The Shareholder ForumTM


"Say on Pay" Proposals

Forum Home Page

"Say on Pay" Home Page

Program Reference


For details of the rules addressed in the posting below and other observations on their application, see


Bloomberg, February 9, 2009 column


Obama’s $500,000 Cap Feels Great, Does Nothing: Graef Crystal

Commentary by Graef Crystal

Feb. 9 (Bloomberg) -- I’m in a time warp. I keep hearing Howard Beale from the movie “Network” screaming, “I’m mad as hell, and I’m not going to take it any more.” Yet when I open my eyes, I find myself looking not at Beale but at President Barack Obama.

Our new president has worked himself into a lather over the way senior executives have been paid at major financial institutions, particularly those that have received gargantuan government assistance.

Last week the Obama administration issued new regulations designed to curb executive pay while at the same time avoiding unnecessarily risky incentives.

Bottom line: The new rules do neither.

The regulations distinguish between gargantuan borrowers such as American International Group Inc., Bank of America Corp. and Citigroup Inc. and lesser debtors.

Senior executives at the big institutions (probably the top five who appear on proxy statements) can’t receive annual compensation (probably salary and bonus) of more than $500,000 a year.

By itself, that’s tough. So tough that my first impulse was to figure out a way to short the New York City real estate market -- and the Hamptons while I was at it.

“But wait,” as the gadget hawkers say on TV commercials. Those senior executives can receive as much restricted stock -- free shares -- as their boards want to give them.

Doughnut Diet

This is akin to admonishing a teenager that he has to lose weight and therefore can no longer buy Big Macs and fries, only to turn a blind eye as he consumes endless amounts of pizza and donuts.

So I may have to limit your cash pay at $500,000, but I can give you $100 million of free shares.

“But wait.” Those free shares come with a catch. The government has to be paid back before they vest, something that may not occur for years or may never occur.

“But wait.” There’s an escape clause buried in the new regulation. The shares can be allowed to vest “after a specified period according to conditions that consider among other factors the degree a company has satisfied repayment obligations, protected taxpayer interests or met lending and stability standards.” Whatever that means.

Then we have an “earmark” in the regulations, one sponsored by some in the corporate-governance priesthood. It’s a requirement that a company allow shareholders a “say on pay.” The priesthood figures that if shareholders can express their opinion on the subject, boards will pay attention.

No Limits

But these resolutions are non-binding. Lawyers call this arrangement “precatory,” after the Latin word for prayer. You can pray to the Lord, but He might not hear you. In this case, you can pray to your board, and if past behavior is any guide, it definitely won’t hear you.

Then, for companies receiving financial assistance from the government, other than the really big borrowers, there is no limit of $500,000 in cash and, indeed, no limits at all, provided you disclose everything and the shareholders get their say on pay.

The government has also weighed in on perks. Here’s a further proof of the old maxim: “The generals are always fighting the last war.”

Corporate Jets

Perks -- like flying your wife and children with you on corporate jets as well as elaborate security services, no doubt designed to protect you from your shareholders -- have been much in the news of late. First, we had the Detroit auto chiefs winging their way to Washington on corporate jets, where they changed into their poverty costumes and marched into a congressional hearing room waving signs that read “Will work for food.” More recently, we have news of Citigroup Inc. about to take delivery of an expensive jet.

And then there’s Sandy Weill, the retired head of Citigroup traveling with his family on a luxury company jet, outfitted with pillows made from Hermes scarves. Maureen Dowd of the New York Times unearthed that one.

So the generals are all over perks, which, at bottom, are small potatoes in the context of the overall senior executive pay package.

“But wait.” You can still give all the perks you want so long as you disclose your perk policy to shareholders and give them a say on pay.

Boom for Lawyers

The government wants companies to avoid really risky incentives, which is why stock options have been taken off the kosher-food pay menu. But who do you think is going to be attracted to a pay package that limits cash compensation to $500,000 and then offers dazzling numbers of restricted shares that will make one rich, but may also never pay off at all? A risk-taker is who.

There is one good thing about all these regulations. Even before Obama has been given an economic stimulus bill to sign, he has found a creative way to create more jobs -- jobs for lawyers, jobs for accountants and jobs for pay consultants.

I think the president is on to something. The entire U.S. economy may be lifted out of recession simply by creating more and more regulations of this type.

(Graef Crystal is a contributor to Bloomberg News. The opinions expressed are his own.)

To contact the writer of this column: Graef Crystal in Santa Rosa, CA at at

Last Updated: February 9, 2009 00:01 EST





This Forum program is open, free of charge, to anyone concerned with investor interests relating to shareholder advisory voting on executive compensation, referred to by activists as "Say on Pay." As stated in the posted Conditions of Participation, the Forum's purpose is to provide decision-makers with access to information and a free exchange of views on the issues presented in the program's Forum Summary. Each participant is expected to make independent use of information obtained through the Forum, subject to the privacy rights of other participants.  It is a Forum rule that participants will not be identified or quoted without their explicit permission.

The organization of this Forum program was supported by Sibson Consulting to address issues relevant to broad public interests in marketplace practices, rather than investor decisions relating to only a single company. The Forum may therefore invite program support of several companies that can provide both expertise and examples of performance leadership relating to the issues being addressed.

Inquiries about this Forum program and requests to be included in its distribution list may be addressed to

The information provided to Forum participants is intended for their private reference, and permission has not been granted for the republishing of any copyrighted material. The material presented on this web site is the responsibility of Gary Lutin, as chairman of the Shareholder Forum.