Corporate board members sit on compensation committees considering the compensation of corporate officers. The corporate officers, in turn, return the favor with lavish endorsements to their shareholders to elect and retain the most generous board members who vote for increasing their compensation.
In one representative example, corporate officers both submitted a compensation committee member for re-election and endorsed him: "The board has recommended shareholders re-elect Mr. X. He has served them well since 1999 and will continue to do so." A proxy statement they filed on behalf of the corporation -- on behalf of the shareholders? -- praised Mr. X as one who "offers deep insight into governmental affairs and the regulatory process, gained from" a record which did not list any specific encounters with reality, perhaps because there were few if any positive encounters to list. See Andrew Ross Sorkin, "Dealbook / 'Tainted,' But Sheltered On Boards" p. B1, col. 1 (New York Times Nat'l ed., "Business Day" Section, Tuesday, April 24, 2012).
There are many reasons that this arrangement is arguably unholy, that it is not in the best interests of the corporation or its shareholders. My concern here is to address one of those reasons. The board members have a Fiduciary Duty toward the shareholders of the corporation and so do the corporate officers. The cozy relationship between board members and corporate officers is nowhere more in conflict with the interests of the shareholders than in the arena of corporate compensation. Accordingly, here is the first step in a proposal which would eliminate that source of conflict in which the interests of board members and corporate officers are often preferred to the interests of their shareholders:
1. To completely eliminate the actual and apparent conflict of interest in this arena, completely eliminate the capacity of corporate officers to do anything more than nominate board members. They should no longer have the authority to do anything more than nominate board members for election or retention (which comes at corporate expense, not at their own expense in any case).
Then take another step:
2. Submit issues of compensation during the tenure of any corporate officer to a vote at an annual shareholder's meeting. Let the shareholders determine the amount of money that a corporate officer ought to receive for her or his job performance since the last time their compensation came up for a vote. In the case of a newly hired officer, allow the corporation's board to make a job offer of course including starting pay and benefits -- and then submit that offer, if accepted, to a vote at the next annual shareholder's meeting if the next meeting is scheduled to take place within the next 6 months, say, and if not, then no additional compensation will be considered or offered for 1 year or the next annual shareholder's meeting, whichever comes later.
I am sure that these proposals will not be pleasant for corporate compensation committees or for corporate officers.
If that is the only objection, I can live with that, as they say. I would be curious to receive whatever other objections there might be, though. I cannot imagine any valid objections but perhaps those more familiar with corporate governance and its hidden ways can enlighten all of us.
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