Randomly Noted

Below the headlines about 50% compensation cuts being ordered for top earners at the seven fallen angels under his control, the so-called federal pay czar, Kenneth Feinberg, is apparently also forcing some changes in governance.

Feinberg, who technically is called the special master of compensation at the U.S. Treasury Department, didn’t just cut pay for the 25 top people at the humbled seven. He also delved into some of the corporate governance issues that have been talked about for years in U.S. boardrooms and among activist investors.

He will insist on a split between chairman and chief executive jobs, a model already followed in other nations. Staggered board terms will be eliminated. and boards of directors will have to create risk committees.

This according to reporting by Deborah Solomon of The Wall Street Journal.

Meanwhile, The New York Times reports any executive who receives more than $25,000 a year in additional compensation via pay for the likes of country club  dues will have to ask the government for permission. Wow, what a come down for former masters of the universe.

Ending staggered voting for corporate directors and separating the chairman from CEO position are good ideas.  The $25,000 limit on additional perks will stop significant compensation from being delivered via the side door, though shame or embarrassment as a disincentive to do something has lost a lot of its value in this country. Maybe at some companies, boards will ask to go above $25,000 in perks for their CEO.

At Bank of America, one of Feinberg’s charges, outgoing CEO Kenneth Lewis is now famously leaving without annual salary or bonus at the suggestion of the pay czar. But on the CEO/chair issue, shareholders beat the regulator to the punch. They had already voted to remove the chairman title from Lewis.

The czar should have thrown in mandatory majority voting for directors, though that smart governance practice is gaining plenty of momentum on its own via shareholder push.

Feinberg’s authority is limited to AIG, Bank of America, Citigroup, General Motors, GMAC, Chrylser and Chrysler Financial. But every company would benefit, as would their holders, by splitting CEO-chair positions, making all directors stand together for election and inisting they be returned by a majority of holders.

We likely will have to wait the coming official release of the pay czar’s plan before we can understand what a risk committee of a board is supposed to do. How is it different from the audit commottee? And who should sit on it?

Best would be finance and market whizzes of every stripe who have the time to devote to the task at hand. But let’s have realistic goals on what impact can be had by a board committee. Directors are quite removed (even the dedicated ones) from a company’s day to day.

It’s the managers in the trenches who have to be smart and careful about risk. The directors can ask macro questions, but they will need to ask fewer of them if there are usable and obeyed risk rules in place for the people actually executing on the ground.