vote on compensation. Keyes said that say on pay encourages executives to think long term and emphasized that
there are clearly consequences for companies that ignore the voice of shareholders. Boards of directors cannot ignore this type of voice...[We would] loose shareholder confidence over time.
For all his talk about maintaining shareholder confidence, Keyes seemed unfazed by the growing anger of most Americans about the lack of corporate regulation.
Fellow panelist William Thompson, New York City Comptroller, stressed just how upset the public is. Thompson noted that last year the House passed legislation to require all publicly traded companies to allow a nonbinding vote on executive compensation packages. The President-elect himself introduced similar legislation in the Senate last year. A perfect storm is mounting for say-on-pay legislation, according to Thompson.
But Keyes persisted: "Self-regulation over time works." Legislation, he lamented, could create disastrous unintended consequences. Presumably he is referring to a consequence more severe than the ever-expanding financial meltdown.
Timothy Smith, vice president at Walden Asset Management, a socially responsible investment firm, reminded the panelists that the legislation proposed in the 110th Congress mandates only a nonbinding shareholder vote on compensation. The vote is a "caution" to a compensation committee that does not require the blunt - and expensive and often drawn-out - route of sacking the board of directors.
As Keyes emphasized, executives generally oppose say-on-pay provisions and "left to their own devices" hope the provisions will just "go away".
But Vonda Brunsting of the SEIU Capital Stewardship Program suggested playing to executives greedier, survival instincts. Executives, Brunsting said, should adopt say-on- pay for cynical, self-interested reasons even if they don't agree with it. If they don't act on their own soon, Congress will legislate and, as Dodd's warning this morning suggested, the legislation might not stop at a nonbinding shareholder vote.
Blockbuster CEO Jim Keyes on Self-Regulation vs. Legislation
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Say-on-pay should be BINDING.
Ok, how about this--Pay caps on CEO's and other execs for only those companies that accept Our bailout money? That's a contract, right? Legal, right? And I would think, very Constitutional.
Senator Dodd made an empty threat that he won't be able to deliver on. It's poor theater and poor politics on top of that. Most likely such a law wouldn't even pass the test against the US constitution. So why bother? I can only think about one thing: an otherwise powerless Senator posturing. If I were a CEO, I would be rolling on the floor laughing.
Well, there always more Ji Sung's if they keep laughing
No company can be expected to self regulate. Self regulation was one of greenspans plans to replace real regulation. Worked out great, didn't it?
GREED TRUMPS ALL.
Every good company self-regulates all the time. Those which don't go bankrupt.
Wrong--for all the companies lining up at the FED till for their bailout it is like going to Las Vegas, losing on every roll of the dice, and not worrying about it because you have a printing press in your back pocket! Good is not rewarded any more. But devious is.
This is BS. Non-binding is useless. And please correct me if I am wrong on this point, If I own 1000 shares of stock in Super Mega Industries Ltd. And don’t think the Board deserves raises or bonuses or even the usual multi million dollar payday this year. My 1000 votes means almost nothing when the CEO owns 2 million shares.
In most publicly traded companies I would think that Ultra Rich people own a much higher percentage of stock than small investors. So I guess the question is which way will the Ultra Rich vote on Executive Compensations since many are actually Executives themselves?
And what about Bonuses? Who will regulate how bonuses are devised and rewarded? If the boss can suspend pay raises for the employees that is reflected in the bottom line so the boss gets a bonus but the rest of us get the shaft.
Cap it at a given percentage of what the average employee makes. If the CEO wants more money they will have to pay all the employees more money.
Good for Dodd. There absolutely should be a federal cap on exec. pay. In 1980, the average CEO made 42x as much as the average factory worker. Now, they make more than 500x what the average factory worker makes.
If "say on pay" is the only thing that flies, there should be additional measures taken to reign in corporate power and democratize corporations. Stakeholder representation should be expanded (co-determination) for the purpose of prohibiting companies from filling their boards of directors solely with insiders and CEOs of other peer corporations.
In the event that CEO pay is restricted, the Internal Revenue Tax Code needs to be looked at. There is still no definition re: what constitutes "reasonable salaries and benefits" that are deductable.
More radical reforms to reign in corporate power that I'd like to see would be eliminating personhood rights from corporations, banning them from our democracy, and changing corporate charters to redefine acceptable practices and behaviors.
The average CEO in America does not make 500 times the average factory worker. That's nonsense. The average CEO makes between $250k and $500k. The average CEO of a publicly traded company might. But most CEOs are not running publicly traded companies.
maybe I'm reading too much into the article, but I thought it was focused on publicly traded companies and in particular those receiving bailout funds.
and as for CEO earnings multiples, having worked for Yahoo where the CEO, Terry Semel, was taking in a staggering 5000X the earnings of the entry level employee (before eventually being fired), the 500X figure doesn't sound that unbelievab
I would emphasize that it is indeed likely that the say-on-pay legislation in Congress will pass. The proposal is much more palatable to business than other compensati
Any legislative cap on executive pay or say-on-pay laws would wind up in court. And probably defeated. I could see this going all the way to The Supreme Court. Such laws interfere with a person's right to receive compensation in a free market system. After all, compensation boards are allowed to set the standards and publish them to their shareholders. The shareholders do not lack the information and have been informed of the rules in a timely manner.
This is pure fantasy, these laws. Then again, there is that slim one percent chance that the laws would be found Constitutional.
I am willing to bet with you 100:1 that no such law will be found constitutional. CEO pay is a private contract between two legal entities and the supreme court will not allow the government to regulate or restrict such contracts. It would overthrow 800 years of legal history, and not just the US constitution.
This will never fly. If they were serious they'd tie the executives' pay to a multiple of the lowest paid worker in their companies. I think one or two of the Scandinavian countries already do this, but rest assured it'll never, ever pass here. Like single-payer universal health care, it's just too logical and the consequences for the 1% too bothersome.
Bingo! I am sure we'd see our wages start growing again after three decades of stagnation.
They also tax the heck out of the rich and the rich go along because they want to live in a developed country where they will not get MRSA or drug resistant tuberculosis from the person sitting next to them in the restaurant or at the doctors...
Finally, someone with with some flippin sense.
Put that regulation in place, maybe they will get the hint and get this country back on it's feet.
No one needs that damn much money a year anyway, don't care what their job is, it is not worth billions when the companies they are running are failing.
If you were a little guy and this happened, you would be fired, as simple as that.
Dodd just screwed you into believing that he is serious. Good for him.
:-)
Theives will always find a way to steal our money. Not until there is a fully functional Guillotine in every boardroom will they get the message. Maybe not even until it is used a few dozen times. Remember, CEOs, those gated communities you live in aren't really as secure as you think.
they will not even get the message then... remember what happened to Kenny Lay, NOTHING...
We need a progressive tax system to assuage the temptation/greed.
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