democratic front-runners target lavish CEO pay

Posted on May 12, 2007

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So all three Democratic presidential candidates front-runners Hillary Clinton, Barack Obama and John Edwards agree on something.

Senator Obama has recently introduced a measure that’d allow shareholders of publicly-traded companies to hold annual, non-binding votes on executive pay, and the other two candidates are jumping on the bandwagon by promising support for the bill, Bloomberg reported.

On paper, it can’t go wrong. It’s a populist step that will only endear them to the majority of voters. After all, the last few years’ highly-publicized financial scandals and staggering payouts for CEOs, even those who have ran companies into the red, have provoked indignant reactions.

If passed, notice the bill really only gives shareholders non-binding votes. Companies are not obliged to honor those votes. So it remains to be seen if the bill achieves very much more than just making Obama seem like a champion of minority shareholders.

While it is true that some executives have been paid excessively, it’s ultimately an issue that ought to be determined by private forces like the companies’ boards – not Congress. If the US is a true proponent of free trade, it is an area the legislative arm should stay out of.

What the bill might do instead, would be to deprive public companies of exceptional executives. They might opt to work in foreign-listed companies or privately-held ones.

Talent of that level is highly mobile. With places like London rising as a serious threat to New York as the world’s premier financial center, it’d be easy for a highly-prized executive to vault over the pond to work in other jurisdictions with less sticky rules.

Meanwhile, why are the three targeting just CEOs? What about entertainment industry types like film moguls, celebrities or even sports stars? Or attorneys? Aren’t they also paid way above the average American salary and perpetuating the income gap and inequality the three candidates claim to deplore and hope to rectify?

Perhaps the candidates ought to be mindful of biting the hand that feeds them, that is, in fundraising. Who’s going to donate the million-dollar checks for their campaigns if their own paychecks were curbed? Even if the bill doesn’t pass, will CEOs forgive and forget?

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Posted in: business, politics, US