Wednesday, June 10, 2009

Government To Assume Role In Setting Executive Compensation

Last week in a blog on this website I observed that executive compensation would be the government's stalking horse -- the example of corporate excess that will justify everything from government's micro-regulation to the takeover of entire industries, and even to making of ultimate determinations of who succeeds and who fails.

It is a sad day for the free market in America and ironically it was not the free market that resulted in the corporate compensation obscenities that is the poster child to justify invasive regulation of corporate America. Rather, it was the substitution of the good old boy network for the free market and the absence of transparency that bastardized market setting mechanisms for executive compensation that results in the news that follows, from today's Bloomberg:

The Obama administration will seek new powers for the Securities and Exchange Commission to force firms to let shareholders vote on executive pay and make directors who set compensation more independent, an administration official said.

Today’s proposal, subject to congressional approval, would cover all public companies. President Barack Obama has long supported giving shareholders nonbinding votes on bonuses, salaries and severance packages. The administration also will name a “special master” to monitor compensation plans for firms receiving exceptional assistance in the financial rescue.

The changes are aimed at reducing systemic risks and quelling a political uproar over bonuses paid to executives whose companies were bailed out by the government. Treasury Secretary Timothy Geithner has repeatedly blamed pay standards tied to short-term profits for contributing to the worst financial crisis since the 1930s.

“It clearly is going to force companies to be more transparent with their disclosure” on compensation, said Irv Becker, national practice leader for Philadelphia-based Hay Group’s executive compensation practice. If the measure is implemented, it likely will take several years before shareholders begin to confront management, he predicted.

“It’ll kind of be novel the first year, maybe the first two, and then likely be a little bit more serious in future years,” said Becker, a former head of compensation and benefits at Goldman Sachs Group Inc.


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