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Jewish World Review
June 12, 2009
/ 20 Sivan 5769
Power grab
By
Linda Chavez
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http://www.JewishWorldReview.com |
The Obama administration is engaged in the most sweeping power
grab in modern American history, but few people seem to care. In barely four
months, we've witnessed the president and his minions taking over insurance
companies, banks, and car companies, forcing private companies to sell off
assets, appease unions, and stiff bondholders. Administration officials have
insisted some companies take government handouts even if they don't want
them and told others they can't pay back the money they've borrowed until
the government gives them permission. Now, the president has decided he'll
appoint a "compensation czar" whose job it will be to decide what
constitutes fair pay for corporate executives. Why stop there? And, of
course, they won't.
The latest move the appointment of Washington lawyer Kenneth
Feinberg to oversee pay of the top employees at seven companies that have
taken government funds may not seem radical, but it is. Earlier this
year, in response to public criticism of the retention bonuses paid to some
executives at the troubled insurance giant AIG, the administration proposed
capping executive pay at $500,000 at firms receiving government assistance
through the Troubled Asset Relief Program. But Treasury Secretary Tim
Geithner abandoned that plan when he finally figured out that the execs
would simply bail on the company, leaving the government without experienced
and talented hands on deck.
So now the administration is moving to Plan B: Forget about pay
caps per se but appoint a government overseer to set pay individually. Until
now, in publicly traded companies that job fell to the board of directors
and its compensation committee, whose legal and fiduciary responsibilities
entail acting on behalf of shareholders. Directors are elected by the people
who own the company: from individuals who own a few shares of stock to
institutions and mutual funds that may own millions of shares.
The government, primarily through the Securities and Exchange
Commission, oversees the board's stewardship, while other entities play a
role as well. The securities exchanges the New York Stock Exchange,
NASDAQ, etc. also have rules that govern the conduct of boards of
directors, including restrictions on who sets executive compensation. The
compensation committee at publicly traded companies must be composed of
entirely of independent directors those who have no direct ties to the
company or its management either by current or, in certain instances, former
employment, for example.
Compensation committees act independent of management, but they
don't act in a vacuum. They often hire compensation consultants (who must
have no ties to the company) to advise them on the best pay practices. They
evaluate their pay structure compared to other companies of similar size and
complexity or who are in the same line of business. They evaluate the
performance of key executives against financial results, the achievement of
personal and company objectives, and other criteria. It is a long and
arduous process (I know, for more than a decade I've served on and now chair
the compensation committee of a NYSE company).
And the rules governing disclosure of executive compensation
have become much stricter in recent years, especially since the enactment of
Sarbanes-Oxley, federal legislation that passed in the wake of Enron and
other recent corporate scandals. The law now requires that, in addition to a
Compensation Committee Report on executive pay, management must produce an
extensive compensation discussion and analysis to be included in proxy
statements sent to all shareholders. The information includes a table
showing exactly how much the CEO, chief financial officer, and three
highest-paid employees in the company earn, including bonuses, stock options
and grants, and what benefits and perquisites they are entitled to and their
cost. Similar information is provided for director compensation. If
shareholders don't think they're getting their money's worth from these
executives or directors, they can dump the board of directors at the next
election. Or at least that's how it is supposed to work.
But enter the Obama administration to rewrite the already
extensive rules. Now one man the compensation czar is going to oversee
this process at seven major corporations. And who oversees him?
From the president on down, the Obama administration is filled
with people who have little or no idea how the market works. Most have never
drawn a paycheck in the private sector, much less had to meet a payroll or
make a profit. But they're convinced they know how to run things, down to
the last detail. There's no word adequate to describe the sheer arrogance of
this group.
Every weekday JewishWorldReview.com publishes what many in the media and Washington consider "must-reading". Sign up for the daily JWR update. It's free. Just click here.
JWR contributor Linda Chavez is President of the Center for Equal Opportunity. Her latest book is "Betrayal: How Union Bosses Shake Down Their Members and Corrupt American Politics". (Click HERE to purchase. Sales help fund JWR.)
Linda Chavez Archives
© 2006, Creators Syndicate
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