Executive compensation is taking center stage again. While the Obama administration has ditched its original plan to cap salaries for TARP recipients, it still wants to change the way corporate America pays its employees. The four major themes that Treasury Secretary Geithner outlined are:
- compensation plans should properly measure and reward performance
- compensation should be structured to account for the time horizon of risks
- compensation practices should be aligned with sound risk management
- we should reexamine whether golden parachutes and supplemental retirement packages align the interests of executives and shareholders.
It’s perverse that the government has to inject itself into this debate, but that’s what you get when an industry runs amok and there are no parents in the room. One might have expected that boards of directors were protecting shareholders from out of whack compensation, not to mention employing some (any?) risk management, but when you load up the board with your golf buddies, I guess that’s just wishful thinking.
In return for total lack of executive management and board competence, the government is hitting below the belt by empowering the SEC to enter the compensation debate. Yup, that same SEC that itself has been called incompetent at various times during the financial crisis.
It’s like watching two miserable people getting together: corporate America and the SEC deserve each other.
The administration will work with Congress to pass “say on pay” legislation that would give the SEC authority to require companies to give shareholders a non-binding vote on executive compensation packages. The SEC will also try to ensure that compensation committees are more independent. But don’t worry–Geithner underscored that government is not capping pay: “We are not setting forth precise prescriptions for how companies should set compensation, which can often be counterproductive.”
That said, “special master” Kenneth Feinberg will have discretion to approve of compensation for 175 top executives at seven of the nation’s largest companies, which have received government money during the financial crisis.
It’s obvious that “special master” feels a little bit kinky, so everyone has been referring to Feingberg’s position as “Pay Czar”. Must we always turn to Russian monarchs for these names? We like the British better than the Russians, so I propose the “Prince of Pay” going forward. OK, maybe not.
Image by Flickr user antwerpenR, cc 2.0
