A congressional committee got a say on pay of sorts from Citigroup Inc., Merrill Lynch & Co. and Countrywide Financial Corp. Their shareholders did not.
The CEO of Countrywide Financial, Angelo R. Mozilo, and former CEOs Charles Prince at Citigroup and E. Stanley O'Neal of Merrill Lynch, testified before the U.S. House Committee on Oversight and Government Reform on March 7 about their pay following the plunge in their companies' stock stemming from the subprime-credit meltdown.
The problems led Countrywide to enter a merger pending with Bank of America and to Messrs. Prince and O'Neal leaving their companies.
CEOs or chairmen of corporate board compensation committees typically don't face shareholders to talk about executive pay, the metrics used for setting it and how it is aligned with shareholder interests.
That should change. There is discontent among shareholders with executive pay at companies where corporate performance has been poor and pay excessive. Corporations should designate time at annual meetings for the chairman of the compensation committee to discuss corporate pay with shareholders, and to respond to their concerns. With the SEC's more detailed mandated disclosure that began last year, shareholders will be more informed to discuss pay issues.
Pfizer Inc., to its credit, has taken a step in the direction of such engagement with shareholders. Some of its directors met with a group of large shareholders to hear their concerns about executive compensation. Companies have to take care such meetings involving their representatives don't run afoul of Regulation Fair Disclosure. So regulations might constrain an open discussion.
Companies that have expressed opposition to say on pay, or an annual shareholder advisory vote on executive compensation, often contend such a vote would not be helpful in pinpointing for boards the precise issues shareholders have with the pay package. And boards fear such a vote would erode their power.
The Pfizer meeting holds the outline of a model. But instead of holding meetings out of view of most shareholders, companies should designate time at annual meetings to discuss executive compensation.
A meaningful discussion, and a say-on-pay endorsement, would give corporations more support to resist congressional intervention in pay issues, and shareholders more confidence in the management and the board both in its long-term vision and in a challenging economic downturn,
Executive pay is a window to the decision-making process of the board; it is time to open it for the airing of views.