While American politicians whine self-righteously about corporate governance travesties at bailed out companies they had every opportunity to extract concessions from, Australia's government is actually taking steps toward long-term improvements in executive pay practices.The Wall Street Journal reports that "Treasurer Wayne Swan said the center-left Labor government will amend the Corporations Act to require shareholder approval for any termination payments that exceed average annual base salary, which excludes additional compensation such as shares or stock options."
Of course, business interests are whining, but here's what's so great about this idea: It doesn't really limit anything. It just empowers shareholders to look out for their own best interests. If shareholders decide that enormous termination payments are in their best interests, they will still have every right to agree to them.
While the temptation to over-regulate private companies is powerful in light of recent events, this is the same model we should pursue in curbing abusive pay practices in America. Expand proxy access, give shareholders a louder voice and let the market hold under-performing executives and directors accountable.
Incidentally, this is the same argument that Jack Welch made for taking care of things at American International Group (NYSE: AIG): "Hey Larry, why don't we step back for a minute. There's been 24 hours of wild emotion over this thing. Who owns AIG? The U.S. government owns AIG. Now why are they not taking charge of their situation?"
The solution to bad governance is for the people who own the companies to take control of the situation, and the role of the government should be to make it easier for them to do just that.
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Reader Comments (Page 1 of 1)
3-19-2009 @ 2:19PM
thedude said...
Traditionally corporate execs and boards operate with little or no regard for the average stock holder.
Executive pay should be a percentage of the amount of taxes a company pays on the profits they earn. If a company claims they can not pay taxes due to poor earnings then executive compensation should reflect that with the bigwigs not getting paid and probably getting terminated
As far as golden parachutes go ? Well any post termination pay should be reserved solely for execs that have
A- resulted in positive advancement of the company
B- have served at LEAST 15 years with the company
Bringing in a CEO for an exorbitant amount of money having him work 3 months only to can him because it turns out he's an idiot and paying him an obscene amount of money in a severance package should be a capital crime. The honest truth is that there are probably hundreds of subordinates who could easily run the company more efficiently and effectively then ANY "Ivy League" graduate
I always promote from within and I usually look at a college education as a handicap because that individual will 90% of the time need to be retrained on how business REALLY works.
Give me a grunt with 5 years field exp. and they will run rings around ANY "educated" candidate.
3-29-2009 @ 3:51PM
John Hunter said...
Good plan, but we need to deal with the corruption at the top of companies and on their boards. Overpaid executives are acting like dictators looting their countries and have paid off others (or fooled others but I can't really believe people are that dumb) to go along.
Make the unethical taking of corporate assets for personal gain more visible is definitely a very good idea. But don't just think making it more public will keep those looting companies now from trying to find loopholes to allow their continued bad behavior.