The fraught and mixed nature of Americans’ feelings towards big pay days seemed on display today as the so-called pay czar, Kenneth Feinberg, criticized 17 U.S. firms for pay practices at the height of the credit crisis.
Despite the critique of the bankers for handing out some individual payouts above $10 million while taking help from the government, Feinberg didn’t even reach for his biggest weapon, such as it is, a censure that the firms broke with the public interest.
All of which leaves one thinking, why undertake this particular exercise? Why the preceding hoopla?
High executive pay in the U.S. is going to, at any given point, tick off some percentage of the population, though the prevailing belief that the private sector is the best vehicle for generalized increases in standards of living appears to have survived the credit crisis, deep recession and current long slog of a minimalist recovery.
Once the federal government found an excuse to stick its nose under the tent of pay decisions as foundering financial firms took taxpayer assistance to keep going, Feinberg was appointed and rules about pay for certain firms ultimately were put in place.
Probably the best thing to say about that process is that Feinberg’s eventual power over pay at firms in receipt of federal dollars may have hastened the payback day at some of them. If that cause and effect took place, good.
Otherwise, outrageous or not, pay at publicly traded companies ought to remain the province of the boards of directors. Shareholders, whom directors are supposed to represent, should vote out directors whose management pay decisions leave them cold.
Now shareholders have been handed another shadow-boxing exercise on pay by the just signed Dodd-Frank reform bill - the catchy ‘say on pay.’ The problem is such coming shareholder votes remain as non-binding as those already in place at certain companies. More useful is the rule that makes all director election operate under a majority rules system.
Giving shareholders a ‘say on pay’ but making it non-binding is better policy than making those decisions stick, but it also reflects the conflicted nature of the populace and their elected representatives on the topic.
That brings us back to today’s news. These “ill advised” payments, in the words of Feinberg, were made near the height of the credit crisis during five months that firms that received financial help weren’t subject to pay restrictions.
So why take this retrospective look if not to at least brand the high paying firms with the less-than-withering title of violators of the public interest?
Feinberg wants the future to be different, for boards to adopt rules that would allow them to change their pay practices if their companies were in crisis. My guess is that notion is not going to be turned into new corporate bylaws any time soon.
(Reporting on today’s news involving the ‘pay czar’ used in this column was done by Victoria McGrane of Dow Jones Newswires.)
