Say-On-Pay Edges Closer To Law (Obama was the primary sponsor of the say-on-pay bill)

[Omaha Steve]

Source: Forbes

Matthew Kirdahy

Sen. Barack Obama was the primary sponsor of the say-on-pay bill, which would give shareholders a vote on top executives' compensation. President Barack Obama will likely sign it in to law.

Giving shareholders in public companies a non-binding vote on top bosses' pay is not only broadly endorsed by Democrats, it has gained bipartisan support in the wake of the $700 billion bailout of Wall Street. "We've reached a tipping point now that there's a broad consensus that something needs to be done about exorbitant CEO pay," says Richard Ferlauto, director of corporate governance and pension investment for American Federation of State, County and Municipal Employees (AFSCME).

Say-on-pay is being tipped as legislation for the first 100 days of the Obama administration. If it is passed into law, will it work?

The U.K. already has comprehensive and mandatory say-on-pay laws, but in the U.S., corporate governance traditions are different. Scott Fenn, managing director of policy at Proxy Governance, says blanket legislation is misguided. "We take a more nuanced approach," he says. Responsibility lies with the board of directors, rather than the shareholders, to make the right choice.

snip President George W. Bush said he would veto the legislation if it ever made it to his desk. Soon it won't be his desk.

Read more: http://www.forbes.com/leadership/compensation/2008/11/11/say-on-pay-lead-compensation-cx_mk_1110corpgovernance.html

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Proud AFSCME member.

[Merlot]

1. "We take a more nuanced approach," he says with a straight face

[bertman]

2. Non-binding. Ummm. Isn't there a European country that sets limits on CEO pay?

[LiberalFighter]

5. It might be Germany

[kurt_cagle]

3. Long Overdue

Crony capitalism has been one of the biggest contributing factors to the debacle of the economy. Maybe CEOs would be a little more reluctant to pad their own pockets when the shareholders are the ones determining the perks, rather than the CEOs of other companies (which is what most boards amount to anymore).

[LiberalFighter]

4. It is not blanket legislation!!

If it was blanket legislation it would cover all companies whether private or stock owned.

[Lasher]

7. I think since they're talking about letting shareholders vote it's publicly owned companies only.

Privately held companies would not be affected.

[lifesbeautifulmagic]

6. someone smarter then me on this here board

referred to it as the "executive industry".

Which I thought kind of said it all.

[Lasher]

8. "Responsibility lies with the board of directors...to make the right choice."

I think that's pretty much the whole point.

[customerserviceguy]

11. Since they all serve on each other's boards

it's just a giant circle jerk.

[Lasher]

14. Exactly right.

This is the root cause.

[amandabeech]

9. Any vote will be non-binding, because in the U.S. corporate law is a state issue.

There is no federal law chartering corporations, except in a few legislated instances, like Fannie/Freddie.

Of course, it might be possible to use the commerce clause to attempt pre-emption, but if it were possible, I think that we would have heard of it already.

Each state has its own laws, but almost all, if not all, delegate the setting of executive compensation to the Board of Directors. It is up to the stockholders to vote out directors who set compensation at a level too high.

However, that hasn't worked all that well--up to now. Who knows what will shake out when this severe slump finally settles out.

When CalPers, the California state pension fund, starts to throw its weight around, things change.

[Thothmes]

10. There is that pesky 10th Amendment again.

[customerserviceguy]

12. You can remedy it through tax law

if you provide that compensation in excess of an approved amount (hell, in excess of a specific dollar amount) would not be tax-deductable for the corporation. That would be a way to deal with this.

For that matter, we could create a category of taxpayer "Works for a company that got bailout money" (OK, it's clumsy, but I'll let CPA's working for the IRS come up with something more succinct) and provide that any amount over $X is taxed at a 100% rate. That protects the low-level folks like the adminstrative assistance, mail room clerks, etc. while nailing the clowns at the top.

For companies not sucking up to the public trough to keep their jobs when millions have lost theirs, they can pay whatever they (and their shareholders) want.

[amandabeech]

13. The only problem is that the executive compensation committees

of the various entities will gross up the pay to account for any draconian tax penalty in order to get the executive take home pay at the level that they consider appropriate, however inappropriate it may seem to everyone else!

[customerserviceguy]

15. That's why I used 100%

as the tax for excessive compensation. You cannot mathematically "gross up" enough to overcome that!

Used to be "taxguy" in the 1980's before I was "laptoprepairguy"!

[amandabeech]

16. Right. Missed that. Thank you!

I was a corporate lawyer in the '80s. Lots of execs were very concerned about their compensation. It sounds like you dealt with them, too!