The kleptocracy of corporate boards

Many corporations fight vigorously against unions, claiming that they would ask too much in pay.

But executives and board members of these corporations never seem to recognize that they have a union that determines their own pay.  I just checked the executive pay of Radio Shack - over $11 million for seven current and former executives for 2011.  The board of ten grants each of its members $150,000 in stock each year.  Talk about the foxes guarding the chicken coop.

Oh, yes, Radio Shack's stock dropped by a half over the past year.  The above compensation is not pay for performance but kleptocracy - rule by thievery.

I single out Radio Shack because its proxy statement is the latest that I read.  Corporation after corporation rewards their top executives and board members quite well regardless of how well the corporation fared.

If corporations are sending work to lower wage countries, why not send CEO jobs to countries like Sweden, Norway, France, or Belgium?  CEOs in these countries average a third of less the total compensation of U.S. CEOs.  See "CEO Compensation: US and other countries", Ben Lorica, last updated Oct 2011.  Better yet, why not export the CEO jobs to India or China?  I haven't checked, but I bet CEO pay is a lot lower than in Europe.

But things are changing.  Citigroup shareholders voted no on the CEO's compensation.  The shareholders of three other companies did likewise.  As of today, a search of "Executive Pay" yields many articles about the ongoing revolt against CEO pay - from unions to church groups to large investors.

P.S. See "Director pay: how high can it go?", footnoted*, Michelle Leder, 2012-04-13.

Racing to the top to reward the top

Bank of America is rushing to repay its government bailout funds, not because it has more money, but it doesn't want a government cap on CEO pay ("Bailout Refund Is All About Pay, Pay, Pay", Andrew Ross Sorkin, New York Times, 2009-12-08).

BofA and other large corporations want to pay their executives "competitively" to attract "top talent". My question is what has happened to "rising through the ranks"? Wouldn't people inside the company know more about running the company than an outsider? And if someone inside the company who was a real contributor, feeling shunted aside in favor of an outsider, quit to go elsewhere for a top job. This person would be contributing to the company's competitors and speeding the upward spiral of executive compensation.

Of course, if the board hires an outsider at a "competitive" salary, then they will have to pay themselves a competitive salary. I often think a board should work only for the long-term benefit of the personal investment they made in shares.

I think this behavior belies the myth of capitalism and free enterprise. Many corporations are run for the benefit of the top executives with employees, small shareholders, customers, and communities coming in a distant second.

See also my columns "Talk about Boards with Conflicts of Interest!", Reader Weekly, 2000-04-27 and. "Sauce for the goose is sauce for the gander", Reader Weekly, 2006-04-27.

But for the real clincher, see "Why Changing the CEO May Not Change the Company", Jason Zweig, Wall Street Journal, 2009-12-01. Hm! this sounds like a liberal opinion coming from the Wall Street Journal:) Note that the link may be temporary.