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Reuters, March 8, 2007 article


UPDATE 1-CEOs' group hits US bill on shareholder pay votes
Thu Mar 8, 2007 6:07PM EST

(Adds Cleaver, Castellani, Davis, Cox, background)

By Kevin Drawbaugh

WASHINGTON, March 8 (Reuters) - A corporate CEOs lobbying group on Thursday criticized as misguided a bill to give shareholders the right to vote on executive pay packages, marking the latest U.S. congressional attempt to tackle the perennial issue.

The House of Representatives Financial Services Committee is considering "say on pay" legislation in response to a recent round of headline-grabbing revelations about huge compensation packages.

The bill introduced by Massachusetts Democrat Barney Frank would give shareholders the right to cast annual, nonbinding advisory votes on executive compensation plans.

It would also let shareholders vote on any "golden parachute" packages for executives if a company is sold.

The bill is set for further committee action on March 21.

John Castellani, president of the Business Roundtable, told the House panel on Thursday that the bill is a bad idea.

"Corporations were never designed to be democracies," Castellani said. "While shareholders own a corporation, they don't run it .... We do not support this proposal."

Castellani's group represents 160 major corporation CEOs and is one of Washington's most powerful interest groups.

Median U.S. CEO pay in 2005 was $13.5 million, up 16 percent from 2004, said Corporate Library, a research group.

Viewed another way, in 2003, the average CEO got roughly 500 times as much pay as the average worker, compared to a multiple of 140 in 1991, said Harvard Law School Professor Lucian Bebchuk.

Republican Spencer Bachus of Alabama expressed concern.

People worry that boards and CEOs "are sort of all in collusion, and all taking care of each other, but in the process the average employee is not being taken care of .... They wonder about the equity of it," Bachus said.

Executive pay is a long-standing issue in U.S. business, resurfacing each spring when companies report compensation packages awarded to top managers in the previous year.

This year, critics have focused on a $210 million pay package awarded to Robert Nardelli, former CEO of retailer Home Depot Inc. (HD.N: Quote, Profile, Research), and a $198 million package given to Hank McKinnell, former CEO at drugmaker Pfizer Inc. (PFE.N: Quote, Profile, Research).

Democrat David Scott of Georgia said "obscene pay packages" were undermining U.S. economic trust.

"Corporate executives should certainly be adequately compensated. However, I am concerned that executive pay has become dangerously outsized," Scott said.

Castellani replied that corporations in the past five years have improved corporate governance practices. He said Business Roundtable urges companies to link pay to performance. But he said pay issues are best handled by boards, not shareholders.

"We think that any (shareholder) advisory vote would seriously erode board responsibilities," he said.

The U.S. Securities and Exchange Commission last year imposed new pay disclosure rules on U.S. corporations.

"Say on pay" votes are now commonplace in Britain. Rather than damaging companies, they have improved manager-shareholder relations, said Yale School of Management Professor Stephen Davis. "Advisory votes on executive pay policies are rational, timely, road-tested and practical for use in the United States," he said.

Separately, SEC Chairman Christopher Cox said the agency plans to electronically tag executive compensation data released in corporate proxy statements. In June, the SEC will post on its Web site a link allowing the public to compare compensation data for several hundred of the largest companies, Cox said.

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