Whose job is corporate governance? U.S. corporations, their shareholders and the federal government are grappling over which entity should govern certain practices and procedures of businesses--corporate management, directors, investors or government laws and regulations.

• Author: Sweeney, Paul
• Position: COVER STORY

The once-mighty United States corporation is at a crossroads.

As the worst economic crisis since the Great Depression has humbled a slew of proud U.S. companies--General Motors Corp., Chrysler LLC, Merrill Lynch & Co. Inc., Lehman Brothers Holding Inc., American International Group Inc. among them--the fundamental structure of the American business system is growing increasingly unrecognizable.

Perhaps the most profound change has been the dramatic shift in the historic relationship between the private business sector and the U.S government. Taxpayers now own 80 percent of giant insurer AIG and government regulators at the U.S. Treasury and the Federal Reserve have spent billions upon billions of public dollars to prop up failing banks and Wall Street investment firms.

And even healthy financial-services companies like Morgan Stanley and The Goldman Sachs Group Inc. have been told to accept government funds through the Troubled Asset Relief Program (TARP) to strengthen their capital position, whether they wanted the money or not.

GM, whose chief executive, Rick Wagoner, was forced out by President Barack Obama in late March, has received $13.4 billion in federal bailout loans and Chrysler $4 billion, with orders to restructure this spring or face bankruptcy. Indeed, corporate bailouts, forced mergers and bankruptcies have been occurring at such a dizzying pace that it's difficult to keep track without a scorecard.

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For the citizenry who must ultimately foot the bill, the arcane complexities of subprime mortgage loans, securitization and the apocalyptic hazards of such instruments as credit default swaps are virtually unfathomable. But the public has had no trouble comprehending executive compensation and corporate jets.

Ever since reports of outsized pay packages in the form of salary, bonuses, stock rewards and perquisites reaped by top executives at failing financial and industrial firms, the issue of executive compensation has not only provoked headlines and public outcry, but it's garnered the attention of Congress.

The outrage over the federal government's paying $165 million in previously contracted bonuses to top executives at insurer AIG--which was the recipient of $180 billion in government aid--came to a head on March 19. According to Reuters, the House approved--by 328 to 93-a 90 percent tax on bonuses paid to executives at companies receiving taxpayers' help. (At press time, tempers had cooled some and the Senate had not taken up the House bill.)

In addition, Congress has injected itself into executive compensation issues in the middle of the proxy season. As part of the stimulus package passed on Feb. 19, Congress is now requiring some 400 companies receiving government funds in TARP to permit shareholders what is known as a "say on pay" vote on executive compensation.

No. 1 Shareholder Concern: Executive Compensation

Indeed, as corporate America convenes its season of annual meetings in posh hotels and cavernous auditoriums--Wal-Mart Stores Inc. typically holds its pep-rally-style meeting at the Bud Walton Arena in Fayetteville, Ark.; Warren Buffett's Berkshire Hathaway Inc. opts for the Qwest Center in Omaha, Neb.--the question of what's viewed as excessive executive pay is increasingly emerging as shareholders' No. 1 concern.

To some corporate governance experts, there's a strong sense of deja vu. "Every year people ask what the big issue in corporate governance will be, and it's always executive compensation," says Robert McCormick, chief policy officer at Glass, Lewis & Co., a San Francisco-based shareholder advisory firm.

Adds Steve Wagner, managing partner at Deloitte & Touche's Center for Corporate Governance: "Executive compensation is the lightning rod for the crisis in confidence in corporate America."

In almost any other year, for example, several issues that might be gaining more visibility include shareholder resolutions calling for greater accountability through the installation of a nonexecutive board chair, proposals seeking a majority vote for directors and "proxy access" proposals empowering shareholders to nominate directors.

But even the "vote no" campaign against boards of directors, the decision-makers on executive compensation packages, is closely linked to pay concerns.

For example, the highest paid chief...