Saturday, May 14, 2011

Excessive Corporate Compensation

Where do you find businesses where some of the employees get to set their own salaries and compensation packages? You’ll find them in all the large corporations such as General Electric, General Motors, IBM, Bank of America and, yes, even SCANA, etc., etc., etc. In all such shareholder-owned corporations, the compensation packages are designed by a committee of the board of directors and approved by the total board, the officers of which are employees of the shareholders. A CEO’s compensation may be “negotiated”
 by the CEO and the compensation committee which is made up of like-minded directors, most of whom are CEOs themselves and who are disinclined to be a naysayer because to do so could boomerang to affect their own compensation, in effect a good-ole-boys club.

All of this can take place because these high-powered, high-paid employees do not think of themselves as employees. Oh, of course, they will tell you they are, but they do not act like employees and, since there are inadequate checks and balances, they give only token consideration to their employers, i.e. the owners/stockholders. Control of the system which makes this possible is in the hands of the officers and board members, not the owners. The stockholders do not get to vote on what their employees (officers and board) are paid.

The result of such a system is to make possible the enrichment of the already wealthy at the expense of the owners. How long will we remain dumb enough to allow this to go on? When a conflict of interest leads to abuse, sometimes a revolution is the only way to correct the situation.

What can the owners do? They can start by sending in their proxy votes to the annual stockholders’ meeting and opposing (or abstaining from) (1) all the proposed board members, (2) the proposed accounting firm, and (3) all board-recommended proposals. They can also vote in favor of all shareholder proposals (most all of which are opposed by the board). If enough shareholders do this, it should get the attention of the officers and directors and influence them to change their ways so as to make compensation packages more reasonable and considerate of the owners. On the other hand, it may become necessary to clean house and install a new, shareholder-minded board and staff.

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