For The Love Of Money

Right about now, I would guess that a lot of you are waiting on your tax refund (I hope so anyway, unless you’ve already received it). And of course, the inevitable bills will arrive before Uncle Sam antes up (utilities, rent, mortgage, food, car payment…you don’t need me to tell you, right?).

Well, the New York Times published an article on April 10th about executive compensation which I am just getting around to commenting on now (here's the link; no remuneration to me will be involved as far as I know). Sorry to get you steamed, but it does dramatically illustrate the pleasant circumstances for the "have mores" versus the rest of us.

Featured prominently was Ivan G. Seidenberg, chief executive of Verizon. The article points out the incredibly cozy relationship between executives and consultants who determine their compensation.

As noted in the article:

Marc C. Reed, executive vice president for human resources at Verizon, declined to identify the company's compensation consultant, noting that the Securities and Exchange Commission did not require it. "We understand the potential perception issue," he said in an e-mail message, "but we think it's important to honor the confidentiality of our advisers, and we have always ensured there have been no conflicts of interest."

And...

Executive pay has been a subject of criticism for decades. Even though last year's pay figures showed slower growth than in previous years, the fact that executive compensation often has little relationship to the performance of the company has contributed to a growing sense among investors that pay is diminishing shareholder returns.

Fortunately, this is not being ignored.

"Everybody should have an interest in controlling this explosion in executive pay," said Frederick E. Rowe Jr., chairman of the Texas Pension Review Board who is also chairman of Greenbrier Partners, a money management firm in Dallas. "The wealth of America has been built through the returns of our public corporations, and if those returns are being redirected to company managements, then the people who get the short end of the stick are the people who hope to retire someday."

Of course, the usual gaggle defending this piracy is noted, including John Snow, who, as the article mentions, “was a member of the Verizon board from 2000 to 2002 and on its compensation committee in 2001.”

So what games do the consultants play to pull this off? Glad you asked…

Consultants help select the companies to be used in peer groups for comparison purposes in judging an executive's performance. Picking a group of companies that will be easy to outperform is one way to ensure that executives can clear performance hurdles. Another is to structure an executive's pay so that it is always at or near the top of those in his industry regardless of his company's performance. This pushes up pay simply when others in the industry do well.

And here is something else to consider…

Even though stock exchange regulations require compensation committee members to be independent of the executives whose remuneration they oversee, their connections with those people can run deep.

Enforcement? Anywhere in sight? Hello??

OK, I know what you’re thinking, right? “Dag, Doomsy, this stuff is boring. And I know the white-collar crooks keep ripping us off, but aside from voting for Democrats and hoping for the best, we really can’t do anything about this.”

Wrong...

Let me introduce you to U.S. House Bill H.R. 4291, sponsored by Barney Frank along with George Miller, David Obey, Charles Rangel, Nydia Velasquez, and Martin Olav Sabo (if I have to point out the political party of these individuals, then you haven’t been paying attention).

As far as I know, this is still “stuck in committee,” or whatever the approved language is for the fact that it isn’t going anywhere. Based on my admittedly limited knowledge on this, it looks like the bill is a good starting point to address the ills mentioned in the New York Times article. The bill amends the act that created the Securities and Exchange Commission in 1934. It attempts to set more realistic executive compensation guidelines, including shareholder approval of any “golden parachute” compensation this individual would receive upon termination.

(I wish the bill would mandate stock options as expenses; I don't think that was covered by Sarbanes-Oxley. I have to look into that some more.)

Use this link to contact your representative and tell them you support this bill. That will help to get the ball rolling.

Just remember, as Don Henley of The Eagles sang once, “a man with a briefcase can steal more money than any man with a gun.”