A Washington Post article this morning on the GM board provided insight into an issue that I don’t think The Post or other media have focused on nearly enough. This relates to culpability of boards of directors in not just the carmakers strategic decisions but those of banks as well. Have boards been AWOL on the collapse of the banking industry? And if so, why? Do boards have any real power? For example, is the decision to return TARP money one that CEOs can make without any board input, especially if the decision is largely for the purposes of protecting CEO pay?
A related issue is executive compensation. Is the relationship between directors and CEO pay incestuous? I believe directors are often compensated well for their minimal work. How well?
- Median total board compensation for S&P 500 firms is more than $2 million.
- Median total compensation for individual directors of S&P 500 companies is just under
$200,000.
Does that compensation then influence what boards agree to pay CEOs and other senior execs?
Opponents and critics point out that because the CEO’s pay is set by the board of directors and the CEO determines the board’s tenure, selection and committee assignments, and compensation consultants, an inherent conflict of interest occurs and effectively prevents effective price competition.
On the compensation issue, what evidence is there that the extravagant salaries and bonuses are necessary – as business leaders contend – to attract top talent?
“Our findings do indicate that compensation consultants are associated with companies that pay at levels higher than the market median. Further, these higher levels of pay are in general not associated with higher levels of shareholder return,” said Alexandra Higgins, Research Associate at The Corporate Library and author of the report.
Are huge compensation packages nothing more than boards trying to CYA from accusations that, should the company founder, they didn’t pay well enough to get the best talent?
I would welcome an article that examined these questions.
On an unrelated issue, the Post reporters include this line in their report.
Some critics characterize the White House’s removal of Wagoner as a move toward European socialism.
Are European markets such as those you find in Germany, France and Great Britain really closer to 1950s style Russian socialism or are they close to U.S. capitalism? Isn’t “European socialism” simply the term corporate apologists and Republicans want reporters to use?