An Issue Worth Biting Into... Corporate Fraud In The Open

House Committee Holds Heated Session on Corporate Execs' Pay Packages: Who's to blame? The executives or the lawyers?

I have often written that the pay for corporate executives is way out of line. The retirement package for the CEO/Chairman of Exxon-Mobil was more than adequate proof of that issue. However, the myth that top executives are worth every penny continues to receive a lot of play, even having an article in a recent Forbes.com newsletter claiming that these high compensation packages for top executives help the everyday worker (the argument was so ludicrous that I didn't bother to blog it).

But now we have a White Knight (or perhaps a Pink Knight) in congress... Barney Frank?

Lawmakers on Thursday addressed an issue that rankles company shareholders and the public -- executive pay packages and perks -- at a time when revelations of excess surface almost daily.

A senior Democrat, Rep. Barney Frank of Massachusetts, wants Congress to give shareholders a greater say over executive compensation.

"There have clearly been abuses," Frank said at the start of a hearing by the House Financial Services Committee. The session became an impassioned debate between Democrats and Republicans over the morality of lavish compensation, an argument portrayed by panel members as a clash between faith in capitalism and advocacy of socialism.

Frank had earlier used a parliamentary rule to force the majority Republican leaders of the committee to convene the hearing.

The partisan rhetoric flew, as befits an election year. Countering Frank's legislative proposal, Republicans disclosed that they have a bill of their own in the works: one that would rein in trial lawyers, a group that is a perennial ally of Democrats and generous contributor to their campaigns.

Don't blame the corporate executives, said Rep. Patrick McHenry, R-N.C. By targeting companies in lawsuits, "Trial lawyers are the ones who are sopping up investor wealth in this country."

Business interests reject Frank's proposal for shareholder input.

"If we adopted a system where small groups of activist shareholders used the process to politicize corporate decision-making, the consequences could very well be destabilizing" for companies, testified Thomas Lehner, director of public policy for the Business Roundtable, a group representing CEOs of major companies. "... We should not ruin our free-market system because of a few rogues. We strongly believe that the current system has worked well and should not be changed.''

Lehner's view was echoed by several Republican members of the committee.

The subject clearly hits a nerve with Americans, who hear reports almost daily of excessive pay and perks for executives while their companies stumble, lay off employees or renege on billions of dollars in pension obligations for workers' retirement. The chasm between executives' salaries and the pay of rank-and-file employees continues to widen.

"Marie Antoinette would be embarrassed," Nell Minow, who heads the Corporate Library, a business governance group, told the hearing.

It was held the same day that a federal jury in Houston convicted former Enron Corp. chiefs Kenneth Lay and Jeffrey Skilling of conspiracy and securities fraud in one of the biggest business scandals in U.S. history, involving a company that became a notorious symbol of corporate greed.

Meanwhile, the number of public companies ensnared in a federal investigation into the timing of stock option grants to their executives continues to grow. More than a dozen companies -- from high-flying technology names to a pharmacy benefits manager -- have received inquiries from federal prosecutors in New York and the Securities and Exchange Commission seeking details on how they grant stock options.

The companies -- the biggest so far is UnitedHealth Group Inc. -- are being examined to determine whether they boosted executives' payoff from stock options by backdating the grants to coincide with a point where corresponding stock prices had dropped to lows.

But the lawmakers reserved their greatest scorn for Lee Raymond, the recently retired chairman of Exxon Mobil Corp., who received a package of nearly $400 million, including salary, bonus, stock options and a one-year $1 million consulting deal.

"We've got a problem here," said Rep. David Scott, D-Ga., noting that Raymond's compensation works out to more than $144,000 a day while angry consumers pay over $3 a gallon for gasoline and are outraged by his pay package.

"It is important for the sanctity of the markets" for companies to disclose executives' pay, Scott said.

The SEC proposed in January the biggest changes since 1992 in rules governing disclosure of executive compensation. The rule changes would require companies to disclose far more details about their executives' pay packages and perks.

"I have a feeling that when people are forced to undress in public, they'll pay more attention to their figures," SEC Chairman Christopher Cox said recently.

But Frank insists that the SEC plan doesn't go far enough. His proposed legislation would call for disclosure of more information on executive pay packages. It would also require shareholder approval of executive compensation plans.

The bill's legislative prospects, however, are in doubt because it has drawn most of its support from minority Democrats.

On Thursday, Home Depot Inc.'s chief executive, Bob Nardelli, did little to quell an uproar among some shareholders over his pay, stifling debate at the company's annual meeting as the board members who approved the compensation didn't show up to defend themselves. Nardelli has received $123.7 million in compensation, excluding stock option grants, since taking over as CEO in December 2000. The company's stock price has dropped 9 percent over that period on a split-adjusted basis.