How Much Is Too Much? The Debate Over Executive Pay
[ 2007-05-08 10:45 ]
This is the VOA Special English Economics Report.
For Robert Nardelli, two thousand seven might seem like a bad year. After
all, he resigned in January as chief of the world's largest operator of
home-improvement stores.
Sales and profits grew during his six years at Home Depot. But the stock
price of the company, based in Atlanta, fell eight percent. Many shareholders
thought Bob Nardelli was paid too much and did not respect his investors enough.
So he was forced out. But he had something to look forward to that would ease
his fall. Company directors agreed to give him two hundred ten million dollars
worth of payments and benefits.
An agreement like this is known as a golden parachute. These are traditional
when top executives lose their jobs because of a change of ownership or control
of a company. This was not the case at Home Depot, and the money only added to
shareholder anger.
Golden parachutes are just one issue in a larger debate in America. Executive
pay is growing out of control, critics say, at a time when many Americans are
feeling greater economic pressures. Last year, the average pay for a chief
executive officer on the Standard & Poor's Five Hundred list of companies
increased by over nine percent.
Critics say there is no relationship between pay and performance. They say
company leaders get raises even if they fail to create value for shareholders.
Lawmakers are taking note. On April twentieth, the House of Representatives
passed a bill to give shareholders in publicly traded companies the right to
vote on executive pay.
The proposal by majority Democrats now goes to the Senate. But its future is
unclear. The Bush administration opposes the bill. It says Congress should not
set the approval process for executive pay.
The bill would require yearly votes but these would be non-binding. In other
words, companies would not have to follow shareholder wishes. Still, supporters
argue that a "say on pay" vote would send a clear signal about what the owners
of the company, the investors, think.
The Securities and Exchange Commission requires public companies to include
executive pay information in a document called a proxy statement. A proxy
statement is supposed to help shareholders make informed votes on company
proposals. But critics note that the way executive income is reported is often
too difficult to understand.
And that's the VOA Special English Economics Report, written by Mario Ritter.
I'm Steve Ember.
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