As we've stated before the occasional angry flare-ups over corporate pay are rather misguided. It shouldn't be a matter of public policy, but rather one that the shareholders of the firm take up with the board if they feel so moved. Most of the time, the shareholders don't care. Even the stuff that looks really bad, like former CEO of GE, Jack Welch, getting a free apartment and free toilet paper for the apartment upon retirement, is largely irrelevant to anyone, even the shareholders.
The latest SEC regulation requires that executive pay be spelled out in "plain English". It's not clear what that will really accomplish, other than making it easier for enterprising journalists to write up their outrage stories after a company lays off 10,000 workers--"While his workers go hungry, CEO Jack Hogg took home $5 million in stock options last year!!!"
We like that take of Larry Ribstein at Ideoblog:
What is there to be said for the proposal? Well Chairman Cox introduced the proposals by saying “Our purpose here today is to help investors keep an eye on how much of their money is being paid to the top executives who work for them.” Indeed, he has august academic support for this in today’s W$J: Harvard professor Bebchuk, the guru of academic critics of executive pay, says “investors shouldn't have to devote significant time and effort to put together a company jigsaw puzzle.”
Ok, who are these “investors”? What do you do when those proxy statements come rolling in? Would you hesitate on the way to the garbage because you knew there were these neat little pay tables in them? Actually, you might, out of curiosity, but then I suspect you'd continue on your journey.
Anyway, I invest in mutual funds. Should I care that my fund managers – for the non-index funds I unfortunately still own – can now read neat little tables in “plain English”? Actually, yes – I should immediately chuck the ones that care about this trivial measure of corporate performance, and the ones that needed “plain English” to figure it all out.
We agree, analysts can figure this stuff out (if it's relevant), and most investors rarely need to care.
more:
To be fair, the new disclosures will include more “Compensation Discussion and Analysis” to “address the objectives and implementation of executive compensation programs - focusing on the most important factors underlying each company's compensation policies and decisions.” So there is something relevant here.
But relevant to whom? The investors who are throwing this away? Are the shareholders who need this plain English in a position to evaluate “the company’s compensation policies and decisions”. Duh. Steve Bainbridge points out that this flies in the face of the rational apathy that characterizes shareholder behavior. What the proposals assume is irrational non-apathy.
It's amazing what happens to the hold Ayn Rand-niks when they enter the halls of government power. Alan Greenspan started really believing in the power of the fed to manage the economy and smooth out business cycles, and Christopher Cox introduces pandering legislation to make things easier for the average investor. There's nothing wrong with clarity when it comes to financial disclosure, but anti-executive populism disguised as clarity should be opposed.
I don't see how it's "anti-executive populism." I see how the increased clarity may lead to that, but it's just clarity, even it's clarity that came from pandering, it's clarity nonetheless.
Posted by: Johnny Debacle | January 18, 2006 at 11:05 PM