UPDATE 1-CEOs'
group hits US bill on shareholder pay votes
Thu Mar 8, 2007 6:07PM EST
(Adds Cleaver, Castellani, Davis,
Cox, background)
By Kevin Drawbaugh
WASHINGTON, March 8 (Reuters) - A corporate CEOs lobbying group on
Thursday criticized as misguided a bill to give shareholders the right
to vote on executive pay packages, marking the latest U.S. congressional
attempt to tackle the perennial issue.
The House of Representatives Financial Services Committee is considering
"say on pay" legislation in response to a recent round of
headline-grabbing revelations about huge compensation packages.
The bill introduced by Massachusetts Democrat Barney Frank would give
shareholders the right to cast annual, nonbinding advisory votes on
executive compensation plans.
It would also let shareholders vote on any "golden parachute" packages
for executives if a company is sold.
The bill is set for further committee action on March 21.
John Castellani, president of the Business Roundtable, told the House
panel on Thursday that the bill is a bad idea.
"Corporations were never designed to be democracies," Castellani said.
"While shareholders own a corporation, they don't run it .... We do not
support this proposal."
Castellani's group represents 160 major corporation CEOs and is one of
Washington's most powerful interest groups.
Median U.S. CEO pay in 2005 was $13.5 million, up 16 percent from 2004,
said Corporate Library, a research group.
Viewed another way, in 2003, the average CEO got roughly 500 times as
much pay as the average worker, compared to a multiple of 140 in 1991,
said Harvard Law School Professor Lucian Bebchuk.
Republican Spencer Bachus of Alabama expressed concern.
People worry that boards and CEOs "are sort of all in collusion, and all
taking care of each other, but in the process the average employee is
not being taken care of .... They wonder about the equity of it," Bachus
said.
Executive pay is a long-standing issue in U.S. business, resurfacing
each spring when companies report compensation packages awarded to top
managers in the previous year.
This year, critics have focused on a $210 million pay package awarded to
Robert Nardelli, former CEO of retailer Home Depot Inc. (HD.N: Quote,
Profile, Research), and a $198 million package given to Hank McKinnell,
former CEO at drugmaker Pfizer Inc. (PFE.N: Quote, Profile, Research).
Democrat David Scott of Georgia said "obscene pay packages" were
undermining U.S. economic trust.
"Corporate executives should certainly be adequately compensated.
However, I am concerned that executive pay has become dangerously
outsized," Scott said.
Castellani replied that corporations in the past five years have
improved corporate governance practices. He said Business Roundtable
urges companies to link pay to performance. But he said pay issues are
best handled by boards, not shareholders.
"We think that any (shareholder) advisory vote would seriously erode
board responsibilities," he said.
The U.S. Securities and Exchange Commission last year imposed new pay
disclosure rules on U.S. corporations.
"Say on pay" votes are now commonplace in Britain. Rather than damaging
companies, they have improved manager-shareholder relations, said Yale
School of Management Professor Stephen Davis. "Advisory votes on
executive pay policies are rational, timely, road-tested and practical
for use in the United States," he said.
Separately, SEC Chairman Christopher Cox said the agency plans to
electronically tag executive compensation data released in corporate
proxy statements. In June, the SEC will post on its Web site a link
allowing the public to compare compensation data for several hundred of
the largest companies, Cox said.
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