The Unitary Executive is alive and well. Yet, it looks like a punch drunk fighter as it swings wildly at executive incentive pay. Corporate boards set pay for executives. Shareholders infrequently get a vote on establishing a stock incentive program for directors/executives.
Today President Obama appointed a Pay Czar. The NYT reported:
The Obama administration on Wednesday appointed a compensation czar who will have broad discretion to set the pay for 175 top executives at seven of the nation’s largest companies, which received hundreds of billions of dollars in federal assistance to survive.
The Obama team had options in impacting pay. First, it can appoint Board members that would then vote on pay packages. Or it could impose pay requirements as a condition of government investment, at the time of the deal.
It didn't. Pay restrictions came long after equity injections. In this regard, Tim Geithner (NY Fed President & Treasury Secretary) looks arbitrary. The Obama administration looks schizophrenic as it reins in executive pay while proposing "pay for performance" as the solution for health care and education ills.
In another odd move, Treasury Chief Tim Geithner offered the Obama solution for dealing with executive pay outside government supported institutions. Reuters reported:
Treasury will ask Congress to pass two pieces of legislation giving the SEC authority to force companies to give shareholders a non-binding vote on pay packages for top executives and to make internal pay committees that set pay levels and perks more independent from management.
A non-binding vote on pay packages? President Obama limited this to publicly traded firms. Private firms, like private equity underwriters, continue their free pass. The Obama plan provides a subtle incentive for public firms to go private to avoid executive pay scrutiny. Another gift for the PEU boys?
Tim Geithner just criticized shareholders for not reigning in executive pay:
Boards of directors and shareholders “did not do a good job” overseeing pay policies, the Treasury secretary said.
Once I learned the severe limits of extrinsic motivators and their ability to suboptimize organizations, I voted against every proxy proposal on incentive pay.
I'm afraid Boards are part of the excess compensation problem. Between their huge pay and stock awards, I don't see compensation committees as independent. Virtually every proxy statement shows a pay methodology (a comparison group, a complex pay formula) and a belief in pay for performance. Both do harm.
Theory is needed. Dr. W. Edwards Deming and Alfie Kohn have much to teach our suboptimal leaders. Congress and the Unitary Executive look foolish as they pursue "practical change." Will they ever learn?
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