Why 'say on pay' is a waste of time
We have a little problem in the U.S., since we finance political campaigns largely with corporate money. CEOs direct that corporate money to politicians who try to manage the delicate balancing act of making the world safe for a few thousand CEOs while appearing to serve the millions of people in their state whose livelihoods those CEOs sometimes damage. That damage, which is getting harder to hide, is leading to a legislative proposal on CEO compensation that will do nothing to prevent future financial catastrophes.
This is a difficult challenge for politicians. A case in point is the House proposal for shareholders of public companies to have a right to vote on CEO pay -- a.k.a., Say on Pay. It is important to emphasize that this vote has no teeth because it is non-binding. It also does not apply to all public companies, only the biggest ones. And it does not involve any actual power to change CEO pay -- although for regulated companies, such as banks, the proposal lets regulators limit what they judge to be "inappropriate or risky compensation packages."
This proposal has all the hallmarks of a toothless political compromise. It creates the appearance that Congress is trying to rein in high executive compensation, which is angering voters who think it unseemly to use their tax dollars to pay multi-million dollar bonuses to executives who ran their companies into the ground. But it gives CEOs the comfort of knowing that there is nothing in the proposal that will do anything to change those CEO pay practices.
The result, if it passes into law, will be something that makes CEOs and politicians happy while doing nothing to change the lives of voters.
How do CEOs damage voters' lives? Three quick things:
- Firing them from their jobs -- at least 6.5 million have been thrown out of work since December 2007;
- Cutting the pay of those who are still employed (median family income has remained flat since 2000); and
- Convincing the U.S. to commit $23.7 trillion of taxpayer money to "rescue" them from the mess they made with the financial system.
The relevant question for politicians is whether they can convince enough voters that what is really in the best interest of a few thousand executives and politicians is also the best thing for the average voter. But Say on Pay is so transparently toothless that I would be surprised if many voters will buy it. Will you?
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book isYou Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing.