The shareholder awakens

by The Economist, April 7th, 2011.

Companies’ owners are slowly beginning to hold bosses to account, starting with closer scrutiny of their pay

THE nuns who are challenging Goldman Sachs’s claim to be doing “God’s work”, by bringing a shareholder resolution questioning the bank’s executive-pay policies, are but the tip of an iceberg. Thanks to a “say on pay” clause in last year’s Dodd-Frank financial-reform law, the pay of every senior executive of an American public company is now subject to a shareholder vote. So far in this spring’s corporate annual-meeting season, the management has lost such votes at four firms, the most prominent being Hewlett-Packard, a computing giant. Given the current mood of banker-bashing, it will be no surprise if there are similar results at Goldman Sachs and other financial institutions: all eyes will be on the first of the big banks to hold its vote, Citigroup, on April 21st.

A new study by the Corporate Library, a research body, finds plenty for shareholders to vote against. It looks at those big companies that had, by March 20th, reported their bosses’ pay—about a fifth of the S&P 500. Almost all reward them for long-term performance without considering whether similar firms are doing better. More than 75% of chief executives still have “golden parachute” severance deals worth at least twice their annual pay.

In the past year things have got worse in three main respects, argues the Corporate Library. The difference between the chief executive’s pay and that of other executives has grown. The dilution of other shareholders by awards of shares to executives has increased. And retirement benefits have become even more excessive. (continue reading… )



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