Even former SEC Chairman William
Donaldson was growing
increasingly vocal on issues relating to
compensation before his resignation on
June 30, telling directors and
top executives in a speech last fall that he
“would also like to see
greater disclosure of pay packages—with not only the
total amount of
compensation provided, but for each element of this compensation
to be
clearly explained, including benefits that may not be easily assessed but
which carry a clear value and which the CEO clearly cares about.”
Incoming SEC
Chairman Chris Cox, a congressman from California, is
expected to be much less
outspoken on compensation issues, judging by
his well-recorded business-friendly
posture—he led the fight in
Congress to enact special legal immunities for
misleading
forward-looking statements in the mid-1990s. However, many SEC
observers also underestimated Donaldson’s willingness to joust large
corporations when he was first appointed.
Recidivist Directors
Without continued prodding from the
SEC and other
regulators, together with increased activism by
institutional investors and
pension funds, compensation committees
could very well slip back to the days
when there was a dearth of
independent thinking on executive pay.
To
prevent that
from happening, directors—particularly at smaller public companies
that
tend to receive less attention—need to take a more proactive approach. When
the talk shifts to salaries and perks, many boards continue to disavow
open-minded, critical discussion, Kamerschen believes. When he joined
the board
of one company—he refuses to disclose the name—he found that
salaries were
dramatically out of line with competitive companies, so
he began lobbying to
slash them. “It was nothing personal. We were just
looking at the facts, and the
salaries were simply too high at this
company when compared to its peers and in
light of the company’s
performance,” Kamerschen says. The salaries were
cut.
Unfortunately, that type of thinking is still relatively
rare. At Duke
University’s annual Directors’ Education Institute last
March, Jim Cox (no
relation to the SEC chairman), professor of
corporate and security law at Duke
Law School, surveyed the directors
in attendance and noticed a tendency toward
tunnel vision. “Most of the
directors believed that executive compensation was
too high and that
boards of directors needed to get tough,” Cox says. “But when
asked
about the CEOs and CFOs on the boards they served on, almost all of them
said it was a different situation at their own companies.”
Michelle Leder is an author and writer whose work has appeared in
BusinessWeek and Inc.
Illistration by Ken Orvidas
|
