Leo Hindery Responds to Rep. Alan Grayson Request on Exec Compensation


hindery and bohrman.jpgLeo Hindery and CNN Washington DC Bureau Chief David Bohrman at New America Foundation Dinner; photo credit; Sam Sherraden
Matt Stoller from Representative Alan Grayson‘s (D-FL-08) office put out a public request for comments about executive compensation related legislation that Congress will soon be considering.
I asked InterMedia Partners Managing Director Leo Hindery to respond as this is a subject he has spoken about frequently. Hindery is the former CEO of AT&T Broadband Networks and former CEO of the Yankee Entertainment Sports Network. He also Chairs the US Economy Initiative at the New America Foundation.
Leo Hindery writes:

Steve: This is a very important piece and I appreciate the reference.
President Obama was absolutely right a couple of weeks ago when he demanded that the compensation of the executives, managers and traders at the failed financial institutions that received bail-out cash be scrutinized by a new “oversight council”. He was right because these are the people who saddled the rest of us with a staggering $2.8 billion or more of trading and credit losses, and yet wanted to be paid as if everything was just swell.
But he and especially his advisers were wrong not to impose specific limits on executive compensation, rather than (mostly) just guidelines. They were especially wrong not to enact permanent limits that apply to all regulated financial institutions and all public companies.
The evidence is clear that excessive executive and management compensation lies at the root of all corporate crimes and misbehavior, of most of corporate America’s inattention to creating and preserving high-quality domestic jobs and fair overall employee compensation, and of almost all of the recent massive trading and credit losses.
In his speech, Obama also said that government’s “role is not to disparage wealth, but to expand its reach”. He absolutely should have added that its role is also to “ensure wealth’s fair and equitable distribution”.
For the 35 years following the end of the second world war, CEOs generally viewed responsible and fair business behavior as a critical component of the American dream. And during all those years, and in fact during most of the past century, corporate leaders in the US earned 20 to 30 times as much as their average employees. Even today, the ratio of chief executive pay to average employee earnings in all other main developed countries has remained near this level. The ratio is still only about 22 times in Britain, 20 times in Canada and 11 times in Japan.
Beginning in the 1990s, however, many US executives, with the complicity of their boards, began to treat management as a separate constituency, often the primary one. Suddenly, fair executive compensation was abandoned in hundreds of corporations and financial institutions.
In America now, the average public company chief executive earns an almost unbelievable 400 times what his average employee makes, and his officers and senior managers aren’t far behind in their own compensation. And now we know that executives and senior managers in the financial services industry drink just as heartily from the same frothy trough.
Obama and Congress need to enact three changes in executive and management compensation practices, not just hope, as one of his senior advisors recently said, that some (not even all) corporations will voluntarily “assess risk induced by [their] compensation practices”.
First, Congress needs immediately to grant public shareholders the right to call shareholders’ meetings, to vote out the current board and to pass binding (not simply advisory) votes on executive compensation.
Second, Congress should establish, for all public companies, a ceiling on individual executive compensation as a reasonable multiple of average employee compensation – say, 35 times – and then penalize through tax policies those companies that elect to pay anyone in excess of this multiple.
Third, Congress should empower the Treasury to oversee the compensation practices of any entity that is regulated, whether or not it currently relies on government guarantees. This should apply to employees at the individual trader level, too.
— Leo HIndery

These are Leo Hindery’s own views. Interestingly, he wrote a book some years ago titled It Takes a CEO: It’s Time to Lead with Integrity in which he also discusses the executive compensation challenge facing the country.
— Steve Clemons


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