Executive Comp and Board Accountability

I’ve posted my share of comments about the disgraceful shape of executive compensation. (Click here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here and here.)

Though at times feeling like I’m blowing in the wind, according to the Los Angeles Times, shareholders are mad as hell and aren’t going to take board of directors’ lack of accountability anymore. The newly charged shareholder rhetoric is probably the result of President Obama’s recent appointment of a “pay czar” to manage the compensation at companies that haven taken taxpayer bailout dollars.

Some of these shareholders complain that boards are too willing to play footsie with CEOs and other executives. They emphasize that directors should be truly independent. They criticize executive compensation as a product of cronyism on corporate boards. They mock the corporate argument that companies must pay massive salaries to hire and retain the best executives.

It’s probably okay to pay executives 11 times what the average worker makes as is done in Japan or 50 times what the average worker makes in Venezuela, but it’s morally indefensible to pay the average U.S. executive 300 times what the average worker makes. One shareholder was quoted as saying: “A society is based on all — or at least most — members putting in at least as much as they take out. When executives take a disproportionate share of profits . . . it creates a me-first mentality that whittles away at the fabric of society.”

Executive comp has drawn the ire of shareholders and the public before. What’s happened in the last several months has caused the cry for change to become louder. The truth is, however, that most of the shareholders are made up of executives, directors, their friends and cronies. Without reforming legislation or regulation, all the heated talk these days about executive compensation is merely hot air.