Say on Pay 2010

No Parsley Allowed

Irving S. Olds, chairman of U.S. Steel from 1940-1952, once opened a speech by declaring, “Directors are like the parsley on fish – decorative but useless.”

Why do I resurrect such an appalling statement? Because one issue that fundamentally determines how parsley-like board members are is compensation.

For far too long – even during brief bursts of reformation – boards have been criticized for being more decorative than useful in the rigorous crafting and application of pay for performance policies.

Events of this past year have cast a particularly harsh spotlight on pay abuses. The country had a collective coronary over the bonuses paid at AIG, which seemed to be unjust reward for a company that almost sank the financial system.

If you want to know where the parsley will be meeting the road in the months ahead, look no further than the list of “10 of the Worst CEO Pay Practices” just issued in mid-April by the AFL-CIO’s Executive PayWatch monitoring website (www.paywatch.org):

Starting focus section

To start this section for directors with two strong views, you'll see posted below first a recent editorial by the publisher of Directors & Boards questioning the broad application of say on pay, and then a recently republished article was actually presented originally in 1994 by a respected corporate leader who was raising the same questions then that many of you are asking today about executive compensation.

‘Say on pay’: A populist, but misguided, notion

If shareholders are unhappy with executive compensation, there’s a better way for them to get their message across.

By Robert H Rock

This 'letter from the chairman' is from the September 2008 issue of Directors & Boards

Throughout this election season the two presumptive presidential candidates have been highlighting their differences; however, on one thing they do agree – ‘say on pay,’ the corporate governance initiative that gives shareholders a vote on executive pay packages.

Both Barack Obama and John McCain are vigorously supporting proposed legislation mandating a nonbinding resolution on the ballot at each annual meeting asking for shareholder endorsement of executive compensation practices. The legislation passed the House of Representatives by a 2-1 margin, and a similar bill, introduced by Sen. Obama, is awaiting action in the Senate. Not to be outdone, Sen. McCain came out with an even more far-reaching endorsement, suggesting that the shareholder vote be binding, not merely advisory.

Slow down the CEO gravy train

Some form of special leadership is called for as those at the top of the pyramid continue to pull away from the rest of the American people.

By George M Keller

Ed. note: It is not common to get a senior corporate leader to critique top executive compensation – especially to boldly admit that CEOs are overpaid. George M. Keller did so in Directors & Boards in an article he authored in 1994. By then he had retired as chairman and chief executive officer of Chevron Corp. His legacy included executing the largest corporate takeover at the time – the acquisition of Gulf Oil Co. in 1984, a deal that transformed Standard Oil Company of California, which he had joined in 1948, into Chevron Corp. Keller died in October 2008 at the age of 84. Following is an excerpt from his remarkably candid – and prescient – article, as pertinent to today’s situation as when it first appeared 15 years ago. At the time of the article’s publication, he was a director of Boeing Co., First Interstate Bancorp, McKesson Corp., Metropolitan Life Insurance Co., and Chronicle Publishing Co., and served as chairman of four compensation committees. – James Kristie