Administration, Congress Seek to Rein in Exec Pay

Abstract:  The presence of significant shareholders on the compensation committee (i.e., those with share stakes in excess of 5 percent) is associated with lower CEO pay and higher CEO equity incentives. Firms with higher paid compensation committee members are associated with greater CEO compensation and lower incentives.

Administration, Congress seek to rein in exec pay

• Jim Kuhnhenn, Associated Press Writer
• On Thursday June 11, 2009, 3:04 pm EDT

WASHINGTON (AP) -- The Obama administration struck a delicate balance on executive pay Thursday, blaming flawed compensation packages for encouraging disastrous risk-taking but insisting it doesn't want to dictate how corporations reward their top people.

Gene Sperling, a top counselor to Treasury Secretary Timothy Geithner, conceded to a congressional committee that imposing compensation caps on companies could lead to a flight of talent.

"I can say with certainty that nobody in the Obama administration is proposing such a thing," he said.

Yet, at the same time, he and officials with the Federal Reserve and the Securities and Exchange Commission laid out a case for how payment structures rewarded short-term gains at the expense of long-term performance and contributed to the nation's financial crisis.

The administration plans to seek legislation that would try to rein in compensation at publicly traded companies through nonbinding shareholder votes and by decreasing management influence on pay decisions.

But some Democrats on the House Financial Services Committee said Thursday the administration's efforts to hector the private sector into reforming executive pay might not go far enough.

"I do differ with the administration in that hope springs eternal and their position seems to be that if we strengthen the compensation committees we will do better," said the committee chairman, Rep. Barney Frank, D-Mass.

Rep. Brad Sherman, D-Calif., said that shareholders' votes on pay should be made binding on boards of directors.

Still, Frank made it clear he did not wish to impose pay caps.

"We are not talking here about the amount. We are talking here about the structure of compensation," he said. "And I believe the structure of compensation has been flawed."

While the administration has approached the issue too cautiously for many Democrats, a top Republican said its plans amounted to "incessant government intervention."

"The president cannot continue his heavy-handed meddling in the private sector and expect it to function, much less flourish," said Rep. Tom Price of Georgia, chairman of the Republican Study Committee.