The Advisors' Blog

– Nell Minow, The Corporate Library

Here is something I recently posted on our blog: Judge, law and economics pioneer, prolific conservative commentator, and all-around polymath Richard Posner weighs in on the controversy over executive compensation on his blog. While he acknowledges that excessive compensation is a problem, he says:

It is not a momentous concern and costly measures to ally it would not be justifiable. Modest measures, such as making it easier for shareholders to replace directors than under the existing, Soviet-style system in which shareholders vote for or against the slate proposed by management, and requiring full disclosure and monetization of all forms of compensation paid CEOs and other top executives, may be sensible; but nothing more should be attempted.

The solving of the overcompensation problem would have little if any effect on risk taking by bankers and other financiers, so probably any efforts to solve it should be postponed until the economy recovers from its present sickness.

I am pretty sure that the economy cannot recover from “its present sickness” until it gets some medicine – and fixing executive compensation can be a powerful antibiotic to address the poor credibility and perverse incentives of flawed pay plans. And I am certain that if and when the economy recovers, no one will be interested in further reforms.

By definition, a problem needs a solution. I agree with Posner that the answer has to come from the board and appreciate his support for more legitimate and robust elections and hope he will recognize that this “effort to solve it” cannot be postponed.