Shareholders Can Sway Pay Trends
It is interesting to note that in the week Business Journal staff prepared a Focus section on top regional public companies, the two major party candidates seeking nomination for the Presidency both (apparently) supported some form of investor “say on pay” for the top executives of public companies.
While such election year rhetoric is generally expected and ignored, the very real discussion in the U.S. Senate is more unpredictable in the same week former Bear Stearns hedge fund managers surrendered to face criminal charges. They are the first to be charged in the subprime market meltdown, from which economic dominoes are still crashing in this country and around the world.
Michigan’s Big 3 chief executives could be the poster children for this movement that seeks to legislate CEO compensation packages in accordance with company performance, in particular for those companies crashing in revenue performance but paying a king’s ransom to the exec issuing pink slips instead of greenbacks to employees. The examples are near and far: Countrywide Financial Corp., Merrill Lynch & Co. and Citigroup — to name just the few called in for a Congressional public spanking.
The American electorate may be darn angry over the resulting economic impact while chief executives are unscathed or richly rewarded, but new regulations in an already tightly regulated arena won’t make the greedy suddenly moral. The desire to do the right thing certainly does not suddenly occur as a result of legislative paperwork.
The D.C. discussion, however, has given shareholders entrée for such negotiation in annual shareholder meetings. A recent story in the Detroit News reports that such initiatives were approved this spring at a number of companies, including AFLAC Inc. (the first to do so), Apple Inc., Lexmark International Group Inc. and PG&E Corp.
Those corporate boards open to the paradigm shift are also likely open to new ideas, and therefore to growth through innovation. One might believe that public companies in the greater Grand Rapids region would fall into this camp but they are still the exception. The Business Journal continues to see reports indicating that regional corporations still mostly close doors, even to women and minorities serving on those boards or within the corporate leadership and the innovations of such diversity.
This region, however, remains an economic landscape of private, mostly family-owned businesses protected from such scrutiny. There is measure, however, in several factors, not the least of which is this community’s top business sustainability ranking in the country and in national leadership for Leadership in Energy and Environmental Design. West Michigan is home to 40 of Michigan’s 57 LEED-certified buildings. One also can point to the impressive success of dozens of privately funded projects, including public-private partnerships in creating venues like Millennium Park, and beneficence in stabilizing the non-profit sector from United Way to Michigan’s only professional ballet company.
Exorbitant executive compensation packages can become their own punishment if consumers and shareholders grow more bloodthirsty in the economic aftermath of business downturns and failures. That is what seeds a change in board behavior.
And now, about the compensation for athletic prowess by national sports franchises …