Page 149 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 4. The Stakeholders 135

data from proxy statements and reporting who made how much. In some instances, they
even discuss the why. To make a story on executive pay newsworthy, it often must meet
an appearance test of excessive compensation. Often this is more easily accomplished if the
supporting rationale for the numbers is not included.
As shown in Table 4-15, the business press interest in executive pay began about midway
through the twentieth century. It was initially focused on salary and short-term incentives.
These two moved to high interest in the last quarter of the 20th century, along with long-term
incentives (because of stock options and a bull market). In the first portion of the twenty-first
century, perquisites moved to high interest because of the use of aircraft and apartments along
with lucrative pension and severance packages.

Incentives
Time Period Salary Benefits Perks Short Term Long Term

1900–1924 Low Low Low Low Low
1925–1949 Low Low Low Low Low
1950–1979 Moderate Low Low Moderate Low

1975–1999 High Low Low High High
2000–Present High Low High High High
Table 4-15. Business press interest in executive compensation

The Rulemakers
In the United States, the three branches of the federal government (Congress, the executive
branch, and the courts) all play a part in influencing executive pay (see Figure 4-4). Space
does not permit a discussion of city and state requirements, much less the laws and regula-
tions of other countries. Just highlighting U.S. federal requirements is a major undertaking.
In the legislative branch of the federal government (Congress), making laws is a rather
lengthy and time-consuming process. A bill is introduced and referred to an appropriate com-
mittee, where it in turn is forwarded to a specialized subcommittee for study. Hearings are held
and a bill reflecting the hearings is sent back to the full committee, where additional hearings
and revisions are likely. The full committee typically either forwards the bill to its chamber (i.e.,
House or Senate) recommending approval, or it takes no action, effectively postponing if not
completely killing the bill. In the House, the Rules Committee will determine how and when
the bill will be debated. In the Senate, the majority leader is likely to determine the course of
action. Once before the House or Senate, a bill is debated (possibly amended) and either passed
or defeated. If it is passed, it moves to the other chamber of Congress and the process is
repeated. If the bill is passed again, then it is referred to a joint House-Senate conference com-
mittee to work out any differences in the two bills. The bill that results from the compromises
reached in the committee is returned to both houses for approval. If approved, it goes to the
president of the United States for approval or veto. If vetoed, it returns to both houses, where
the veto can be overturned by a two-thirds vote. Lacking such a majority, the bill dies. You can
find selected laws affecting executive pay, some more significantly than others, in Appendix B.