Stockholders Shouldn't Have to Be Patsies


There is a story about the day Babe Ruth was asked why he made more money than the president, Herbert Hoover. His answer characteristically was direct: "Because I had a better year."

But today there is growing evidence from the top of major American corporations that this Ruthian logic is passe.

In the last few months, with the release of the annual reports of publicly held corporations in the United States, we have seen reports of huge pay packages for top executives and directors of many leading companies -- not only at profitable companies, but also at companies with declining earnings or, indeed, with major losses.

It's one thing to have spectacular pay increases for spectacular performance. It's another to have spectacular pay increases for dismal or even mediocre performance. Worse still, we have a system in which government interferes with the right of shareholders to challenge these whopping pay packages.

Conventional wisdom says stockholders are the watchdogs of the company's assets. But the federal government actually is hindering stockholder efforts in the area of executive and director pay.

The Securities and Exchange Commission has ruled that corporations may ignore stockholder proposals on pay and prevent those stockholder efforts from coming to a vote. This means that if a stockholder wants to make a recommendation about executive or director compensation, corporations can say no and the commission will agree.

That is what happened to all 15 shareholder proposals on pay presented to the SEC in 1990 for consideration. In all 15 cases in which publicly held corporations asked the commission whether they had to circulate a shareholder proposal on compensation for a vote at the annual meeting, the SEC said no.

It is time to get government out of the way. Stockholders should have the right to put an end to runaway pay at the corporations where they own stock. After all, it's their money.

The Securities and Exchange Commission should change its policy and let stockholders who are angry about these pay levels something about it. If the commission won't allow stockholders a voice in the decision, then Congress should.

Sen. Carl Levin, D-Mich., chairman of the Senate governmental affairs oversight subcommittee, has begun an investigation and hearings on this issue. He wrote this commentary for the Los Angeles Times.

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