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When "Say on Pay" Is a Must

http://www.fool.com/investing/general/2009/04/28/when-say-on-pay-is-a-must.aspx

Alyce Lomax
April 28, 2009

Investors should “just say no” to say on pay? One of my Foolish colleagues voiced that opinion last week, but more recent developments underline the fact that if regular people -- including investors -- don’t step up and take responsibility for themselves and reject things that are amiss, somebody’s going to step in and do it for them.

Case in point: Democratic New York Sen. Chuck Schumer plans to introduce a corporate-governance bill next week that will ensure that investors have an “advisory vote” on executive compensation levels. It would also make companies name independent chairmen and elect directors on a yearly basis. Boards would also be required to disclose their roles in managing risk.

Plenty of reasons to be outraged
Schumer’s bill certainly underlines many important themes these days. Most noticeably, there’s plenty of outrage regarding outrageous executive compensation and bonuses (with good reason), and it’s particularly well placed when it comes to the huge entities that have required bailouts, such as AIG (NYSE: AIG  ) , Bank of America (NYSE: BAC  ) , and Citigroup (NYSE: C  ) . Companies that have received government bailout money are required to give “say on pay,” and heck, if you’re surviving on the taxpayer dime, I’ll acknowledge that that’s the least you can do.

Meanwhile, many policies such as “golden parachutes” are simply absurd. We can all flip out about some corporate welfare cases’ executive compensation, but in most cases the people who were at the helm when the mistakes were made are long gone, having departed with millions or billions all told, between past pay, golden parachutes, and so forth. There’s something seriously screwy when someone who massively fails is given a massive going-away present. Shouldn’t they simply be told not to let the door hit them on the way out? Why, for the most part, have shareholders shrugged and let this type of attitude pass?

Another theme is that boards of directors have been apathetic for far too long. In a recent article, in which I beseeched CEOs to voluntarily “do the right thing,” I pointed out that for many companies, decadent levels of pay are too often not really tied to performance. All of these disconnects really do say that corporate boards need to wake up, and that the era of gladhanding between boards and managements sorely needs to be over.

Just say no to apathy
That said, though, I can’t give shareholders a pass. There’s been plenty of apathy in that quarter as well. Simply ignoring corporate governance issues as unimportant, or believing that if shareholders are unhappy with management, their only recourse is to sell their shares, strikes me as the root of our problems to begin with.

Eschewing personal responsibility and making an assumption that people are ultimately powerless to change anything is exactly what leads government to step in and take control, and this often has unforeseen consequences, especially when it comes to business and markets.

However, even without Schumer’s bill, there are signs that some shareholders do care and some companies are open to such changes, such as advisory votes on executive pay. Apple (Nasdaq: AAPL  <