The Advisors' Blog

– Broc Romanek

Here’s a reaction from a member about this blog last week:

What does a “more indirect conflict of interest arise” mean? Is Equilar implying that NEOs who sit on compensation committees are willing to risk their reputation and abandon personal integrity to approve out-sized pay packages, to favorably boost their own pay “down the road”?

This is just another one of a string of post-2016 proxy season “studies” that suggest executive pay is a shareholder rip-off, wherein the authors try to “prove” the point with a bunch of statistics (and we all know the famous Mark Twain line about “lies, damn lies and statistics”).

The fact that CEOs occupy 10% of the Compensation Committee seats means 90% are occupied by non-CEOs. What is the 90%’s “excuse” for approving unreasonable pay? (Are the 90% are vying for another Board seat where they can become Chair of the Comp Committee?)

And here’s another reaction from a member:

CEOs on the board understand the challenges that face the company’s CEO better than anyone else. It’s like combat, no amount of reading gives you the knowledge of the job that actually doing it teaches you. Those CEOs often defend the job the company’s CEO is doing when other board members get impatient or show lack of understanding of the challenges involved. 25-30 years ago, that came with a less critical look at pay…these days it does not because all those CEOs on the board live in the same fishbowl environment and generally do not want to be associated with outliers.

The one constant over the years is that ex-CEOs on the board are tougher critics than most board members, especially once pay levels are above the most they ever made. They can be really tough on both CEOs and consultants when it comes to pay recommendations. None of my comments are backed up by data, of course.