CEO pay flap reaches House

[OhioChick]

Experts debate whether public companies should be required to give shareholders an advisory vote on executive compensation packages.

March 8 2007: 1:07 PM EST


NEW YORK (CNNMoney.com) -- The issue of whether or not shareholders should get a say on company CEO compensation drew experts on both sides to a House hearing Thursday.

Investors have serious and legitimate concerns about executive pay structures, Lucian Bebchuk, a professor at Harvard Law School, said at the hearing before the House Financial Services Committee.

Providing them with tools to influence a company's pay decisions is necessary for enhancing shareholders' rights, he said.

Earlier this month Rep. Barney Frank, D-Mass., chairman of the Financial Services Committee, introduced legislation that would give investors a non-binding vote on executive pay.

The bill doesn't set limits on executive pay but gives shareholders the opportunity to state their opinion on compensation.

Executive compensation has become a battleground as CEO pay packages have spiraled. The issue has come further into focus in light of new SEC rules approved last year that require better reporting on executive compensation.


http://money.cnn.com/2007/03/08/news/economy/executive_pay/?postversion=2007030813

<snip> Skyrocketing pay has raised concerns about the widening wealth gap in the United States.

[youngdem]

1. I don't understand why institutional investors have stood for it this long

Such pay packages create a corporate raider mentality, whereby a CEO candidate is baited by bonus package goals to inflate and stack earnings in the short term, very often at the expense of the long term health of the company. In extreme (and sadly common) examples, they lie, cheat, steal and set up fake clients and shell companies to fake earnings books to meet targets, take their parachutes and watch from the rear view mirror as the company staggers and/or collapses due to their piracy.

I am stunned that institutional investors let this happen. They have board votes. It isn't like pay packages aren't already fair game for shareholders of stature. Seems the only way to fix this is to tie pay to longer term performance, and that bonuses should be paid out partly based on the financial health of the company after the departure.

[BootinUp]

2. Powerful friends will

return favors...thats what it basically comes down to.

[LiberalFighter]

5. There should be a proviso stating that compensation will be reduced if..

it is determined that the real financial earnings is less than previously stated during their tenure.

[orwell]

3. Sorry I don't get this...

...First of all it is non-binding. (Where have we heard that before.)

Second of all if you don't like the compensation sell the stock, or don't buy it in the first place.

Large shareholders such as pension funds can exert direct pressure either through proxy votes or face time with the board or management already.

This strikes me as weak grandstanding at best.

[drm604]

4. I agree with your complaint about it being non-binding.

What's the point if it's non-binding? Make it binding. The big institutional stockholders will understand that fair compensation is necessary to attract good management, but at the same time it will be in their interest to keep it in check.

I disagree with your other two points. Those are possible now and it doesn't seem to help.

[orwell]

6. It doesn't help...

...because people don't care. If they did they wouldn't buy the stock in the first place.

One of the first things I look at in a company is management and their compensation structure. I have passed on many investments over this very issue and have for many years.

Most people never look at these issues when they buy a stock.

They simply don't care.

[drm604]

8. You can't always do that with a 401k. n/t

[truthisfreedom]

7. Executive chimpensation packages.

The US Treasury is dumped upside down into the pockets of their gay prostitute cronies.