The executive pay industry

The WSJ has an interesting article on how representatives of five groups are pushing for executive pay reform: "networker" Jesse Brill; Harvard Professor Lucian Bebchuk; "bureaucrat" Meredith Miller (Connecticut assistant treasurer); mutual fund trustee John Hill of Putnam; and carpenters union leader Edward Durkin.

There is, of course, one big group that is (not surprisingly) missing from the article – journalists, Gretchen Morgenson being the most obvious example.

The article doesn't discuss these groups' motivations. To what extent are they really on the shareholders' side? Unions want to pressure managers to get a lever in pay negotiations. State politicians manage pension funds but also have political objectives. Mutual funds seemingly just want to increase portfolio performance, but is activism really cost-effective for them?  If not, what's their game? Putnam's Hill, at least, would like to offset some of his firm's bad press.

In general, these people are just part of the broader corporate governance industry whose motives and interests we would do well to understand.

Comments

[M. Hodak]

I think this article, like most journalism, unhelpfully conflates several issues.

Each "player" has a different conception of the "problem" of executive compensation. Some of them object to particular pay practices at particular firms. Others see a wider problem of executive greed that requires a more shotgun approach. Others argue for fundamental changes to what they see as a systemic, corrupt relationship between directors and the executives they are supposed to oversee.

Not suprisingly, those with a more targeted view of the problem take a more targeted approach to solving it. They claim to get good results from one-on-one discussions with directors and executives about particular issues. Others add public pressure to get or keep the dialogue going. Some will get into loud proxy battles. Some are publicly agitating for federal government policies that will give them more clout in discussions with the board, overriding our current system of jurisdictional or market competition altogether.

Unfortunately, it's not just the NY Times that confuses these distinct apporaches with a "Movement to Limit CEO Pay."