May 22, 2008
Say on Pay: A Bust?
The Wall Street Journal todays has a nice piece by Tom McGinty on shareholders resolutions that ratify executive pay. Investors in struggling banks do not seem to want to vote for the resolutions. I am not surprised. I suspect that what shareholders want is different than what the resolutions offer. Shareholders do not mind paying executives when they perform well; they do want to penalize executives once the market has discovered that the firm has been very poorly managed. I suspect a right to trigger "claw-back" provisions are closer to what shareholders really want -- the right to exact vengeance for economic pain. A resolution that would fit closer to what investors would support would set up a shareholder vote, triggered by a 20 percent stock price drop compared to under a relevant index for the year, that would allow shareholders to reclaim otherwise paid salary and benefits for the year.
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