Where ‘Say on Pay’ could get in the way

Jeremy Hobson Jul 28, 2009
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Where ‘Say on Pay’ could get in the way

Jeremy Hobson Jul 28, 2009
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TEXT OF STORY

Bill Radke: “Some executives make more money than they deserve.” Agree or disagree,
that idea has taken hold in the federal government. Today, the House Financial Services Committee considers a bill to give shareholders a say on executive salaries and bonuses. Marketplace’s Jeremy Hobson reports on the bill they call “Say on Pay.”


Jeremy Hobson: The bill would force companies to give shareholders a vote on executive pay. Democratic Congressman Barney Frank says it’s needed because allowing boards of directors to decide how much bosses make doesn’t work.

Barney Frank: The notion that it will be done by the board of directors I think is fruitless, because boards of directors and CEOs are inevitably the closest of collaborators.

Any shareholder vote would be non-binding, which means boards could ignore it.

Charles Elson directs the Center on Corporate Governance at the University of Delaware. He says giving shareholders a say on pay could undermine the board’s power and end up making management even less accountable.

Charles Elson: The board is there to set pay. If you don’t like what the board is doing, replace the board. If you take away their authority to effectively set pay, what about say on strategic planning, or say on all kinds of other things which dilutes the centralized authority of the board?

Elson says the problem of excessive compensation could be solved by allowing shareholders to nominate people to the boards — a practice that doesn’t happen often.

In Washington, I’m Jeremy Hobson for Marketplace.

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