The wise Adam Smith figured out two centuries ago why boards of public companies would let CEOs haul away truckloads of money that ought to belong to the shareholders.
"The directors of such companies, being the managers of other people's money than their own," the Scottish philosopher said, do not "watch over it with the same anxious vigilance" that a direct owner would bring to bear.
The "say on pay" legislation in Congress would give the owners of corporate America a little more power and a little more vigilance over what are, after all, their companies.
They would get to vote up or down on executive pay every year. The votes would be "advisory" only. Directors wouldn't have to change the pay, but they would hear about it in a public and embarrassing way if the shareholders they work for objected.
You would think folks who say they support free markets and like to quote Adam Smith would be in favor. But Republicans seem to hate "say on pay."
Alabama Republican Rep. Spencer Bachus compared the legislation to Democratic proposals for health-care reform and regulating carbon emissions, calling all three "sweeping power grabs into the private sector under the guise of government riding to the rescue."
The bill would set "unprecedented standards" for shareholder votes and give government broad, new "authority over the free enterprise system," says Texas Republican Rep. Pete Sessions.
But shareholders are the free-enterprise system. They are the private sector. The property rights that come with a real estate deed, a car title or a share of stock are the foundation of a capitalist economy. Time was when conservatives would have favored strengthening these rights.
It may be that Republicans mainly oppose a piece of the "say on pay" bill, passed by the House this month, that would let Washington second-guess compensation at major banking companies. It may also be that they're against anything President Barack Obama is for.
But their opposition is likely to fail, and they have only to thank the CEOs whose water they're carrying.
After the worst year for the stock market since the 1930s, corporate America has definitively proven that "pay for performance" is fake.
Citigroup and Merrill Lynch managed to lose shareholders a combined $50 billion last year. But they still paid out nearly $9 billion in bonuses, according to information subpoenaed by New York Attorney General Andrew Cuomo. The bonuses were indirectly financed by taxpayer bailouts, without which many Citi execs wouldn't have even been employed.
"Thus, when the banks did well, their employees were paid well," Cuomo's report said. "When the banks did poorly, their employees were paid well. And when the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well."
But it's not just Wall Street investment companies that are helping ensure the success of "say on pay."
Few CEOs in any industry are sharing shareholders' pain. As The Baltimore Sun's Jamie Smith Hopkins reported Sunday, only three of 20 top-earning CEOs in metro Baltimore saw their compensation fall last year even though most of the companies saw their share prices plunge.
In a year when he came close to pushing the company into bankruptcy, Constellation Energy boss Mayo A. Shattuck III took home $5 million - even if you don't count a $10 million increase in the value of his pension plan.
No executive should be paid based only on one year's performance or other short-term results. Risk-taking to goose short-term profits and short-term pay helped cause last year's disaster. The long-range health of the enterprise should be the main goal.
But you would think that, as they're laying off millions of employees and presiding over the erosion of trillions in wealth, CEOs would sacrifice more.
"After everything we've gone through, you're already seeing a return to high levels of bonuses," says Dawn Wolfe, associate director for social research at Boston Common Asset Management, an investment firm that tries to combine social goals with private gain. "When you see the high level of bonuses despite the fact that share prices and performance continue to be depressed - to me this is something [executives] are bringing on themselves."
Executives are lucky "say on pay" is the most serious threat to the corporate American status quo so far. They're lucky that "card check" legislation, which would let unions obtain representation without a secret ballot, seems to be dead. They'll be fortunate to escape direct federal control over pay schemes. Or confiscatory taxes.
Wall Street bankers ought to be thanking taxpayers every single day for saving their bacon last fall without nationalizing their companies and tossing their sorry carcasses out the door.
Given everything that has happened, letting shareholders into the boardroom to discourage pay deals that might set the stage for another meltdown seems a modest, conservative thing to do.