The SEC targets executive pay.

• Author: Thompson, Louis M., Jr.
• Position: Securities Exchange Commission - Who Owns Corporate America

The SEC Targets Executive Pay

With executive compensation featured as hard-hitting cover stories this spring in Business Week ("Are CEOs Paid Too Much?") and Forbes ("It Doesn't Make Sense"), along with widespread newspaper and television coverage, it did not take a whiz kid to figure out that it would not be long before Congress grabbed this emotionally charged issue.

And, on May 15, it did. Sen. Carl Levin (D., Mich.), chairman of the Oversight Committee on Government Management, and Sen. William Cohen (R., Maine), the ranking minority member, held a hearing on the subject called "The SEC and the Issue of Runaway Executive Pay."

Testifying were Professor Graef Crystal of the University of California (Berkeley) School of Business Administration; Nell Minow, President of Institutional Shareholder Services Inc.; Ralph Whitworth, President of United Shareholders Association; and Robert Monks, President of Institutional Shareholder Partners Inc. and former Administrator of the Department of Labor's Office of Pension and Welfare Benefit Programs. Following that panel, Linda Quinn, director of the Division of Corporate Finance at the Securities and Exchange Commission, was on the firing line.

While the first panel was very one-sided, I know that the Business Roundtable and several CEOs (whose compensation packages have recently made headlines) were asked to testify, and declined.

Sen. Levin's introductory remarks can be summarized in this one statement: "It's one thing to have spectacular pay increases for spectacular performance. It's another to have spectacular pay increases for dismal, or even mediocre, performance. To make it worse - we have a system where government interferes with the right of shareholders to challenge these whopping pay packages." The latter reference was to the SEC.

New legislation

The bottom line of this congressional scrutiny: Sen. Levin plans to introduce legislation giving the SEC increased authority to allow, on the proxy, shareholder proposals that address the process, structure, and objectives of top executive compensation.

Last year, the SEC allowed some 30 shareholder proposals addressing golden parachutes to be placed on proxies. However, proposals dealing with executive compensation have previously been rejected, since compensation is considered "ordinary business" and not subject to shareholder vote in the proxy.

My reading of the May 15 Senate hearing, as well as discussions the National Investor Relations...