Last year, the Securities and Exchange Commission approved a new “say on pay” policy that allows shareholders to vote on the pay package for a company’s top executives.
You wouldn’t think that would be a particularly controversial measure. For one thing, the vote isn’t even binding; it is advisory only. And shouldn’t shareholders — the people who actually own a company — be allowed to at least voice an opinion about how their own top employees are paid? Surely that is consistent with free-enterprise market principles, right?
Republicans, however, have fought the measure tooth and nail. It was approved by the SEC by a party-line 3-2 vote, with Republican appointees to the panel trying vainly to delay, weaken or kill it. They also fought it in Congress, voting against “say on pay” in party-line votes in 2009, back when Democrats still had enough votes to pass it.
As the Chicago Tribune reported back then:
“Rep. Pete Sessions (R-Texas), in a comment echoed by fellow Republicans, assailed the (say-on-pay) measure as “unprecedented government intervention in the free enterprise system.”
“This bill is an invitation for political meddling at its worst in the private confines of companies that are trying to work hard to create jobs,” complained Rep. Peter J. Roskam (R-Ill.)
I find those complaints hard to fathom. It is government interference to give the owners of a company a voice — a non-binding voice! — in what its executives are paid?
This week, we got a chance to see the rule in action, and also to see why Republicans continue to fight it so hard. Shareholders at Citigroup, one of the 10 largest banks in the world, voted 55-45 percent on Tuesday to object to the pay packages granted to CEO Vikram Pandit, as well as to bonus and compensation packages for other top executives. By one count, Pandit collected as much as $49 million in pay, stock options, retention bonuses and other compensation last year, even though the company’s performance has lagged.
The Citigroup investor rebellion came after the nation’s largest corporate-governance experts, Institutional Shareholder Services and Glass Lewis & Co., both recommended against approval of the pay package on grounds that it was too generous and wasn’t linked to company performance.
Glass Lewis, for example, gave the company’s executive pay plan an “F”, explaining:
“Having repaid its TARP funds in 2010, the Company was not subject to restrictions governing the structure of compensation paid to its highest-paid executives during 2011. In turn, the Company has implemented incentive plans rampant with significant issues that, in our opinion, warrant shareholder attention. It is clear to us that the Company has squandered the opportunity to form well-designed, objective incentive plans at the lifting of TARP restrictions, opting instead for often discretionary awards that may qualify as a misuse of company capital.”
In other words, the executives were paying themselves more than they were worth and more than they had earned. (When Pandit became CEO in December 2007, Citigroup was selling at a little over $300 a share. Yesterday it closed at $35.08 a share.)
It’s going to be interesting to see what happens now. According to ISS, only 2 percent of executive pay packages were rejected by shareholders last year, so the action by Citigroup investors is pretty noteworthy, suggesting it’s an egregious case. On the other hand, because the Tuesday vote was non-binding, Pandit and Citigroup’s board of directors are under no legal obligation to honor it.
In addition, pay packages for other major Wall Street firms are also coming up for shareholder review, and those companies are also probably nervous about a shareholder revolt.
All of this strikes me as a very good thing. This is not government interference in free markets; this is stockholders regaining just the slightest bit of control over their own property. And it is almost inexplicable to me that Republicans view it as a bad thing.
I say “almost inexplicable,” because blind loyalty to the top 0.001 percent is the only explanation I can offer. If you have a better one, please, let’s hear it.
– Jay Bookman