A Check on Executive Pay
Wednesday, April 25, 2007
Printable FormatHartford Courant Editorial
Allowing shareholders a nonbinding vote on executive pay might influence corporate boards to apply the brakes to runaway compensation packages.
A bill approved last week by the U.S. House of Representatives and a Senate version introduced by Sen. Barack Obama of Illinois make sense because the legislation would provide a layer of accountability for the exorbitant salaries that have been doled out in recent years.
According to a recent report by the Congressional Research Service, the ratio of the average CEO salary to worker pay is 179 to 1. In some cases, boards have awarded golden packages even when the company's finances have tanked.
The potential embarrassment of having shareholders express formal disapproval of executive salaries, combined with the Security and Exchange Commission's new disclosure requirements on executive pay, just might induce more companies to link a CEO's salary more closely to company performance.
In Great Britain, where investors have had a say in executive salaries for three years, a negative vote actually resulted in the denial of a pay increase for one CEO.
President Bush, who doesn't believe government should get involved in executive compensation in private business, has nevertheless called on corporate boards to adopt pay-for-performance standards voluntarily. Had they done so already, Congress wouldn't even be debating a shareholder vote bill.
If corporations remain reluctant to police themselves, they can probably count on Congress and regulators to do it for them.