Investors want a say on executive pay
The latest European trend arriving in the U.S.: allowing shareholders to vote on executive pay packages. As Ashley Milne-Tyte reports, investors are eager to make themselves heard.
Has executive compensation gotten out of hand? (iStockPhoto)
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Tess Vigeland: Ever had that fantasy about getting to decide how much the boss is paid? Turnabout is fair play, no?
Well, on Monday, shareholders of the insurance company AFLAC will, in a way, get to do just that. They'll get to vote on executive pay packages.
Now, the vote isn't binding, but it is a first for a U.S. company. They already do it in other countries, including the UK.
So if it were to become the norm here, how exactly do you put a value on CEOs and other top executives?
Ashley Milne-Tyte found some answers.
Ashley Milne-Tyte: Ten years ago, CEO pay took up 5 percent of company earnings. Now it's 10 percent.
Peter Wallison is with the American Enterprise Institute. He says shareholders aren't qualified to put a price on top executives, but boards of directors are:
Peter Wallison: They actually know what the CEO and the CFO are doing for a living. They know whether they are working well, they know whether they are producing value, to a much greater degree than the shareholders would know.
But shareholder and corporate governance watcher James McRitchie says boards have paid too many CEOs far too much and they've included some crazy perks at the expense of shareholders:
James McRitchie: While you do have to pay to attract high quality talent, you don't have to pay to fly their dog to get shampooed across the country.
It's not too difficult to find out whether companies you're invested in are excessively generous. Nell Minnow of The Corporate Library says each year the Wall Street Journal, Business Week and Fortune publish issues on executive pay.
Nell Minnow: In my line of work, we call that the swimsuit issue because it's very popular, very revealing.
If you can bear it, it's worth digging through those proxy statements that stuff your mailbox every year. Richard Ferlauto directs pension investment for the American Federation of State County and Municipal Employees. He says proxy statements should contain information on executive pay.
Richard Ferlauto: If there isn't a clear explanation of how pay is linked to the performance of the company, you should be quite suspect.
And, he says, something else to consider...
Ferlauto: If the company is losing money and the chief executive gets a guaranteed bonus, you know that's not performance-based pay.
Most Americans invest via mutual funds of course. Nell Minnow of the Corporate Library says investors can do their holdings good by letting mutual fund companies know they're paying attention to executive pay issues:
Minnow: Call your mutual fund and say to them "How do you vote on these issues? I would like to know. Could you send me a copy of your voting policies on executive compensation issues?"
The more pressure on those fund managers, Minnow says, the more likely it is they will vote "no" on particularly hefty pay packages.
Peter Wallison of the American Enterprise Institute says boards don't want to pay CEOs gazillions...
Wallison: But frequently, you cannot get the CEO you think would be best for the shareholders unless you are able to offer what is essentially a market price.
And he says that price is often very high.
I'm Ashley Milne-Tyte for Marketplace Money.
