Business

Shareholders To Get More Say On Executive Compensation?

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That’s the plan, but color me skeptical. These corporations have too much influence on Capitol Hill. Still, the fact that we’re even talking about it is encouraging.

CNN explains why this issue has reignited…

Two weeks ago, Goldman Sachs (GS, Fortune 500) was roundly panned amid speculation that it was considering paying its employees some of the largest bonuses on record, despite having accepted $10 billion from the Treasury Department’s Troubled Asset Relief Program, or TARP, last fall. (The investment bank has paid the government back, however.)

Earlier this month, outrage over bonuses paid out by bailed-out insurer AIG (AIG, Fortune 500) bubbled back to the surface after The Washington Post reported that AIG was seeking the government’s consent to make a scheduled performance bonus payment of $2.4 million to 43 of its top-ranking executives.

So is this some sort of plot against capitalism?

Hardly.

In fact, a lot of companies have already adopted similar policies of their own accord…

Twenty three companies have agreed to give shareholders an annual vote on executive compensation, including Aflac (AFL, Fortune 500) and Verizon (VZ, Fortune 500), according to the advisory firm RiskMetrics. And more than 80 others agreed to take the issue under consideration at their annual shareholder meetings this year.

Long story short, this is just good corporate governance, and sometimes legislation needs to force certain people’s hands. Unfortunate, but that’s how it goes.

  • gerryf

    …no, it is not good corporate governance (I can’t believe I am going there).

    There is little difference between a board of directors installed because they are good friends with the CEO and a group of shareholders who are chiefly focused on the short-term return on investment (and most shareholders are institutional stakeholders like mutual funds and pension plan administrators).

    The former may grant executive bonuses/salaries bases on friendship, and the latter will grant bonuses/salaries based on who makes them money RIGHT NOW based on risk taking and short-term thinking.

    Neither is good corporate policy. Neither is going to promote the kind of long-term growth and stability and (conservatives cringe here) benefits for the nation and its citizens.

    Seriously, we have seen enough of the professional manager for the past 40+ years to know that this is not the way.

    What do you suppose is the average length of time a corporate executive has with the company today as opposed to 50 years ago?

    The problem with management today is there is no institutional memory and no stake in the long term health of a company.

    Without those two factors, corporations are just short-term money making machines that reward the fast buck and high-risk taking.

    Who decides who gets paid how much does not matter if the focus is wrong, which is practically guaranteed under the present system or a shareholder controlled one.