Yesterday, the Obama administration released its plans for reforming America’s corporate pay structure, including standards for the seven companies that have received the most federal aid and proposals aimed at giving shareholders more say in their company’s pay packages. Of course, this sent Fox off the deep end, and prompted a segment today — complete with Karl Rove — about how the government “will come in and set pay scales” for all kinds of companies. Watch it:
Fox is conflating the two decidedly separate tenets of the Obama plan. The first, which does involve direct government oversight of compensation, only applies to the five most senior executives and 20 most highly paid employees at seven companies that have received billions in government bailout money.
The companies — “American International Group, Citigroup, Bank of America, General Motors, Chrysler and the financing arms of the two automakers” — will have their compensation practices overseen by Washington lawyer Kenneth Feinberg. But I stress, this only applies to companies that are essentially owned by the United States government, and there’s no reason that the government shouldn’t act as a majority owner would. And the Obama administration has already explicitly said that it won’t directly cap salaries, even at these companies.
The other part of the plan, which is called “say on pay,” involves no direct government intervention. The plan would simply ensure that shareholders — the owners of a company — are able to hold a non-binding vote on that company’s pay packages. An odd dynamic has developed in American corporate governance, in which the shareholders don’t have a say over pay practices. This proposal seeks to address that, and far from being an overly intrusive, it may be too weak. James Kwak observed:
If you’re wondering how a non-binding shareholder vote could possibly solve the problems with executive compensation, you’re not alone. I think “say on pay” is slightly better than nothing, because there is a chance that in some cases the additional attention will shame boards into more reasonable packages. But in general, shareholders’ ability to influence corporate governance is pretty weak.
“We’re not telling clients to be prepared for less pay,” David Schmidt, a senior consultant for New York-based compensation firm James F. Reda & Associates, told Bloomberg News. So as much as Fox would like to turn this into another part of Obama’s nefarious plot to implement socialism, that just isn’t the case.