U.S. stock markets are trading at levels reached 12 years ago, U.S. unemployment remains stubbornly stuck near 10 percent and incomes are stagnant, if not falling, for many people.
Yet corporate executives have managed to hold onto lucrative pay packages, rain or shine, bull market or bear.
“CEOs have never been paid higher in the history of U.S. public companies,” said Brandon Rees, the AFL-CIO’s deputy director of investment. “It just doesn’t add up.”
In Colorado, several executives reported big pay increases in 2009 despite declining revenue and income last year.
For example, Teletech vice chairman James Barlett’s compensation jumped more than eightfold even though the firm suffered a 16.6 percent drop in revenue.
And some boards of directors, rather than punishing executives for depressed stock prices, loaded them up with new stock and option grants that could prove hugely lucrative.
So what will it take to rein in executive pay?
Americans support, and justifiably so, letting markets rather than the government decide pay, said Jay Brown, a University of Denver law professor specializing in corporate governance.
The problem, Brown said, is there isn’t a free market when it comes to executive compensation.
“CEOs are negotiating with their own board,” he said. “It is a captive negotiating situation.”
CEOs generally get to determine who serves on their board. And most directors are current or former corporate executives accustomed to big pay.
U.S. CEOs on average make twice as much as their counterparts in Canada, three times those in Europe and four times their counterparts in Japan, Brown said.
Measured against average worker pay, S&P 500 CEOs make 300 times that of their typical employee, compared with only 40 times back in 1980, Rees said.
Although compensation committees set targets for executives to achieve, they are all too willing to change them when those targets are missed, said Paul Hodgson, senior research associate at The Corporate Library in Portland, Maine.
Directors viewed as contrarian or too difficult usually don’t have long tenures, he said.
Efforts to make executives more accountable to shareholders have centered on two proposals.
One would require compensation packages to come to a nonbinding vote of shareholders.
The thinking is that directors would be reluctant to present a compensation package that shareholders would vote down, especially if performance can’t justify it.
The second change, included in both the Senate and House versions of the financial reform package, would give the Securities and Exchange Commission legal authority to change the rules so shareholders can more easily nominate their own slate of directors.
That provision, however, has run into trouble after the Business Roundtable, a group representing CEOs, leaned heavily on the Obama administration and Senate Democrats to modify the proposal, the Huffington Post reported Thursday.
Rather than leaving it to the SEC to iron out the details, Sen. Chris Dodd of Connecticut, who is overseeing the reconciliation process in the Senate, put in a requirement that shareholders hold 5 percent of a company’s stock to have a say in nominating directors.
Even a coalition of large pension funds would be hard pressed to meet the proposed threshold, said Jonathan Urick, an analyst at the Council of Institutional Investors.
The last-minute change was odd in that the Senate and House had similar language, negating the need for reconciliation, he said.
Shareholder-rights advocates are hoping the House will reject the Senate changes, he said.
Aldo Svaldi: 303-954-1410 or asvaldi@denverpost.com
