Management Turnover as Change Agent

Monday, November 16, 2009

Recommended Reading - Why 'say on pay' won't work - Fortune

Colin Barr wrote a fascinating piece for Fortune on why investors, particularly institutional investors, will not restrict top executives’ salaries. According to Barr,

Waiting for investors to slam the brakes on runaway executive pay? Don’t hold your breath. Although Congress may give shareholders more of a say on pay soon, big money managers seem content to keep their mouths shut.

…The biggest investors — institutions such as mutual funds and pension funds that hold more than half of all shares — have shown little interest in playing pay watchdog. And it’s not clear that will change even if the government mandates say on pay as part of the financial reform taking shape in Washington.

“We just haven’t seen a huge amount of effort being put out by institutional shareholders to affect compensation levels,” said Bernard Black, a law professor at the University of Texas. “Whether it’s because they don’t mind the pay practices or because the money managers are making millions themselves, you don’t see them jumping up and down.”

… A recent study co-sponsored by a union pension fund and a top governance firm dubs many of the biggest mutual fund firms — including Ameriprise (AMP, Fortune 500), AllianceBernstein (AB), Barclays (BCS) and MFS — as “pay enablers” for supporting management pay proposals and opposing those by shareholders.

I highly recommend investors and corporate governance specialist read Barr’s piece.

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