Soaring executive pay meets reforms
WASHINGTON (Reuters) - Mention shareholder rights or excessive executive pay and the typical U.S. chief executive reflexively drops into a defensive crouch.
In Congress, among shareholders, at the Securities and Exchange Commission, even at the White House, executive pay and how much input shareholders have on it, are hot topics.
No one is talking about capping pay, a boogeyman frequently raised by critics of any attempt to reform the existing process for determining pay levels.
Rather, the latest proposal -- known as "say on pay" -- would give shareholders the right to hold annual, nonbinding advisory votes on executive pay as outlined under SEC rules each year in corporate proxy statements.
These largely symbolic shareholder votes are already commonplace in Britain, Australia, Sweden and the Netherlands, but they are a controversial idea in the United States.
"Shareholders' rights in the U.S. are weak and significantly weaker than in other common law countries," says Harvard University Law Professor Lucian Bebchuk.
"Introducing advisory votes on compensation at the annual meeting, as the UK and Australia did, would help shareholders," he said this week at a congressional hearing.
A "say on pay" bill is being considered by the House of Representatives Financial Services Committee, with action on the legislation scheduled for March 21.
In addition to an annual advisory vote on compensation, the bill would let shareholders vote on any "golden parachute" packages for executives if a company is sold.
SAY ON PAY
The Business Roundtable, which represents 160 big-company CEOs, opposes "say on pay," saying it would politicize and complicate the compensation-setting process.
Right now, the pay of top corporate managers is set by boards of directors, who are nominated by managers. Directors often get advice on setting pay from compensation consultants.
Median U.S. CEO pay in 2005 was $13.5 million, up 16 percent from 2004, according to the Corporate Library, a research group.
Viewed another way, in 2003, the average CEO got roughly 500 times as much pay as the average worker, compared to a multiple of 140 in 1991, one academic study showed.
The "say on pay" bill has strong support among Democrats, who now control the House. Massachusetts Democrat Barney Frank, who introduced the bill, chairs the financial services panel. Continued...
