Shareholder Vote on Executive Compensation Act of 2007

atraub — Wed, 26 Sep 2007 16:47:03 -0400

Legislation

The middle class

Supports

Video Summary

Injustice Facts

Total 2006 profits of California tech company Synnex Corp.: $51.4 million

Approximate ratio of every dollar Synnex earned that went directly into the pocket of CEO Robert Huang, according to the Los Angeles Times’s California Executive Pay Report: 1:7

Amount that Huang’s outsized pay package reduced the value of each company share, according to the Los Angeles Times: $2.90

Proportion of Americans who say CEOs are overpaid: 8 in 10

Average percentage of company profits paid to the top five executives at U.S. companies in 1993: 5

Average percentage paid to the top five executives in 2003: 10

Overview/Summary

Middle Class Position Analysis

The Middle Class Supports. Today nearly half of Americans own some stock, with many middle-class families relying on 401(k)s and other investments to finance their retirement security or help their children afford college. Workers with traditional pension plans, including many public employees, also have a stake in the long-term financial performance of companies their pensions are invested in. As a result, the retirement security middle-class Americans work a lifetime to earn can be thrown into jeopardy by lavish CEO pay and retirement packages that reward executives with hundreds of millions of dollars even if they perform poorly or behave unethically. Excessive CEO pay not only cuts into the company’s bottom line, but can also provide incentives for CEOs to manipulate earnings or encourage mergers that pump up their compensation packages but are unprofitable for the company as a whole – directly undermining shareholder value.

Simply put: when CEOs get sumptuous rewards for inferior or mediocre work, middle-class Americans get short-changed on the retirement benefits they’ve earned. Yet so far there is little shareholders can do to curb the excesses of companies in which they have a vital stake. This bill would introduce an important element of accountability, giving all shareholders “a say on pay” in the form of a non-binding advisory vote to the Board of Directors. Although the vote is non-binding, knowing they have option to vote increases shareholders’ scrutiny of CEO pay and provides regular shareholder feedback to Boards of Directors. The mechanism of a non-binding vote on compensation has been used successfully in Britain, Australia, and other countries to put the brakes on questionable compensation plans and tie CEO pay more closely to performance. Some U.S. companies, such as the health insurer AFLAC, have also voluntarily adopted a shareholder vote on executive compensation, which they regard as a “best practice” in corporate governance.

Quotes from Experts

Beyond this Bill

Additional Resources

"What International Markets Say on Pay: An Investor Perspective,” from Institutional Shareholder Services

“Executive Pay Watch,” from the AFL-CIO

“Executive Compensation,” from CorpWatch

Shareholder rights