Congress has been dancing around with an issue that has a tremendous number of corporate shareholders, as well as the public generally, up in arms. That issue relates to executive pay packages and perks. This congressional activity actually comes at a time when revelations of excess pay and perks for some in Corporate America have already come to light. It will be very interesting to see what our lawmakers do – if anything – relating to this matter. In my opinion, Congress should definitely give shareholders a greater say over executive compensation with reasonable limitations. The House Financial Services Committee started hearings in late May and accompanying the hearings were the usual political news releases. As predicted, there was the usual partisan approach to the hearings. Frankly, I doubt seriously that anything of consequence will result from these hearings. Nevertheless, it should be quite apparent to all that there is a need for some type of reform of a broken system.
Americans hear reports almost daily of excessive pay and perks for executives while the companies they are supposed to be working for are having financial woes, laying off employees, or failing to meet billions of dollars in pension obligations for workers’ retirement. The huge gap between executives’ salaries and the pay of rank-and-file employees continues to widen. It was ironic that the congressional hearings referred to above started on the very same day that a federal jury in Houston convicted Kenneth Lay and Jeffrey Skilling of conspiracy and securities fraud in one of the biggest business scandals in U.S. history. Unfortunately, Enron, a company that became a notorious symbol of corporate greed, is symbolic of what is wrong in all too many corporations in this country. To put it in simple terms, they are run by greedy executives who seem to have little concern for their employees or shareholders.
The number of public companies involved in federal investigations concerning the timing of stock option grants to their executives continues to grow. Currently, more than a dozen companies have received inquiries from federal prosecutors in New York and the Securities and Exchange Commission (SEC) seeking details on how they grant stock options. The companies — the largest so far being UnitedHealth Group Inc. — are being examined to determine whether they boosted executives’ payoff from stock options by backdating the grants to coincide with a point where corresponding stock prices had dropped to lows.
During the congressional hearings, the lawmakers took a close look at Lee Raymond, the recently retired chairman of Exxon Mobil Corp., who did very well financially during his tenure with the giant oil company. This is the man who received a package of over $400 million, including salary, bonus, stock options, and a $1 million per year consulting deal from his company. Raymond’s compensation works out to more than $144,000 a day. Consumers, who are already hurting financially, pay over $3 a gallon for his company’s gasoline. It’s pretty easy to figure out why shareholders in his company are also outraged by Raymond’s pay package.
In January the SEC proposed the biggest changes since 1992 in rules governing disclosure of executive compensation. The rule changes would require companies to disclose far more details about their executives’ pay packages and perks. In my opinion, working men and women – regardless of what section of the country they live in, or which political party they tend to favor – won’t tolerate the Raymond-type excesses in Corporate America much longer.
Unfortunately, I don’t believe Congress will do very much about the problem. An example of how some in Corporate America feel about shareholder concerns is the recent annual meeting of Home Depot, Inc. which is based in Atlanta. Home Depot’s chief executive, Bob Nardelli, was facing an uproar among shareholders over his pay package and here’s how he handled his problem. Nardelli has received $123.7 million in compensation, excluding stock option grants, since taking over as CEO in December 2000. The company’s stock price had dropped 9% over that period on a split-adjusted basis. The shareholders wanted some answers and expected to have a chance to question the board members who approved Nardelli’s pay and perks. At the company’s annual meeting, in response, the board members simply didn’t show up.
Source: Associated Press
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