Archive for July 24th, 2009

Say on Pay, and More

Friday, July 24th, 2009

“The U.S. Congress is moving forward on a measure to give public company shareholders a nonbinding annual vote on executive pay, a concept backed by President Barack Obama that has gained traction amid the recession and credit crisis,” Reuters reports. “Critics—including some investor rights proponents—argue that say on pay will not rein in U.S. business leader compensation or help spotlight companies where pay practices need a serious overhaul.”

Smeal’s Edward Ketz has another solution for excessive executive compensation: Give shareholders more influence over corporate boards.

“The executive compensation issue remains a hot-button item,” Ketz writes in a recent column. “I think the key institution in this matter is the board of directors.  If empowered and if held accountable for their decisions, I think the board of directors could properly address the issue of executive compensation.”

More from Ketz:

The board of directors supposedly represents the shareholders, but often belies that point by assisting managers in their grab for power and wealth. The Congress could help by enacting legislation that would allow investors to sue directors when the directors abrogate their duties to the shareholders. (Recall that the Supreme Court greatly restricted the liability of directors in Central Bank of Denver v. First Interstate Bank of Denver.)

Of course, the impotence of most boards of directors is frequently the consequence of allowing managers to choose their buddies to be on the board.  “Independent directors” is a joke; I doubt if very many of them are really independent. So another thing that should be done is to give shareholders the right to vote for the directors. And not with a manager-stacked deck of choices as if we lived in some communist country. Give the shareholders the opportunity to add candidates to the ballot. Again, they are the owners!

Tags: Executive Compensation, Ketz, Management
Posted in News | No Comments