New rules would stop short of CEO pay caps

Ralph Walkling, executive director of Drexel University’s Center for Corporate Governance and a professor of finance, said his research has shown that executive compensation does tend to drop when shareholders give a lower percentage of votes to compensation committee board members. Besides simply selling their shares, that is the most overt way shareholders can show now that they are dissatisfied with how pay is being doled out.

Lewin said those companies that have voluntarily asked shareholders to vote on pay packages also, by and large, offered a more comprehensive discussion of how they calculated the  packages. Still, she thinks it’s too early to say whether the “say on pay” proposal would be effective, if it became law.

In addition to the “say on pay” plan, the Treasury also is proposing tougher standards for ensuring the board committee that determines executive pay is made up of independent directors, who have their own budget and authority to hire consultants and lawyers.

The Securities and Exchange Commission also is proposing changes that would require companies to tell shareholders more about how the company manages risk, chooses board members and determines executive pay. But in a statement, SEC Chair Mary Schapiro took pains to say that the regulators had no intention of limiting what an executive can make.

“At the SEC, our role has not been to set pay scales or cap compensation. Our role is to protect investors by ensuring that they have the information needed to make sound investment decisions, whether those decisions impact proxy voting or a decision to buy or sell a stock,” Schapiro said in the statement.

Still, even the Obama administration’s more self-directed approach could have unintended consequences. Some compensation experts believe government regulations requiring executives to more clearly disclose their salaries and other forms of pay had the side effect of actually raising executive pay, since competing executives were more easily able to compare themselves to other CEOs and demand a commensurate salary.

“I think many times when the government tries to legislate economics (it) fails, just in the same way that often you can’t legislate forces of nature,” said Walkling said.

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