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Having a Say About Pay

May 27, 2009

1149867_army_of_dollars_1The Chicago Tribune had a good article in this past weekend’s Business section discussing the topic of shareholders voting on executive compensation levels.  I think this raises an interesting debate and one that will be gaining in popularity as we continue seeing the fallout from this financial crisis. 

At the center of the debate is the idea that there should be a limit to the amount executives can make especially when the company’s bottom line is dwindling and shareholders are losing massive amounts of money.  On the other side of the debate are the boards of directors who make the claim that if their particular company doesn’t have highly competitive pay structures they won’t be able to attract and retain key decision makers and CEO’s.

Motorola joined the growing list of companies willing to give their shareholders a say about executive compensation at their May 4 annual meeting.  More than a third of shareholders voiced a loud and disapproving no. 

So, can a company survive and thrive if they pay their executives less or do they run the risk of seeing top talent head for the door for more generous offers?

As I read the article, I couldn’t help but think of Costco’s CEO, Jim Sinegal who voluntarily takes a lower salary ($350,000 – compared to multi-millions of many CEO’s) preferring to keep his consumers and employees in mind.  “Our attitude is that if you hire good people and pay them a fair wage, then good things will happen for the company,” says Sinegal.  Costco has fared better than most companies during this economic downturn and in fact,  has not laid off any workers during this recession.

What is the answer to the growing concern about executive compensation?  To be sure, we will see more government regulation and a trend towards shareholders having a say.  Perhaps more CEO’s should take the lead like Sinegal and voluntarily take or even give back some of their salaries.  I think many of us would’ve liked to see that course of action taken by the AIG executives after their highly publicized corporate retreat taken shortly after receiving government bailout money.  Of course, that’s easier said than done.

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