Curbing Executive Pay

Washington , D.C. Business Week recently reported that the executive pay packages of America’s public corporations equal roughly 500 times the salaries of their workers. Fifteen years ago, those packages were only 140 times larger. Most recently, the average corporate executive of a Standard and Poor’s 500 company made $14.78 million in annual compensation.

Appalled by these and other relevant data, the U.S. House of Representatives recently passed H.R. 1257, the “Shareholder Vote on Executive Compensation Act,” by a vote of 269 to 134. The measure is to give shareholders of public companies a nonbinding vote on their companies’ executive pay. The bill will not set any limits on compensation. It will, however, give shareholders a separate advisory vote if directors reward an executive with a “golden parachute” while they are negotiating to sell the company. Advisory votes on compensation have been effectively used in Sweden, Britain, and Australia.

H.R. 1257 was initiated by Barney Frank (D-Mass.), the chairman of the House Financial Services Committee. Shareholder advocates and pension funds are supporting the measure. They feel cheated out of their fair share of company gains when the aggregate compensation of the top five executives exceeds 10 percent.

Earlier this year President Bush had questioned extravagant executive remuneration, but as the bill goes to the Senate, he opposes it with the argument that government should not regulate the internal decisions of private corporations. The bill’s opponents also argue that the Securities and Exchange Commission is already requiring that the boards of corporations inform shareholders of the total amount of each executive’s pay package and of the reasons for its size.

Senator Barack Obama, D-IL, promised to produce an “identical” bill in the Senate. An Obama aide explained that the senator’s bill “would allow shareholders to hold executives to similar performance standards that workers are held to.”

While corporate bosses routinely make tens of millions of dollars in annual compensation, the president of the United States gets $400,000 a year, the chief justice of the Supreme Court $212,000, and cabinet secretaries (who administer hundreds of billions of dollars) $183,500. No wonder that the public is outraged when, for example, Robert Nardelli, the CEO of Home Depot, gets $210 million for his services, after the board dumped him for failing to reverse the company’s unsatisfactory performance.

Compensation for public officials from the president on down has to be approved by publicly elected lawmakers. Yet, even in the public sphere, the exorbitant and escalating pay differentials between bosses and the rank and file have become difficult to justify. Anybody who knows the stressful demands made on public schoolteachers cannot understand why in some districts school superintendents are awarded $250,000 annually while the value of teachers is assessed at $40,000.

In the corporate world, the usually wealthy members of the boards are so accustomed to extraordinary income levels that they fail to see the unfairness of the reward differentials between executives, employees, and shareholders. It is still rare in America that employees or shareholders resist the gross misappropriation of corporate funds by executives and directors.

When now Congress at long last is acting to protect shareholders from the theft of their fair share of corporate profits, the directors and executives have only themselves to blame for the increase in government regulations. This is not the first time Congress moved to prevent abusive corporate conduct. Already in 1890 Congress passed the Sherman Anti-Trust Act when it became obvious that some of the “robber barons” at that time were bent on destroying free enterprise by destroying competition. Like the anti-trust laws, the Shareholder Vote on Executive Compensation Act is an attempt to assure fairness for all players in the market.

Wolf D. Fuhrig	Home	05-06-07
Curbing Executive Pay
*Washington , D.C.* Business Week recently reported that the executive pay packages of America’s public corporations equal roughly 500 times the salaries of their workers. Fifteen years ago, those packages were only 140 times larger. Most recently, the average corporate executive of a Standard and Poor’s 500 company made $14.78 million in annual compensation. Appalled by these and other relevant data, the U.S. House of Representatives recently passed H.R. 1257, the “Shareholder Vote on Executive Compensation Act,” by a vote of 269 to 134. The measure is to give shareholders of public companies a nonbinding vote on their companies’ executive pay. The bill will not set any limits on compensation. It will, however, give shareholders a separate advisory vote if directors reward an executive with a “golden parachute” while they are negotiating to sell the company. Advisory votes on compensation have been effectively used in Sweden, Britain, and Australia. H.R. 1257 was initiated by Barney Frank (D-Mass.), the chairman of the House Financial Services Committee. Shareholder advocates and pension funds are supporting the measure. They feel cheated out of their fair share of company gains when the aggregate compensation of the top five executives exceeds 10 percent. Earlier this year President Bush had questioned extravagant executive remuneration, but as the bill goes to the Senate, he opposes it with the argument that government should not regulate the internal decisions of private corporations. The bill’s opponents also argue that the Securities and Exchange Commission is already requiring that the boards of corporations inform shareholders of the total amount of each executive’s pay package and of the reasons for its size. Senator Barack Obama, D-IL, promised to produce an “identical” bill in the Senate. An Obama aide explained that the senator’s bill “would allow shareholders to hold executives to similar performance standards that workers are held to.” While corporate bosses routinely make tens of millions of dollars in annual compensation, the president of the United States gets $400,000 a year, the chief justice of the Supreme Court $212,000, and cabinet secretaries (who administer hundreds of billions of dollars) $183,500. No wonder that the public is outraged when, for example, Robert Nardelli, the CEO of Home Depot, gets $210 million for his services, after the board dumped him for failing to reverse the company’s unsatisfactory performance. Compensation for public officials from the president on down has to be approved by publicly elected lawmakers. Yet, even in the public sphere, the exorbitant and escalating pay differentials between bosses and the rank and file have become difficult to justify. Anybody who knows the stressful demands made on public schoolteachers cannot understand why in some districts school superintendents are awarded $250,000 annually while the value of teachers is assessed at $40,000. In the corporate world, the usually wealthy members of the boards are so accustomed to extraordinary income levels that they fail to see the unfairness of the reward differentials between executives, employees, and shareholders. It is still rare in America that employees or shareholders resist the gross misappropriation of corporate funds by executives and directors. When now Congress at long last is acting to protect shareholders from the theft of their fair share of corporate profits, the directors and executives have only themselves to blame for the increase in government regulations. This is not the first time Congress moved to prevent abusive corporate conduct. Already in 1890 Congress passed the Sherman Anti-Trust Act when it became obvious that some of the “robber barons” at that time were bent on destroying free enterprise by destroying competition. Like the anti-trust laws, the Shareholder Vote on Executive Compensation Act is an attempt to assure fairness for all players in the market.

Wolf D. Fuhrig

Home

05-06-07

Curbing Executive Pay