Today, in the wake of special master for compensation Kenneth Feinberg’s decision to significantly restrict compensation at the seven companies under his office’s purview, the Wall Street Journal reported that Sen. Chuck Schumer (D-NY) “is mulling a law to apply the new rules to all public companies.” CNBC picked up on the Journal’s claim, and has been reporting over and over that Schumer wants to cap pay at every company in the U.S. Watch a compilation:
This seemed like pretty earth-shattering legislation — essentially proposing a pay regulator for everyone — so I called Schumer’s press office to clarify. His spokesman called the Wall Street Journal’s reporting “incorrect” and explained that Schumer is actually advocating that Feinberg apply the “Shareholder’s Bill of Rights” to the seven companies that he oversees.
That makes a lot more sense. Schumer introduced the Shareholder’s Bill of Rights in May with Sen. Maria Cantwell (D-WA), and the bill lays out a series of provisions aimed at improving corporate governance — and hopefully reining in corporate excess — by empowering shareholders with more influence over their company’s decisions. The bill would:
– Implement “say-on-pay,” which mandates that shareholders hold a non-binding vote on their company’s compensation packages; – Require that companies allow shareholders access to the company’s ballot if they want to nominate directors for the board, require board directors to receive at least 50 percent of the vote in uncontested elections in order remain on the board, and require all board directors to face re-election annually;
– Mandate that companies split the jobs of CEO and Chairman of the Board and that public companies create a separate risk committee comprised of independent directors.
“These companies are the poster children for the total breakdown in corporate governance and lack of effective board oversight that contributed to the recent crisis, and I believe these reforms are critical if the government is serious about turning these companies around,” wrote Schumer in a letter to Feinberg.
And applying these provisions to all publicly traded companies would actually be a great idea, since management incompetence seriously contributed to America’s last two business booms (and subsequent busts). During both the dot-com and mortgage bubbles, corporate managers failed to rein in excessive risk-taking and irrational speculation, or resorted to accounting gimmicks to hide massive losses.
And management was utterly unaccountable to shareholders, who under America’s corporate governance structure are all but powerless to exert influence. They have no say over compensation, and if they want to place directors on the board, they have to expend millions to send out their own, separate ballot, while the current board sends a ballot on the company’s dime.
My guess is that CNBC’s crew wouldn’t like this any more than the proposal that it’s imagining — but the criticism should at least be levied at something that actually exists!