We Need Say on Pay - And a Say on Our Own Pay
Last week, the Treasury Department recommended legislation enacting modest "Say on Pay" reforms of executive compensation. In a nutshell, the bill would provide shareholders of any publicly-traded company in the U.S. with an annual non-binding vote on the pay packages of all senior executives at a company.
DMI explored the idea last year at an event with Blockbuster CEO James Keyes and leading investor advocates. (Look here for a liveblog of the discussion). The conclusion? Even though investor votes are non-binding, Say on Pay provides a meaningful voice for shareholders who depend on their investments to retire securely or help their children attend college. What's more, the track record for the policy as it has been applied in Britain suggests it can help to realign executive pay packages with the long-term interests of the company. At a time of plunging portfolios and faltering businesses, this is no small matter. To the extent that ill-advised corporate compensation structures provided perverse incentives that rewarded the type of excessive risk-taking that led to the economic crisis, Say on Pay may be more important still.
But Say on Pay - advisable as it is - can't truly address the nation's deeper concerns about executive compensation.
At its root, the latest outrage over soaring bonuses at Goldman Sachs and its ilk isn't about whether these companies are delivering shareholder value. Americans are incensed that the titans of finance - assisted by taxpayer handouts far more generous than anything millions of foreclosed and unemployed Americans could hope to see - are experiencing a grand revival of fortunes while the rest of us are still mired in the economic doldrums. This caps off a larger 30-year trend in which CEO compensation soared while the wages of the typical worker stagnated. As the Economic Policy Institute points out, in 2007 a CEO earned more in one workday than the typical worker earned all year. Yet Say on Pay has not been an effective tool to diminish this gaping disparity. Savings from lavish executive pay packages are unlikely to be redistributed to ordinary employees.
If we want working people reap more of the rewards of the business success they helped create, we must address that problem directly. Working people need a say on their own pay. And that makes recent efforts to water down needed reforms to labor laws so disappointing. Like Say on Pay, the Employee Free Choice Act is bitterly opposed by corporate interests. Yet if Congress continues to let those interests stymie legislation empowering shareholders and employees, it may be a long time before our economy has any rewards to share with those of us outside the Goldman Sachs executive suite.