Thursday, March 31, 2011

How Do You Slow Down Executive Pay?

By Eric Jackson, Senior Contributor03/30/11 - 08:43 AM EDT

NEW YORK (TheStreet) -- CEO and executive pay keeps going up in America. It goes farther and farther away from the "typical" worker and it goes farther and farther away from other CEOs and executives around the world.

Are we worth it? Our CEOs and the people they hire say they are. The members of the AFL-CIO and other pro-labor groups say they are not. It's an impossible argue to settle.

But now, as part of the new Dodd-Frank act, all public companies are required to submit to non-bindingshareholder votes on compensation. The companies themselves get to choose whether the votes will occur annually, semi-annually, or once every three years. However, shareholders will also get to vote on how frequently they want to vote on the issue.

Most companies want to hold the votes every three years. Most shareholder groups want annual votes as the norm. (TheStreet(TST_), owner of this Web site, recently decided to take the high road and hold a vote every year.)

Will these votes work in slowing down executive pay? Not overnight, that's for sure. The votes will hopefully shame bad boards into changing their ways. But many of them will ignore the non-binding votes. After all, these are the bad boards, remember?

Shareholders should spend less time sending a message about executive pay or some other matter that gets put up for a vote on a proxy. Instead, they should actually vote out directors responsible for decisions that they disagree with.

For example, you don't like the executive pay and you think it's not tied to performance? Why not coalesce all the shareholders around voting out the entire compensation committee responsible for signing off on the pay? That would certainly send a clear and binding message to the rest of the board.

And can you imagine what the new members of the compensation committee would think coming into that role after seeing their past colleagues fired from a cushy corporate director gig? That would change behavior quick.

I favor simple approaches (such as voting the bums out through no votes for directors) versus more items for shareholders to consider voting on. By giving shareholders more choices -- say-on-pay, how often you want say-on-pay, director re-elections, shareholder resolutions -- your message to shareholders becomes more diffuse and weakened.


[** This post is an excerpt of the full article, which is available on by clicking here. Free Site.**]

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