Executive compensation caps, echo

Just after I posted my opinion of Obama’s proposed executive pay caps, CNNMoney.com published a story that confirms the most important point of the earlier post:

“Importantly, I hope that this action on the part of the Obama Administration eventually leads to a national discussion about executive compensation practices and a change to the way most businesses currently reward their upper echelon employees.”

CNN’s story, which can be found at http://money.cnn.com/2009/02/04/news/economy/executive_compensation/index.htm?postversion=2009020418 affirms exactly my point. Among the article’s salient points are the following:

• “Alexander Cwirko-Godycki, research manager for executive compensation research firm Equilar, said that the U.S. public, not just Corporate America, has been reluctant to accept anything that smacks of pay caps in the past. But he said that the mood is now changing.”
• “McCormick said it is almost certain that so called “say on pay” rules will pass Congress and be signed into law this year. In fact, Obama was a co-sponsor on such a measure when he was in Congress.”
• “Nell Minow, co-founder of The Corporate Library, a shareholder rights group, said a government-mandated change in rules on the election of corporate directors would be a far more effective way to rein in pay.”

I believe that Ms. Minow’s quote is worthy of comment. In a much earlier posting on ze bloge I had stated that one of the ways that corporate America could be reformed is if shareholders were more empowered to elect competent members of corporate boards. Some of the long-standing obstacles to shareholder empowerment have been the extreme difficulty of: changing the boards of directors; having an outside board member elected; and changing the rules by which corporations govern themselves. Technically shareholders own the business, but because of the buddy-buddy-inbred system of managers and board directors, we owners have been effectively locked out of the discussion of the management of the business. Think: kings, royalty and peasants. If you are not the king (CEO), royalty (CFO, COO, etc.) then you are a peasant. In other words, your capital is welcome, but your voice is not. Thank the gods this is all about to change. This is BIG.

Jason