Shareholders Role in Executive Compensation

" Zapped ahead then west that professor of finance investment Carolina at Chapel Hill. To talk about the shareholders role in all this -- professor how are you. I'm great how you doing I'm great thanks okay so basically. We could give the shareholder a shareholder. A say on pay so to speak will it make a difference though at the end -- today."

" So I think guy in general say on pay isn't going to make a big difference even if every single shareholder thinks that it would be a better idea for a CEOs be paid differently than a compensation proposed by the board. They don't really necessarily have any incentive to vote in these elections so small shareholders have a very low probability of making any difference at all it's not worth their time to vote. Institutional shareholders for whom it may be worth their time. -- have strong incentives not to vote in line with marriage is a shareholder but instead try to vote in line with management to receive other business from the the."

" What fed said the how do we -- in this in because clearly I don't think any of us none of our viewers want to see government control over who gets paid what but at the same time. When you look at the numbers. The is that the rate at which -- CEO is paid compared to the average worker has jumped so much in the last thirty years. This has to be controlled somehow some way to -- the checks and balances. What we find those checks and balances."

" I don't know that there's necessarily anything inherently wrong with CEOs getting paid a lot of money I don't think it's necessarily the government's role to step in and and regulate that directly. I think giving shareholders more of a voice is a great idea if somehow we can get them to exercise that voice properly. In the case of institutional shareholders. I think it say on pay as sort of a first step but there needs to be some way to separate their decision of what pay package to vote for. From trying to curry favor with management so for example an investment bank that controls a lot of shares in General Electric. May also be involved in controlling bond issues underwriting bond issues for General Electric. And if they vote against management management has the strong incentive to say you know while we're not going to turn to you to issue our bonds. And so the problem is their role as a shareholder gets confused of their role as an underwriter. So one proposal that would be to have an independent. Agency which would come up live. Sort of recommendations which way to vote on pay in if you have a large outside state like if underwriter. With the firm. You might be required to vote in line with sort of this independent agency now be one proposal that that might give shareholders more --"

" Professor what -- our viewers wrote in and said that. What are they they need to express the concerns with the board so we need the board to be more proactive with this so is the way to do it for the shareholders. For hum. Really sure I agree that the shareholders can make a difference that we have grassroots going on all over the place that -- has really care and really -- got to believe that there's enough votes out there. To do something but that's not the case can they rallied the board to make a difference."

" Well I mean you know if I have 200 shares I may be very very passionately against some particular pay package but really why am I going to vote. And if you look at the data no matter what shareholders say they want they simply do not vote against compensation packages even where they have a say on pay. I mean it makes the news in England whenever whenever there are votes against against pay packages. So I'm not at all convinced that shareholders are going to vote against these things. As to the board the board also has very strong interest in siding with management board slates are proposed in the proxy statements by management. Being on the border and a lot of money there's a very strong incentive to to side with management in these things. So I'd be very surprised if any of these sort of small measures that we're talking about alone are going to make a big difference. Out all voting really for some out on the lower fiscal. Well I mean you know calpers -- at the large pension funds these companies I don't have any particular interest to side with management. Saw as shareholders don't they just don't have any incentive to to vote their shares. There are mechanisms out there that would give small shareholders more power I actually haven't paper that you can find online about that. We don't have to use sort of the standard majority rules mechanism in these shareholder elections and there are other mechanisms available that when paired with say on pay. Could result in a much much more powerful. Base of small shareholders who would encourage the grassroots voting that you're talking about at a Celsius getting there. You know given the -- of the way things are now."

" What do you make of -- And number one dictate compensation of these six firms and second of all. High -- longer term. No compensation that performance I don't know exactly how -- how that differs from just common stock up packages to begin with but what's your thought on his plan."

" so episodes of the first question I think Feinberg. Is you know probably politically the government did have to do something to regulate pay at these Tyra Banks is that a good idea probably not. But politically they might not of had a choice. As to the type of pay package used I think given that the government is going to dictate pay. They're doing a fairly good job of it the long run sort of restricted stock is probably sort of the best way to compensate managers make sure they take a long term view. I would like to point out that a lot of the bank failures that we -- Bear Stearns in particular as well as Lehman. Those managers were the best compensated in terms of best practices that you could find. This collapse the collapse of financial sector is not in my opinion due to poor compensation practices. It's due it suits all sorts of other things that we talked about ad nauseam for the last year and a half. So ought to pay packages Feinberg is recommending good I think given the government has recommend them if that's the best you're going to do. But I don't think it changes anything because they were fairly reasonably -- before."

" Right and now the problem is we have a son not this compensation. Czar so to speak in making decisions. Professor. Ed van west pit of finance at -- and I Carolina Chapel Hill thank you so much for joining us thanks for sharing your insights. To sound so -- about that the little shareholders doesn't even have -- you know it wolf one thing that."