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The Icahn Report, September 26, 2008 blog


Say On Pay

John McCain and Barack Obama finally agree on something: corporate accountability.

'Say on Pay' has become a hot topic in the 2008 elections and highlights our faulty corporate structure. 'Say on Pay' may be the first step in emphasizing to our political leaders how important corporate governance is to the United States economy.

The other day, I watched CNBC anchor Melissa Lee say, "…both presidential candidates railing against high executive pay at failed firms Fannie Mae and Freddie Mac and certainly the GSEs (are) not the only troubled firms giving multimillion dollar send-offs to departing CEOs. It has happened at Merrill Lynch, it has happened at Citigroup, the list goes on and on." Now executives at Lehman’s New York office that may be directly responsible for the world’s largest corporate bankruptcy are to share a $2.5 billion bonus courtesy of its deal with Barclays. Should a top executive pocket big bucks even if the company is failing?

Good question. The answer is NO.

Aflac, run by CEO Daniel Amos, became the first public U.S. company to allow shareholders a nonbinding vote on executive compensation. This is now referred to as 'Say on Pay.' Although shareholders did not secure the power to determine executive pay at Aflac, they did obtain the ability to present their views on compensation awarded the year prior. This might seem like a big improvement, but it is in actuality a baby step in the battlefield for improved corporate governance. Mr. Amos' comment, "it’s symbolic, but it’s an important symbol," is true but nonbinding clearly does not give shareholders much say at all.

The Say on Pay bill was passed by the House of Representatives on April 20, 2007 after being introduced by Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat. The Aflac vote was held at its May 5 annual meeting where 93% of shares were voted in favor of Say on Pay. With elections around the corner, it might be beneficial to highlight what candidates have said about Say on Pay and executive compensation:

Obama: Senator Obama introduced a companion bill in the U.S. Senate on the same day the House bill passed requiring public companies to give shareholders an annual nonbinding vote on executive compensation.

An Obama speech attacks CEOs "who are making more in one day than their workers are making in a year." He states, "It's about changing a system where bad behavior is rewarded so that we can hold CEOs accountable, and make sure they're acting in a way that's good for their company, good for our economy, and good for America, not just good for themselves."

The WSJ reports in an article entitled 'Candidates Target Executive Pay' that, "Obama staffers … renewed his request for Senate hearings on the measure. If the 'say-on-pay' bill doesn’t pass this year, 'it will be a priority for Senator Obama as president,' campaign policy director Heather Higginbottom says."

This past week Obama stated, "The American people should not be spending one dime to reward the same Wall Street CEOs whose greed and irresponsibility got us into this mess. Not one dime." CEO accountability is probably the only issue where Obama and I agree. But Obama should demand it be binding.

McCain: Sen. McCain joined in under his proposed reforms. BusinessWeek’s 'McCain Seeks Shareholders Say on Pay,' says the candidate believes that "all aspects of a CEO's pay, including any severance agreements, must be approved by shareholders."

McCain also takes a strong stance on corporate accountability: "Something is seriously wrong when the American people are left to bear the consequences of reckless corporate conduct, while the offenders themselves are packed off with another forty - or fifty million for the road. If I am elected president, I intend to see that wrongdoing of this kind is called to account by federal prosecutors."

In regards to Fannie and Freddie he states, "We’re looking at a costly government-led restructuring of our home loan agencies and we need to keep people in their homes, but we can’t allow this to turn into a bailout of Wall Street speculators and irresponsible executives."

I agree. I don’t think we should bail out irresponsible executives either.

Even Senator Hillary Clinton introduced a bill (S 2866) to the Senate on April 15, 2008 that would require a shareholder advisory vote on a company’s executive compensation package. In addition, it would revise Section 304 of Sarbanes-Oxley, which would surrender incentive-based or equity-based executive compensation if an issuer is required to restate an accounting statement due to misconduct, and to increase the observation period to 36 months from 12 months. The bill includes a definition of misconduct to incorporate the backdating of stock options and accounting irregularities.

Say on Pay is important for its acknowledgement of shareholder rights and for its placement of this issue on the national political scene. That is why I supported this first step by recommending Blockbuster's adoption of Say on Pay. This should lead to legislation with real substance; legislation that will protect the shareholder franchise and ultimately strengthen the management teams that run the greatest engines of our U.S. economy – public corporations.

Join the campaign.


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