Posted by Shyam Moondra
Recently, President Obama used strong words to describe the run-away executive bonuses, calling them "shameful" and "irresponsible." That's a pretty good start and it shows that Obama means business. In the last ten years, executives have been looting shareholders' money and they have become a new immoral super-rich class aided by the corrupt Board of Directors who themselves are retired or active CEOs of other companies. The annual compensation of the Board of Directors has also increased significantly, nodded by the CEOs, and, in return, the Directors have granted obscene levels of compensation and perks to the CEOs. This has become an old boys' network based on the philosophy of "you scratch my back and I scratch yours." The astronomical gains made by this exclusive club often came at the expense of lower level employees who actually lost ground in recent years. It has been reported that ten years ago the CEOs used to make roughly 40 times of what the lowest paid employees made but today that number exceeds 450. The CEOs justify their outsized compensation based on job complexities caused by globalization; however, President Obama, who has the most difficult and most stressful job in the whole world, makes only $400,000.
Obama has spoken out against this institutionalized corruption very strongly, which should now be backed-up by concrete steps to bring down executive compensation to a more reasonable level. There is a lot the president, state governors, and Congress can do to make that happen. Below are some ideas:
- Pass a law to make it illegal for any publicly held company to pay its CEO more than a $1 million dollars a year which include cash, stock options, and perks. Obama has proposed to limit the cash compensation to $500,000 but allow unlimited stock options for only those companies that received extensive help under the TARP program (e.g., Citigroup, AIG, and General Motors). This selective limit is unworkable because the CEOs of the affected companies will resign and join other companies that are not subject to this proposed cap. The exodus of the talent will weaken the TARP companies, making it much harder for them to recover. If Obama is serious about reversing the trend of excessive executive compensation, the proposed cap would have to be applied universally to all publicly held companies.
- If the above law can't be passed because of the opposition of the Republicans, then the federal and state governments should pass regulations denying government contracts to publicly held companies that pay more than $1 million to their CEOs and black-list those companies and their CEOs on the government websites.
- Obama could use his grass-root campaign (he has millions of e-mail addresses that his campaign collected) to encourage the population to boycott the products made by the companies that pay their executives excessively.
- Pass a legislation that will impose a tax surcharge on companies that pay their CEOs more than a pre-specified limit; this surcharge will be calculated based on how much more the CEO is paid in excess of the limit. Also, the excessive compensation could be made non-deductible for tax purposes.
- The president and the Congressional leaders should publicly speak out against the companies that violate the compensation limit and name them and their CEOs in their statements to keep up the pressure. By shaming them publicly, the government will force these companies to fall in line.
- Pass regulations to increase the cost of financial transactions for the violators, by issuing banking regulations that will make it harder for these companies to do business.
- Pass corporate governance rules that will permit shareholders to vote on executive compensation packages granted by the Board of Directors.
