Lobbyists  |  Activist’s crusade: Curbing CEO pay

Richard Ferlauto has spent the past 11 years in Washington working toward just one goal: curbing what he sees as outrageously high CEO pay in corporate America.

As the director of corporate governance and pension policy at the American Federation of State, County and Municipal Employees, Ferlauto has led the charge on behalf of unions in Congress after Congress, with very little success to show for it.

But in the wake of the executive pay provisions in the $700 billion financial bailout, Ferlauto believes the political ground has shifted dramatically, and he’s readying an effort to extract even greater concessions from corporate executives next year.

“This is the tipping point,” Ferlauto said. “Voters are seeking retribution from the corporate elites who put them in this position.”

The $250 billion plan to inject liquidity directly into the banking system contained some fairly dramatic curbs on corporate pay that affect the compensation of chief executive officers, chief financial officers and a firm’s next three highest-paid executives.

The financial institutions that accept government money will have to make sure that their incentive plans don’t encourage executives to take unnecessary risk — a factor that some have argued contributed to the financial crisis in the first place — and will be prohibited from making so-called golden parachute payments to top brass.

What’s more, the government has the right to “claw back” any pay that is granted to an executive based on financial results that are later found to be inaccurate. Additionally, companies aren’t allowed to take tax deductions on executive compensation above $500,000 for each senior executive.

Executives across the country are finding themselves under increasing scrutiny. AIG officials, for example, found themselves pilloried in early October for spending more than $400,000 to send employees to a retreat at a luxury resort in California just a few days after the Federal Reserve committed $85 billion to keep the insurance giant out of bankruptcy.

All that means the challenge for business next year may be staving off a slew of new anti-corporate-pay initiatives from Ferlauto and his allies. And the effort to cap executive pay may not end with the financial services industry.

“Everybody’s going to have to pay attention to it in this environment,” said one Fortune 500 company lobbyist who plans to fight almost anything Ferlauto’s side proposes. “Anybody who is not watching the signals that are coming from Congress is just naive.”

What Ferlauto would like to see goes beyond limits for pay at companies that accept taxpayer handouts. He’d also like to see investors empowered with so-called say-on-pay rules that would put executive compensation to a shareholder vote. He also wants to push for shareholders to have more ability to put independent members on corporate boards of directors and for limits on corporate ability to pay deferred compensation that’s awarded not as salary, but only after the executive retires.

“Industry has been complacent,” Ferlauto said. “They haven’t understood the widespread discontent and feeling that there was inequity that was un-American in the way that profits were distributed.”

Industry, though, plans to fight any effort that would limit the free market’s ability to determine executive pay.

Bruce Josten, a lobbyist at the U.S. Chamber of Commerce, argues that Congress was wrong to impose any executive pay restrictions at all.

“If the Treasury is going to loan a bank $20 billion, don’t we want the best possible person in that job?” he asked. “Or do we want the $35,000-a-year candidate? If protecting the taxpayer is the goal, my answer is get the best person you can.”

Still, Josten knows he’s going to hear a lot more about executive compensation next year — particularly, he says, if Democrats control both the White House and Congress. “We will continue to hear populist rhetoric surrounding this issue,” he said.

© 2008 Capitol News Company LLC