Bush to Boards on CEO Pay: Get Control, Get Transparent, and Get Fair

Late last week, President George W. Bush met with the editors of the Wall Street Journal. (subscription required) Tucked inside his message about competing in the global economy and pursuing a free-trade agenda was a not so subtle admonishment to boards to conduct better oversight of executive pay packages.

by Joseph McCafferty | October 17, 2007

Late last week, President George W.Bush met with the editors of the WallStreet Journal. (subscription required) Tucked inside his message about competing in the globaleconomy and pursuing a free-trade agenda was a not so subtle admonishment toboards to conduct better oversight of executive pay packages.

“Do I think some of thesalaries are excessive at the top? I do,” the President said. “Idon’t think it’s the role of government to regulate salary. But I do believeit’s a role of boards of directors to be very transparent with shareholdersabout these different packages, the employment packages that these executivesget. ‘Excessive executive compensation’ just sends a signal of unfairness, andpeople in Americawant…fairness,” Bush added that he has raised the issue with bothTreasury Secretary Henry Paulson and Securities and Exchange CommissionChairman Christopher Cox.

While Bush is acknowledging someexcessive pay, the emphasis is clearly on keeping government regulation out ofpay schemes and increasing transparency, something the SEC is already doingwith its new compensation disclosure rules for proxy statements.

“Idon’t think it’s the role of government to regulate salary. But I do believeit’s a role of boards of directors to be very transparent with shareholdersabout these different packages, the employment packages that these executivesget. ‘Excessive executive compensation’ just sends a signal of unfairness, andpeople in Americawant…fairness,” –President George W. Bush

Bush comments garnered headlines innewspapers across the nation, but it was not the first time that he has addressedexecutive pay, nor was it the strongest language he has used on the topic. Inlate January, during a stop in Manhattan that included a visit to the tradingfloor of the New York Stock Exchange, he warned that, “America’s corporate boardrooms must step up totheir responsibilities. You need to pay attention to the executive compensationpackages that you approve. You need to show the world that American businessesare a model of transparency and good corporate governance.”

Again he called for transparency,which at that time the SEC was already addressing. He also hit on his messagethat politicians should be kept out of the pay-setting process. “Governmentshould not decide the compensation for America’s corporate executives, butthe salaries and bonuses of CEOs should be based on their success at improvingtheir companies and bringing value to their shareholders,” he told thecrowd of business people at a gathering given by the Association for a BetterNew York.

In some ways, Bush has backed offhis strongest criticism of CEO pay, which came in October of 2006, when, duringan interview with CNBC, he said he was “astounded” by the size of someexecutive pay packages. “These compensation packages can get out ofhand,” he said during the interview. While incentives for performance arenecessary, he said, companies should “make sure the incentive pay isrational.”

He didn’t mention any executives or companies by name, buthe encouraged investors to remain vigilant on compensation. “I don’t thinkgovernment should control salaries,” Bush said, “but I would hopeshareholders would take a close look at some of these compensationpackages.”

In some ways, Bush’s chidings on executive pay are a setup to his call to keep government regulators from passing laws on the issue. And that he is no longer calling for shareholders to keep up the pressure on the pay issue could rise from the existence of a bill which has been introduced in the House by Congressman Barney Frank on “Say on Pay.” With his emphasis on transparency, don’t expect the SEC to back off its tough stance on compensation disclosure in proxy statements. And should executive pay become a talking point on the campaign trail, and Democrats move “Say on Pay” through Congress, look for Bush to reach for his veto pen.

Bush to Boards on CEO Pay: Get Control, Get Transparent, and Get Fair

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