Saturday, February 18, 2006

Another reason to shy away

If Sarbannes-Oxley wasn't enough, new SEC regulations on executive compensation disclosure is likely going to make companies think harder about going private. Executive compensation has definitely been disconnected from performance, with non-independent directors voting with their eyes covered and large fund holders not bothering to put up a fight. Whichever way you look at it, either as unpaid dividends or aborted capital expenditure to fuel growth, the outrageous compensation has come out of shareholders' pockets.

Some have suggested that there be a executive compensation cap based on a multiple of the lowest paid worker's earnings. Such a cap would be arbitrary and would not suit a truly capitalist economy. Others have suggested that shareholders approve executive compensation. An ideal middle ground would be a majority shareholder approval needed for any compensation that is above a preset multiple of the lowest paid worker's earnings. Accountability, finally!

Executive compensation has reached such egregious levels that it is hard to find an exception today. They now go beyond standard cash/stock payments to various perks and retirement benefits. All the while, lower rung workers are being pressured into the negotiating table to accept pay cuts and pension cuts, with bankruptcy being offered as the choice if they do not cave in.

Going private in this case is advantageous only if the transaction is a management-led buyout. Any private-equity buyout or a buyout from a larger company will make it harder for these executives to retain their ability to milk the company.

Now all you need to do to pick the targets is to find companies where the top personnel are being overcompensated. That will be hard - not!


Post a Comment

<< Home