SUNLIGHT = DISINFECTANT….Barney Frank has introduced a piece of legislation that I like. Executive compensation has been taking a bigger and bigger bite out of corporate profits over the past decade (up from 4.8% of profit in 1993 to 10.3% in 2003 just for the top five executives at the average company), and he thinks that companies ought to be a wee bit more open about who’s getting all this dough.
To that end, he’s proposed a bill that does nothing at all to tell corporations how much they can pay their executives, but does force them to be open with shareholders about how much they’re shelling out. His bill would require publicly traded companies to:
Provide all details about how much executives earn in cash, incentives and perks each year….Disclose the full market value of company-paid perks….Publicly report the specific criteria by which executives earn incentive pay….Tell shareholders “in a clear and simple form” how much the executive officers stand to make on a proposed takeover or acquisition that requires shareholder consent.
There’s also a provision that would allow shareholders to block pay plans they don’t like, but it’s the disclosure provisions that I think are the most important. It’s another example of the empowerment theme from the current issue of the Monthly that aims to “shift power from corporations to individuals.” In some cases, merely forcing companies to provide more information is enough to make a dent in a problem. On the executive pay front, which is a national scandal, Frank’s bill is a good start.