Monday, February 05, 2007

Frank, Incensed

Go ahead, say the government should do more to control executive compensation. Congratulations: You are officially (a) a liberal extremist, (b) brain-damaged from upside-down yoga positions and too much ginseng tea (a hippie liberal extremist) and (c) an unbeliever when it comes to the benevolent powers guiding the free market (a godless liberal extremist).

If, however, you are Barney Frank, the openly gay liberal Congressman from Massachusetts, you are already all of these and more, so what the heck? Since to your delight you are suddenly the Chairman of the House Financial Services Committee, you can actually make people nervous when you threaten legislative action on excessive compensation.

We are neither shocked nor awed, unfortunately, by Mr. Frank’s liberal extremist proposal. New compensation information in company annual reports, separate and different from proxy disclosures, will just make things more confusing. The bill would institute shareholder approval of a company's overall "compensation plan," but NASDAQ and NYSE companies already get shareholders' OK for equity-based comp plans and it hasn't done any good. We're fond of Mr. Frank's notion that execs who screw up should pay back some of the big bucks, but we’re not sure Congress can use the SEC to make that happen. The Senate's efforts don't seem particularly inspired either.

So the bills need some work, but must we rule out legislative solutions altogether? Wall Street Journal editors and their ilk love to say prior efforts have backfired. Pointing to the 1993 law that used tax deductions to encourage "performance-based" compensation, they conclude that the whole run-up in stock options is - natch - Bill Clinton’s fault. Nicely done, free marketeers: preach the old "performance-based compensation is better for shareholders" gospel, then smack a guy for getting religion.

Yes, legislation doesn’t always accomplish its intended goals. But neither does "the market," a perennial ne’er-do-well when it comes to keeping compensation at reasonable levels. It would be nice if people listened to compensation expert Broc Romanek (probably not the kind of guy who guzzles vast quantities of ginseng tea); he noted the other day that "market forces do not set CEO pay" and tried very patiently to explain to everyone how things work in the real world. But we can’t turn conventional wisdom on its head unless, perhaps, we persuade it to take up yoga.