If you check the news headlines from the current day and the last several days you’ll see the pattern emerging talking up increased oversight of executive pay, with the potential to regulate same seemingly increasing by the minute.  Gee, it’s nice to see that Congress and the President think they’ve found a problem, but at the same time, I’d like to caution our political leaders that while this seems like a problem that requires their attention, they are more than a bit off the mark.

Am I saying that executive pay, where at times you’d easily be able to find executives that are taking home salaries that are many (as in high double digits as a multiple) times higher than the average salaries of the ‘line employees’ at the companies they are helping to manage, isn’t worthy of looking into?  It takes little work to find (Google, or other search engine of your choosing) situations where the CEO and other executives are making many millions per year while the line employees are making tens of thousands.  Obviously, as you read this article, no, I’m not saying this isn’t something worth looking into… what I am going to say is that this is something that really isn’t the responsibility of Congress, nor President Obama, or designated regulators.  Nope, this is something that really should be falling on the backs of the shareholders of these companies.

I’ve thought for years that shareholders in many companies are either ignorant or just darned lazy in exercising their rights and responsibilities as shareholders.  They go along for the ride and blindly follow the recommendations made by the boards that determine executive pay and compensation packages.  Boards that are typically made up of hand-picked members that were nominated by the very people that will receive the compensation, not independent individuals nominated by the shareholders that aren’t direct employees of the company.

I know of this issue because such was the case at a previous employer.  As someone that both worked for the company (line employee type) and had been purchasing shares in the company, I read through the annual reports and grew alarmed at the thought that the executives of the company were the ones that picked the members of the committee that would decide their compensation and that only the executives and/or board of directors could really nominate members of those committees as they formed the committees and set up rules that made it virtually impossible for any shareholder to nominate their own favored individuals.

That somewhat incestuous relationship between the board of directors of the company and the search committees that would select new board members or members of committees that would decide compensation packages was entirely the fault of the shareholders of the company, though realistically that situation was likely always going to be that way because the board of directors and CEO had long since been the largest shareholders in the company.  Sadly, because other investors kept going along for the ride and never objected to the idea of those same individuals continuing to get more and more shares of stock and options as part of their yearly compensation packages, there really would never be a way for the rest of the shareholders to revolt and mutiny against the company leadership.

Admittedly, this brings up a problem that might require increased regulation and oversight, but then again if shareholders of companies don’t see all of this as a problem and the companies seem to be working well within the free market system, then where is the problem?

President Obama and Congress may wind up forcing change upon many businesses thanks to the increased levels of anger over the compensation systems that currently exist at companies that have taken large amounts of bailout money from the taxpayers.  The problem will likely remain that those that should be responsible for such things will simply let someone else handle the issue, and that is a problem that really should be worth a lot more people’s (shareholder’s) time.