A Marketplace of Ideas?

Posted by Marc Hodak on November 10, 2008 under Executive compensation | Read the First Comment

When got back to my office, I got a message about an invitation from the Drum Major Institute to attend a panel discussion they’re having on “Say on Pay.” Here is the blurb from their web site:

As compensation for top corporate managers has skyrocketed, even executives who mismanage their companies or demonstrate mediocre performance often receive lavish pay. Blockbuster Inc., led by CEO James Keyes, is at the forefront of efforts to provide greater accountability to shareholders. In March 2008, Blockbuster’s Board of Directors voted to grant shareholders an annual non-binding vote on executive compensation. Beginning in 2009, shareholders will directly advise the board on whether they approve of the pay levels of the company’s top executives. A majority of Blockbuster shareholders, headed by the New York City Employees Retirement System, first called for a ‘say on pay’ in 2007. In Britain, laws requiring say on pay have been credited with reining in exorbitant CEO retirement packages. A small number of other U.S. companies, including AFLAC and Verizon, have also adopted the reform.

Well, I think it’s clear that this narrative presupposes that CEO pay is too high (my read of “lavish”) because of a lack of accountability at the board level, and that “Say of Pay” can provide that missing accountability. In medicine, prescribing a cure without regard to the validity of the diagnosis would be called “quackery.” In politics, it is often called “good governance.”

I was struck by a couple of sentences in particular:

“Shareholders will directly advise the board…” This strikes me as sloppy language. In what sense does a group vote on a complicated package “advise” another group?

“In Britain, laws requiring say on pay have been credited with reining in exorbitant CEO retirement packages.” I’d guess that if I said that “warrantless wiretapping has been credited with preventing further attacks on the U.S,” the Drum Majors would have a little problem with that. They might say that’s merely an assertion without any basis in fact. Well, it is. The real problem is that theirs is a dubious assertion without any basis in fact. In fact, CEO pay in the U.K. has risen as fast as in the U.S. since the passage of their “Say on Pay” law. Why? I don’t know, but that would be what one would expect of a “cure” if the diagnosis was wrong.

But my real problem with this event series is how it’s billed: “A Marketplace of Ideas.” The top banner quotes Andy Stern, SEIU President, saying, “Few places actually honor dialogue and debate. I thank DMI for being one of those places.”

To me, a marketplace kind of suggests a variety of things to be exchanged. There can’t be any transaction if everyone is saying “bid…bid…bid…bid…” There has to be an “ask” in there somewhere. What kind of variety is there on this panel? What sides on this “Say on Pay” dialogue or debate will the panelists take?

JAMES W. KEYES, Chairman & CEO, Blockbuster Inc.: For
HON. WILLIAM C. THOMPSON, New York City Comptroller: For
TIMOTHY SMITH, Senior Vice President, Walden Asset Management: For
VONDA BRUNSTING, Assistant Director, SEIU Capital Stewardship Program: For
ANDREA BATISTA SCHLESINGER, Executive Director, Drum Major Institute for Public Policy: For

Is it possible they couldn’t find a single person against Say on Pay? Or is this an Institute where everyone must march to the same drum.

I think I’ll pass.