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SEC cracks whip on executive pay disclosures

The Securities and Exchange Commission recently began sending instructions to more than 300 public companies that will require them to more fully disclose executive compensation packages. The disclosures will need to be written in "plain English," and must sufficiently describe performance incentives.

The goal is to provide shareholders with a more transparent view of the companies they invest in and how they compensate their executive employees. It is also hoped that such rules will help reign in the insanely inflated compensation packages that CEOs make in the U.S. From a Guardian piece on the subject:

A typical chief executive of a Fortune 500 company took home $10.8m (5.3m) last year. That figure is more than 364 times the pay of an average employee - meaning bosses earn in a day what staff make in a year.

According to research published this week by the Washington-based Institute for Policy Studies, the 20 highest-paid US executives made $36m each, which is triple the $12.5m received by the cream of Europe's corporate crop.

Among the top earners were Merrill Lynch's chief executive Stanley O'Neal, who received $91m, Edward Whitacre of the telecoms firm AT&T who got $60m and the Occidental Petroleum president Ray Irani who enjoyed $55m.

Gadzooks! That's a lot of money... Another Guardian piece on the topic highlights Pfizer CEO compensation (they also received a letter):

Pfizer's chief executive, Jeffrey Kindler, took home $9.8m last year including personal use of a private jet valued at $122,388 and financial counselling worth $10,000. The drugs company's previous boss, Hank McKinnell, left in 2006 with a payoff worth nearly $200m.

I don't know much about Pfizer, except that they make a lot of drugs, and a lot of money. I also know they used to be one of the largest employers in my adopted home town of Ann Arbor, but recently shut down all their operations here, eliminating more than 2,000 jobs and one of the town's largest sources of tax revenue. Businesses have to make those kinds of decisions sometimes, I know. But I wonder what part of the CEO's compensation package was tied to cutting "unnecessary overhead" or some other euphemism for the massacre we saw here.

I've said it before, but I'll say it again: I don't really care how much CEOs make, as long as their income is appropriately taxed. If we went back the marginal income tax rates of the 1950s and early 60s - 90% for the biggest wage earners - I'd be happy to see a larger portion of their pay flow into federal government coffers. They are, after all, benefiting from the American system and way of life in a manner beyond the wildest dreams of most of us.

In a review of Robert Reich's new book, Supercapitalism, Stephen Kotkin offers another suggestion for reigning in executive pay:

Capping executive compensation is liable to be rejected as un-American, which it is. So here's my suggestion: a legally binding maximum on C.E.O. multiples of their own workers' salaries. Let's pick a multiple of 300, well above the historical average. If chief executives want to be paid hundreds of millions, and boards comply, no problem; the C.E.O.'s task would be to figure out how to pay the company's lowest worker hundreds of thousands.

That would be supercapitalism. Chief executives could devote their formidable talents to raising the skills and living standards of loyal work forces and avoiding the huge self-imposed costs of labor turnover, rather than gaming quarterly reports. Shareholders would remain empowered to invest or divest based on performance.

I'd sign on for that.

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