| Activist’s crusade:
Curbing CEO pay
Public outrage over executive pay has reached the tipping point,
Richard Ferlauto says of the recent bailout.
Richard Ferlauto has spent the past 11 years in Washington working toward
just one goal: curbing what he sees as outrageously high CEO pay in
As the director of corporate governance and pension policy at the American
Federation of State, County and Municipal Employees, Ferlauto has led the
charge on behalf of unions in Congress after Congress, with very little
success to show for it.
But in the wake of the executive pay provisions in the $700 billion
financial bailout, Ferlauto believes the political ground has shifted
dramatically, and he’s readying an effort to extract even greater
concessions from corporate executives next year.
“This is the tipping point,” Ferlauto said. “Voters are seeking
retribution from the corporate elites who put them in this position.”
The $250 billion plan to inject liquidity directly into the banking system
contained some fairly dramatic curbs on corporate pay that affect the
compensation of chief executive officers, chief financial officers and a
firm’s next three highest-paid executives.
The financial institutions that accept government money will have to make
sure that their incentive plans don’t encourage executives to take
unnecessary risk — a factor that some have argued contributed to the
financial crisis in the first place — and will be prohibited from making
so-called golden parachute payments to top brass.
What’s more, the government has the right to “claw back” any pay that is
granted to an executive based on financial results that are later found to
be inaccurate. Additionally, companies aren’t allowed to take tax
deductions on executive compensation above $500,000 for each senior
Executives across the country are finding themselves under increasing
scrutiny. AIG officials, for example, found themselves pilloried in early
October for spending more than $400,000 to send employees to a retreat at
a luxury resort in California just a few days after the Federal Reserve
committed $85 billion to keep the insurance giant out of bankruptcy.
All that means the challenge for business next year may be staving off a
slew of new anti-corporate-pay initiatives from Ferlauto and his allies.
And the effort to cap executive pay may not end with the financial
“Everybody’s going to have to pay attention to it in this environment,”
said one Fortune 500 company lobbyist who plans to fight almost anything
Ferlauto’s side proposes. “Anybody who is not watching the signals that
are coming from Congress is just naive.”
What Ferlauto would like to see goes beyond limits for pay at companies
that accept taxpayer handouts. He’d also like to see investors empowered
with so-called say-on-pay rules that would put executive compensation to a
shareholder vote. He also wants to push for shareholders to have more
ability to put independent members on corporate boards of directors and
for limits on corporate ability to pay deferred compensation that’s
awarded not as salary, but only after the executive retires.
“Industry has been complacent,” Ferlauto said. “They haven’t understood
the widespread discontent and feeling that there was inequity that was
un-American in the way that profits were distributed.”
Industry, though, plans to fight any effort that would limit the free
market’s ability to determine executive pay.
Bruce Josten, a lobbyist at the U.S. Chamber of Commerce, argues that
Congress was wrong to impose any executive pay restrictions at all.
“If the Treasury is going to loan a bank $20 billion, don’t we want the
best possible person in that job?” he asked. “Or do we want the
$35,000-a-year candidate? If protecting the taxpayer is the goal, my
answer is get the best person you can.”
Still, Josten knows he’s going to hear a lot more about executive
compensation next year — particularly, he says, if Democrats control both
the White House and Congress. “We will continue to hear populist rhetoric
surrounding this issue,” he said.
© 2008 Capitol News Company LLC