Say on pay: quack corporate governance

The WSJ writes today about the move heating up to require corporations to let their shareholders have a “say on pay.” It sums up the sentiment for this by quoting McCain: "There's a backlash in America today against corporate greed." Obama introduced the say on pay bill in the Senate, claiming that Washington needs to change "a system where bad behavior is rewarded.''

Clinton supports the bill as long as it includes an exception for former president speaking fees.

As I said last year when this issue was in the House:

Remember the quaint idea that the states were supposed to decide corporate governance, and the federal securities laws were supposed to be just about disclosure? Obviously this is a significant decision about the allocation of power between shareholders and managers that's being made by the U.S. Congress. Wasn't that supposed to be a matter for state law?

Efficient compensation must be crafted on an individual-by-individual and firm-specific basis to provide the right incentives and attract the best people. It's like designing a product. Can anybody seriously believe that shareholders en masse can make a meaningful, intelligent, up-or-down decision on executive compensation?

Although the bill requires merely a non-binding vote, the vote's potential for bad publicity gives a stick to shareholders, including politically-minded shareholders like unions that have something on their minds other than shareholder wealth maximizing.  Wealth-minded shareholders don't want constraints on being able to hire and motivate the best executives.

Note that even if this becomes federal law, that won’t mean that all executives will be subject to it. The law would apply only to corporations. It would therefore become still more fuel for the Rise of the Uncorporation. And if you apply it to all firms in the US, there are other places firms can go.

In short, it's fitting that the most vocal corporate supporter of this proposal is most famous for its quack. And even the CEO of that company (who happens to own ten million shares) doesn't think the proposal should be mandatory, as Holman Jenkins pointed out a couple of days ago. Aflac CEO Amos noted that in a company that makes a million dollars an hour profit, "it doesn't really matter what the CEO makes." 

I would add that the same is true in a company that loses a million dollars an hour. To quote the best comment I’ve heard yet on say on pay (from Dealbreaker, after discussing Lloyd Blankfein’s criticism of say on pay): "You want say on pay, I have two words for you, people: Jimmy Cayne. I hear he's looking for work, and will agree to just about anything."

Comments

[save_the_rustbelt]

Given the incompetence and mendacity of some of our corporate leaders the past ten years or so, and the comatose response of many boards, something has to change.

If the advocates for corporate freedom won't admit the problems and advocate changes, then the voters will push the politicians to do something.

The CEO of Ford was awarded $22M last year because he ONLY lost $2.5B. And the year before he was given a cart load of compensation for leaving Boeing. Results? We don't need no stinking results.

[bee]

We can pass all the bills in the world and we will still won't make people any wiser. It's time to stop whining like Obama, Clinton and McCain (I shouldn't forget save_the_rustbelt who is world class), and accept that stuff happens. Respect others property rights and we will all be better off. The "crisis" of the moment all seem to strangely pass. Yes, their is pain, but that's part of life.

[M. Hodak]

"There's a backlash in America today against corporate greed."

Corporate greed, of course, is indistinguishable from greed in any other area of life, including the power lust of politicians. How about controlling that?

Actually, scratch that. McCain did try to control that, too, and rode roughshod over the Constitution to limit our freedoms during elections. The man just hates freedom.