As You Sow, a two-decade-old group dedicated to promoting "environmental and social corporate responsibility through shareholder advocacy, coalition building, and innovative legal strategies" has published a new report that ought to get some shareholders and coalition members boiling. Authored by Rosanna Landis Weaver, the 36-page analysis is titled
The 100 Most Overpaid CEOs: Executive Compensation at S&P 500 Companies. As you can see from the chart of the Top 25 above, overpaid is an understatement.
Some people may argue that it shouldn't matter to anyone but shareholders what a company pays its top executives. But the pay structures that allow this grotesquely out-of-whack compensation don't just harm shareholders, according to the report, "they also prevent corporations from paying decent wages to their employees." They also hurt taxpayers because the performance-based compensation is a write-off no matter how large. And, increasingly, that compensation is divorced from actual performance.
Since the passage of the Dodd-Frank financial reform act, shareholders can give advisory votes on compensation packages. The report recommends that in addition to these advisory votes, shareholders should vote against members of corporate compensation committees "who created and approved these bloated plans." Indeed, they should. But organizing such efforts is never easy.
From the Executive Summary:
CEO pay grew an astounding 937% over the past 35 years. The explosion in executive compensation greatly outpaces growth in the stock market and economic productivity. Simply put, it is not good for the companies, the shareholders, the customers, the other employees, the economy, and society as a whole to keep putting more and more money in the hands of just a few people. It’s also neither accurate nor wise to attribute the performance of an entire corporation, with its tens or hundreds of thousands of employees, to just a few executives.
The system in place to govern corporations has failed in the area of executive compensation. […]
The governance system came from a time when it was assumed that unhappy investors would simply sell their stakes if sufficiently dissatisfied with the governance of a company. However, today more and more investors own shares through mutual funds, often investing in S&P 500 index funds. The pay packages analyzed in this report are the companies that the majority of retirement funds are invested in. Today, those casting the votes on the behalf of shareholders frequently do not represent the shareholders’ interests.
Taxpayers are ripped off by this system. Two Democratic senators, Jack Reed of Rhode Island and Richard Blumenthal of Connecticut, introduced the Stop Subsidizing Multimillion Dollar Corporate Bonuses Act in 2013 to allow public companies to take write-offs only up to $1 million per employee. But that bill, S. 1476, has even less chance of passing in the next two years than it did when it was introduced.
Please read below the fold for the report's key findings and recommendations.
Among the key findings:
• The top nine of the most overpaid CEOs received $20 million more "than if their pay had been appropriately aligned with performance."
• Some mutual funds fail in their fiduciary duty and rubber-stamp compensation packages, "enabling the worst offenders."
• Shareholders need to hold accountable directors who are supposed to be stewards of shareholder interests.
And the recommendations:
• Shareholders should make sure their assets are voted wisely. Excessive CEO pay is money that is not being distributed as dividends or reinvested in the company.
• Mutual fund owners and pension contributors must hold their fund managers accountable. They are legally required to vote their proxies, and with enough shareholder pressure will cast large vote against wasteful pay packages. In addition, mutual funds should develop rigorous guidelines. Because the vast majority of companies have their fiscal year end dates on December 31, the majority of proxies come out at the same time. It is critical to have guidelines in place and to address these issues throughout the year.
• Shareholders must hold board directors accountable. If directors design and approve excessive pay packages, sit on multiple boards of companies that overpay, or give complacent approval for inappropriately large packages, shareholders must withhold votes from these directors and remove them from the board.
While those recommendations are reasonable, they are also weak tea. But that is understandable because the real solution is an overhaul of an economic system in which this overcompensation is a mere symptom of far deeper problems. And achieving such an overhaul will require a good deal more than a mere shareholder revolt.
mygreekamphora, who worked on the report, posted a diary on it Friday.