Executive Compensation

In 1976, the average CEO made 36 times as much as the average worker.   By 1993, the average CEO was paid 131 times as much as the average worker.   And by 2008, the average CEO was paid 369 times more than the average worker.*
Salary adjustments for CEO's are based on recommendations from compensation committees and compensation consulting firms (called "Ratchet, Ratchet and Bingo" by Warren Buffett), which compare one company's overpaid executive to other companies' overpaid executives.  The recommendations are enacted by Directors who were nominated by committees controlled by company management.

It is a simple process; quid pro quo.   Management chooses directors, directors reward management, and compliant directors may be chosen to serve on other boards.  It is institutionalized corruption.

Really, now.  Isn't it time that shareholders were allowed (or required!) to nominate candidates for the Board of Directors for publicly owned companies?

* Predictably Irrational, Dan Ariely, 2008.
Also, please see my previous post about corporate governance.
http://dougrobbins.blogspot.com/2011/03/corporate-governance-reform.html

Corporate Governance Reform

One of the most needed reforms of the financial system is in the process for nominating directors of publicly traded companies.

Currently, the nomination process is controlled by corporate management.  Management presents a slate of directors to the shareholders for approval, but there is no alternative to the management slate, and no easy way to for shareholders to present an alternative.  During the Bush administration, a proposal was presented to the SEC to allow shareholder nominations for directors.  SEC commissioners voted down the proposal in a party-line vote, with the Republican majority prevailing.

It is all too easy for management to nominate candidates who are compliant and inclined to vote large bonuses for management.  No alternative choices are presented to the shareholders.  These directors then become attractive candidates to serve on additional corporate boards.  The conflict of interest is blatant.  No particular knowledge of business or a particular industry is necessary, so you often see retired generals and astronauts, university presidents or other prestigious candidates without business experience.
This system, where management controls the nomination process for company directors, contains intrinsic conflicts of interest.   It is institutionalized, systematic corruption.  And it is the legal and everyday way to conduct business in America today.

It is disappointing to me that the financial reforms recently enacted have not included a reform of the process of nominating directors.   Shareholders should have not only a right, but an obligation to nominate the directors who will supervise the management of publicly traded companies.

Also see:
http://dougrobbins.blogspot.com/2011/04/executive-compensation.html