What’s to be done about CEO compensation?

By David Owen

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ABSTRACT: THE WORLD OF BUSINESS about Nell Minow and the regulation of executive compensation. This past June, Minow was among a small group of experts who met with Treasury Secretary Timothy Geithner to discuss executive compensation. Mentions the public anger over bonuses paid out by A.I.G. and other financial companies after receiving bailout money from the federal government. Americans aren’t necessarily opposed to gargantuan pay packages, but injustice is another matter, and the nation’s ongoing financial crisis has provided numerous occasions for public fury. This summer, President Obama appointed Kenneth R. Feinberg, a Washington lawyer, as the country’s “special master” on corporate pay. In recent months, there have been calls for establishing a ratio between a C.E.O.’s salary and the average wage; for controlling the use of stock options; and for capping certain salaries. Minow argues for a different approach. She thinks the government’s efforts to control compensation directly are typically ineffective. Her preferred remedy is to allow the market to deal with most such problems, by removing impediments that prevent shareholders from playing the role that economic theory says they are supposed to play. “I want executives to create shareholder value, and I want them to earn a lot of money when they are successful. But I do not want them to be paid a lot of money when they fail,” Minow says. Executives currently have abundant opportunities to enrich themselves at shareholders’ expense, and to pursue business strategies that serve their own interests rather than those of their companies’ putative owners. Tells about Lens, an investment fund created by Minow and Robert A. G. Monks. In the mid-nineties, Monks and Minow scored one of their biggest successes, in a lengthy confrontation with Sears. Monks and Minow founded the Corporate Library in 1999. The company’s main product is a huge database which aggregates and analyzes public information about thousands of companies. The database is a manifestation of Monks’s and Minow’s conviction that the antidote to many forms of corporate malfeasance is full public disclosure. Mentions several prominent C.E.O.s, including Jack Welch and Robert Nardelli. Tells about the “compensation fairness” bill, which passed the House in July.