Most reasonable people -- even the most laissez-faire among us -- accept that excessive executive compensation completely out of line with performance is a serious problem in America.
Too often though, this gets debated as a populist issue with congressional hearings and rants from union activists. But at its core, excessive compensation is a corporate governance issue and the ones getting screwed over are the shareholders.
In a great column in the Sunday New York Times, Ben Stein explains the real root of this problem: supine boards of directors, motivated by cushy relationships with CEOs, perks based on kissing asses instead of creating value, and no real skin in the game.
The solution to this should be pretty simple, and it has nothing to do with protests, newspaper columns, or passionate (and televised) congressional hearings. What we need are more activist investors, rigorous enforcement of laws requiring that institutional investors vote their shares in the best interests of their fiduciaries, and for the SEC to improve proxy access rules, making it easier for shareholders to unseat under-performing directors. Unfortunately, the SEC under Republican leadership has backed the interests or entrenched -- and lousy -- executives and directors, not the interests of shareholders. That's wrong.
As Randy Cepuch wrote in his book A Weekend with Warren Buffett, the notion of corporate democracy is "pretty much a myth." That's going to have to change, or our country's competitiveness will be seriously jeopardized.
Closing Bell: Economic Catapult for Thanksgiving & Black Friday (WMT, TGT, GRMN, GOOG, MSFT)
Deere up on Q4 earnings performance
Reid Hoffman: LinkedIn will go public (at some point)
Reader Comments (Page 1 of 1)
4-07-2008 @ 6:52AM
B. Harrison said...
For years I have wondered why the stock holders, those who own the corporations, haven't done more to protect their financial interests. I've been a Republican for over 38 years; and I find that I simply cannot abide with all of this any longer. However, the Democrats don't offer a viable alternative either. The stockholders of the USA have to demand that the SEC protect their interests. It's been too little, too late; and look at the results.
4-07-2008 @ 8:33AM
B. Harrison said...
One hidden or undiscussed aspect of all of this is the coming impact on retirees who depend solely on interests income. Is there going to be a devastating impact on these older workers who may not be able to find gainful employment in their old age to offset their investment losses?
Why isn't the AARP addressing these problems?
4-07-2008 @ 9:32AM
J Robinson said...
The Directors of most Corporations have the best financial deal in the world. A Director invests very little time for a tremendous compensation. The rate of pay for each hour spent on the job is astronomical. In fact, a Director probably makes more per hour than the CEO/Chairman(another subject). In most instances the Directors approve
what the Chairman/CEO wants. This mode of operation is a terrible rip off of the investor. Especially when a director has a limited company oriented background - for example academic directors.
The above appears to be a closed society.
Maybe unions have enough strength to move toward a correction, since they are taking a beating currently.