A proposal to give American shareholders a vote on executive pay was overwhelmingly approved by the lower house of Congress last week as DemoÂcrats fought to tackle increasingly lavish multimillion-dollar boardroom handouts.
American unions, politicians and institutional investors are angry about telephone number-sized sums, such as a $210million payoff the DIY chain Home Depot handed to its ousted chief executive, Bob Nardelli. While congressmen debated the issue, another retailer, Wal-Mart, announced that its boss, Lee Scott, was getting $23million in annual pay.
The Democrats’ Bill, passed by 269 votes to 134, seeks to force companies to hold a non-binding vote at their annual meetings on executives’ pay. But it faces political challenges. It has yet to go before the Senate and the White House opposes it, saying recently introduced rules requiring clearer disclosure of pay packages should first be given a chance to work.
In the House of Representatives, supporters of the plan pointed out that boardroom pay in Britain has risen at a far slower rate since shareholders won the right to a vote on pay in 2002 — a law that prompted the high-profile rejection of GlaxoSmithKline’s remuneration report in 2003.
Brad Miller, a Democrat from North Carolina, said that when contemplating huge pay rises, British companies took the view that “you know what a Bolshevik rabble our shareholders are — we will never be able to explain it to them” and therefore scaled back their largesse.
“Executive compensation in Britain has not gone up in the past five years the way it has in the United States, and the performance of Britain’s corporations has been every bit as strong as what we have here,” Miller told the house.
The average chief executive of a big US company took home $10,1million last year, an inflation-busting increase of 9,8% on 2005, according to the research firm Equilar.
Activists say the securities and exchange commission’s disclosure requirements do not work because companies deliberately obfuscate figures in complicated annual reports. There has been particular unease over severance packages, and the average payoff for a departing boss is $9million.
Protests are becoming more common. In Texas this week, American Airlines pilots staged a demonstration over a $7,5million bonus to chief executive Gerard Arpey. Meanwhile, a dozen Wall Street Journal war correspondents wrote to the paper’s parent company, Dow Jones, pointing out that a $667-a-day commuting allowance for its chief executive exceeded their entire salaries for going into combat zones.
Republican opponents, however, argued that an annual vote would be hijacked as a catch-all protest by environmentalists and trade unions. Frustration with such procedures, they said, could encourage more companies to exit the stock market in private equity buyouts, making them even less answerable to the public.
Michael Ryan of the US Chamber of Commerce said it was a “headline-grabbing” measure and the wrong way to tackle isolated examples of excess: “Are we saying a few bad examples should set policy for the rest of the community? Tough cases make bad law.” President George W Bush has also expressed concern about boardroom excess. — Â