Wednesday, March 07, 2007

Why Can't Shareholders Be Trusted to Set CEO Pay?

Well it just shows that if you read enough of anyone you can eventually find some common ground-with respect to the above blogger link.
Representative Barney Frank has proposed a law that would require corporations to have non-binding polls of their shareholders on CEO compensation packages. According to Marketplace Radio, the opponents of this measure claim that shareholders have diverse interests and aren't in a position to properly assess CEO compensation.

Well it is their assets, I would assume that owners of capital should know how to manage it-even if indirectly. But I would say it should be binding votes. I would also make political contributions or lobbying also mandatory for a vote. Once a year is fine and if there needs to be emergency measures enacted then the board can approve until the next meeting.
It would be helpful if the media teased this one out a bit further -- the shareholders aren't qualified to determine the pay of their top employee, but the insiders (a corporate board that usually owes their position primarily to the CEO) somehow can be trusted to act in their interest.

True enough. Yes people in a corporation/government/organizations tend to have different goals than the stakeholders.
The media also portray this as a government intervention into the corporate sector. Of course, this is nonsense. The corporate sector is a creation of the government (individuals can have partnerships, legal corporations are a creation of the state), the question here is about setting the right rules. The government already imposes a long set of rules for corporate governance, including rules on disclosure of financial data and also rules ensuring that the rights of minority shareholders are protected. The issue here is whether it is necessary to change the rules to ensure that CEOs do not abuse their insider power to get exorbitant compensation packages. (I discuss this issue in a chapter of the Conservative Nanny State.)

Ahhh, and we were doing so well. We had to get distracted by the theory that corporations being a creation of the government. Don't partnerships have rules, regulations and laws that govern them also? If partnerships can be granted outside the government then what is the difference between 2 people owning stakes in a company and 1 million? Would these rules also be enforced if there were no Government? Would the stock markets police themselves over the long run?

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