Like all of us, President Barack Obama is angry how out of control executive bonus pay has become.
Then-Merrill Lynch Chairman and CEO John Thain, left, and then-Bank of America Chairman and CEO Ken Lewis shake hands after a 2008 news conference announcing the sale of post-meltdown Merrill Lynch.
Both men have been highly criticized for their performance as executives, and yet both have done quite well for themselves.By Moshe Adler
When it came to bailed-out banks he used strong language. He called them “fat cats” and “reckless.”
Obama now says that his new reform, giving shareholders a “say on pay,” will work because it will give shareholders the incentive to “mind the store.” It won’t work.Shareholders simply do not have the incentive, time or knowledge to mind the store, and say-on-pay won’t change this. Why would a well-diversified shareholder, a person who has spread savings among a range of corporations and who therefore does not own more than a billionth of any single corporation, invest the time and money required in order to learn whether Smith at $150 million is a better CEO hire than Jones at only $125 million? Is this supposed to be repeated for every corporation. The financial institutions that own corporate stocks are themselves corporations with their own executives, and this means there are two layers of executives getting a cut. In 2007, Stan O’Neal received a “retirement package” of $161 million after the institution he led, Merrill Lynch, lost $12 billion in one year. In 2006, Merrill Lynch had voted against any proposal that would have limited severance pay or tied pay to performance in all the corporations that its different mutual funds held. A study of the 29 largest mutual funds in 2006 discovered that Merrill Lynch was not alone. More than three-quarters of the time, these funds voted for management-sponsored proposals regarding executive pay. There were exceptions, such as the fund of the teachers unions, TIAA-CREF, but these constituted a negligible minority. and goes on to say ----''Say-on-pay'' is a dog that won’t hunt. The best we can hope for is that it won’t make things worse. Boards of directors all too often fail to serve the interests of their corporations, but at least that is their legal duty. Say-on-pay is an invitation for large stakeholders to launch partisan campaigns for executives who will do their bidding at the expense of the rest of the shareholders.
Then-Merrill Lynch Chairman and CEO John Thain, left, and then-Bank of America Chairman and CEO Ken Lewis shake hands after a 2008 news conference announcing the sale of post-meltdown Merrill Lynch. Both men have been highly criticized for their performance as executives, and yet both have done quite well for themselves.By Moshe Adler
When it came to bailed-out banks he used strong language. He called them “fat cats” and “reckless.”
Obama now says that his new reform, giving shareholders a “say on pay,” will work because it will give shareholders the incentive to “mind the store.” It won’t work.Shareholders simply do not have the incentive, time or knowledge to mind the store, and say-on-pay won’t change this. Why would a well-diversified shareholder, a person who has spread savings among a range of corporations and who therefore does not own more than a billionth of any single corporation, invest the time and money required in order to learn whether Smith at $150 million is a better CEO hire than Jones at only $125 million? Is this supposed to be repeated for every corporation. The financial institutions that own corporate stocks are themselves corporations with their own executives, and this means there are two layers of executives getting a cut. In 2007, Stan O’Neal received a “retirement package” of $161 million after the institution he led, Merrill Lynch, lost $12 billion in one year. In 2006, Merrill Lynch had voted against any proposal that would have limited severance pay or tied pay to performance in all the corporations that its different mutual funds held. A study of the 29 largest mutual funds in 2006 discovered that Merrill Lynch was not alone. More than three-quarters of the time, these funds voted for management-sponsored proposals regarding executive pay. There were exceptions, such as the fund of the teachers unions, TIAA-CREF, but these constituted a negligible minority. and goes on to say ----''Say-on-pay'' is a dog that won’t hunt. The best we can hope for is that it won’t make things worse. Boards of directors all too often fail to serve the interests of their corporations, but at least that is their legal duty. Say-on-pay is an invitation for large stakeholders to launch partisan campaigns for executives who will do their bidding at the expense of the rest of the shareholders.
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