‘Say on pay’ bill for executives is unnecessary

It has become nearly impossible to make a solid case for some of the extreme examples of compensation among corporate executives.
Let’s face it: Once you get beyond the $20 million or $30 million range, most people expect to see somebody with a 98-mph fastball or at least an Academy Award.
But corporate executives? Are you kidding me?
They are people just like us, right?
Except they drive nicer cars and take better vacations, and ultimately are responsible for the overall direction of an entire company.
It is, in so many respects, a capitalist system that has gone bananas when we are able to justify, or at least swallow, vulgar displays of compensation in some circles but not in others.
From where I sit — possessing neither a fastball nor any significant acting skills — the compensation issue is both out of control and out of reach across the board.
There simply is no way to justify a CEO-to-worker compensation gap that reportedly has grown to more than 400-to-1, from 107-to-1 in 1990 and 42-to-1 in 1980.
I can only imagine the public relations departments at some of these public companies, scrambling to rationalize the chief executive’s whopping salary by claiming that the CEO often stays late and sometimes even works on Saturday.
There is no denying the unsettling nature of such radical compensation disparity, but that still is not a realistic justification for the knee-jerk proposals from Congress designed to give shareholders a stronger voice in how corporate executives are paid.
The proposal by House Financial Services Committee Chairman Barney Frank, D-Mass., which already has passed the House, would give shareholders a “say on pay” with regard to executive compensation.
Sen. Barack Obama, D-Ill., a candidate for the Democratic presidential nomination, has introduced the bill in the Senate, proving he can recognize a good opportunity to pander when he sees one.
In stride with the theme of the current Congress, the proposal is non-binding but nonetheless disturbing as a slippery slope and an all-too-puritan perspective.
Although it is easy to identify the motivations behind the kind of measure that appears to represent working-class individuals, it isn’t so easy to understand the real benefits of such a proposal to shareholders or anyone else.
Shareholders already have a binding say in how executives are compensated through a process of electing the directors of corporate boards.
Back-seat driving notwithstanding, there is no better way — including the say on pay proposal — for shareholders to have an effect on how executives are paid.
Shareholders dissatisfied with a chief executive’s compensation in relation to a company’s stock price also can vote with their feet by selling their stock.
And let’s face it: This ultimately boils down to executive compensation in relation to stock performance.
Of course, tying executive compensation to stock performance is part of what got us where we are today, with stock options emerging as the readily available end run around a 1993 tax law change aimed at linking compensation to stock performance.
It isn’t for lack of effort that the moving target of executive compensation continues to elude the powers that be.
The Securities and Exchange Commission this year enacted new rules requiring corporate America to provide greater levels of detail regarding executive compensation and benefits.
This rule change, while still too new to evaluate realistically, is a step in the right direction and should be given preference over non-binding quick fixes that look good and feel good but that ultimately raise more questions than answers.
If we are giving shareholders a say on pay, why not give them a say on the allocation of other corporate resources and revenue?
Or better still, why not give voters a say on how much a congressperson gets paid, as opposed to the current system of just letting the lawmakers decide how much they think they are worth?

Related Topics: Just Thinking