Daily Blog: The Movement Against CEO Pay

Sort of an interesting article in today's Wall Street Journal about the alliances developing among various players opposed to the obscene CEO pay packages.

These activists sometimes form loose networks to share strategies and lobby for each others' causes. A few are uncomfortable with the "activist" label. John A. Hill, chairman of the board of trustees at mutual-fund giant Putnam Funds, says he joined the debate partly because he didn't "want to cede the terrain" to traditional activists with little business background.

Some are driven by professional motives, others by political ones. Uniting them all is distaste for large exit packages given to ousted chief executives and recent revelations about rigged stock options. Executives who collect sky-high pay despite poor corporate performance are a particular target. Unlike the public grandstanding common to some activists in the past, this crowd prefers to work behind the scenes, often through persuasion rather than confrontation.

Who are they?

In late 2003, Berkeley, Calif., lawyer Jesse Brill received an email from a compensation consultant urging directors to "tally up" what they would owe a departing CEO. The message followed Dick Grasso's resignation as CEO of the New York Stock Exchange amid a furor over his $187.5 million compensation package.

Mr. Brill, who has been publishing newsletters about corporate law since the 1970s, seized the idea. He suggested directors include current and future compensation, and dubbed the result a "tally sheet." Then he aggressively promoted the notion to the 30,000 readers of his newsletters and Web sites, who include corporate lawyers, pay consultants and directors.

And...

Harvard Law School Professor Lucian Bebchuk is one of the intellectual engines of the pay-restraint movement, producing studies arguing that weak boards are paying executives without regard to company performance...

In 2000, Mr. Bebchuk, who holds doctorates in both law and economics, began working on compensation issues, using as a base his previous work on boards' lack of accountability during takeovers. In 2004, he co-wrote a book, "Pay Without Performance," which criticized boards for offering CEOs sizable pay deals.

"I view the problem of executive pay as being partly the product of excessive insulation of boards from shareholders, and the weakness of shareholder rights," says the Polish-born, Israeli-raised academic, whose gold-rimmed glasses perch halfway down his nose.

Mr. Bebchuk, 51, is playing a pivotal role in promoting a tactic for curbing compensation: revising corporate bylaws, the rules that govern companies' internal affairs. Last year, he submitted amendments at two companies, including Home Depot, that would have required more disclosure about pensions. Each received more than 40% of votes cast, a significant tally, albeit a losing one. This year, he proposed bylaws at four companies to require that CEO compensation packages be approved by at least two-thirds of independent directors.

And Meredith Miller:

Ms. Miller is an assistant treasurer for the state of Connecticut. In October, she drafted a letter to 25 large companies seeking information about whether compensation consultants hired by the board had conflicts of interest. Activists worry that a consulting company won't give the board impartial advice on pay packages if the firm is also advising executives. The new SEC disclosure rules don't address such conflicts...

Ms. Miller says she has drawn on Mr. Bebchuk's writing about potential conflicts. She traces her interest in shareholder activism to the late 1970s, when, as a Cornell University graduate student, she heard a campus speaker suggest that unions invest solely in pro-labor businesses. She worked for organized labor and gave her daughter a middle name of "Debs," after union leader Eugene V. Debs.

And a guy named John Hill:

Mr. Hill and the Putnam trustees, who oversee the firm's $123 billion in mutual-fund assets, represent an important new voice for restraint in executive pay. Big institutional investors have traditionally sided with management on governance and pay issues, and tended to sell shares rather than protest if they disagreed. In 2006, 29 mutual-fund companies surveyed by governance tracker Corporate Library supported, on average, 92% of management resolutions and 91% of management-backed director candidates.

And, finally, a guy who I've known about for some time and has been in the game for many years on this issue:

In 1995, Edward Durkin, an official of the United Brotherhood of Carpenters and Joiners, rose to speak at the annual meeting of Archer-Daniels Midland Co. Then-CEO Dwayne Andreas cut him off, banging the gavel and yelling, "This is my company, my meeting," recalls Mr. Durkin

These days, Mr. Durkin, 53, who oversees governance issues for the union's pension fund, says he's more effective when lobbying corporate executives in private. He spends hours on the phone discussing the minutiae of pay plans and exploring compromises. Mr. Durkin often withdraws shareholder resolutions the union has backed when companies agree to make changes, or even to talk.

He calls the process "mind-numbing and labor intensive," but necessary to enhance the value of the union's $40-billion pension fund. "Compensation is clearly the most demanding and frustrating area of advocacy," he says.

There is much more detail in the article if you are a subscriber. But, it does a decent job of showing the interesting alliance coming together because of the pure greed of CEOs and the irresponsible behavior of corporate boards of directors.